On 29 September 2022 the Payment Systems Regulator (PSR) published an industry consultation on Authorised Push Payment (APP) scams reimbursement, the proposed measures aim to improve the level of protection for victims of authorised push payment fraud by mandatory reimbursement for victims in all but exceptional cases.
This consultation follows recent effort by the PSR to gather industry feedback in 2021 through a call for views on Authorised push payment scams, and an initial consultation paper on Authorised push payment (APP) scams.
The UK government intends to legislate in the Financial Services and Markets Bill (Bill) to allow regulatory action to be taken by the PSR to require banks and other payment service providers to reimburse APP scam losses. The new Bill is currently in passage through the House of Commons.
Who does the consultation apply to?
The requirement for reimbursement for victims of APP fraud will apply to all participants in Faster Payments, including indirect Payment Service Providers (PSPs) as well as PSPs connected indirectly through indirect access providers (IAPs).
What is the discussion about?
Authorised push payment has increased in recent years however reimbursement remains inconsistent across PSPs. Although some PSPs offer reimbursement, there is currently no regulatory requirement for it and as such little incentive to address customer protection in relation to fraudulent activity.
To date 10 PSPs have signed up to the voluntary Contingency Reimbursement Model (CRM Code). The code has been successful in reimbursement from 19% in the first half of 2019 to 41% by Code signatories in 2020.
The effect of the Financial Service and Markets bill places a standalone duty on the PSR to draft regulatory requirement for reimbursement in ‘qualifying cases’. The definition of a ‘qualifying case’ is provided by the Financial Services and Markets Bill s.62(2) ‘(a) the case relates to a payment order executed over the Faster Payments Scheme, and (b) the payment order was executed subsequent to fraud or dishonesty’.
The PSR are consulting on two initial regulatory requirements.
- Mandatory reimbursement of victims of APP scams in all but exceptional cases.
- Shared liability between sending and receiving PSPs.
More specifically the consultation seeks views on reimbursement and shared liability between PSPs on the following:
- “an APP scam victim’s PSP (the sending PSP) must reimburse them, except in cases of first party fraud or gross negligence (unless the victim is a vulnerable consumer)
- the sending PSP must reimburse the victim within 48 hours of the fraud being reported, unless the sending PSP has evidence or reasonable grounds for suspicion of either first party fraud or gross negligence (it will then have more time to investigate)
- PSPs can set a fixed ‘excess’ of up to £35, and a minimum threshold claim for reimbursement of up to £100
- the costs of reimbursement (as well as any repatriated funds) are shared equally between sending and receiving PSPs by default; PSPs can use a dispute resolution process to refine the allocation of reimbursement costs to better reflect the steps each PSP took to prevent the scam
- PSPs can apply a time limit on claims of no less than 13 months from the date of the payment
- both direct Faster Payments participants and indirect PSPs will be covered by the requirements”
Read the full text by Bird&Bird here.