How the UK plans to tackle payment fraud!

to tackle Payment fraud

How the UK plans to tackle payment fraud!

As previously discussed, Great Britain is undeniably the frontrunner in financial crime in Europe. Being one of the global headquarters for financial services comes with a high price for the British people. In 2023, Britons lost about £459.7mn to Authorised Push payment fraud — which includes purchase scams, online investment schemes, and criminals tricking victims into sending them money via credit transfers—according to UK Finance. 

So several measures are considered to tackle the massive payment fraud issue.

 

Mandatory reimbursement rules for APP fraud!

In a massive push to reestablish trust in financial services and protect vulnerable European consumers, the British watchdog Payment Systems Regulator (PSR) has introduced new mandatory reimbursement rules for victims of authorized push payment (APP) fraud that will come into effect on 7 October 2024. The Payment Systems Regulator (PSR) is the UK’s – independent economic regulator of payments systems – the only dedicated payments systems regulator in the world. We regulate 40 billion payments worth over £92 trillion each year. The PSR’s objectives are to promote competition, innovation, and the interests of service users.

Fron 7 October 2024 onwards, sending payment service providers (PSPs) including building societies, e-money companies, remittance services and credit card issuers must fully reimburse consumers, including microenterprises and charities, that are victims of APP fraud for payments made over Faster Payments The reimbursement is capped at £415,000 per claim.

In specific the rules provide that:

  • Sending PSPs must reimburse victims within five business days but can pause the process under certain circumstances to gather more information, up to a maximum of 35 business days.
  • Receiving PSPs must respond to a sending PSP’s requests for further information related to an APP fraud claim.
  • The reimbursement cost will be split 50/50 between sending and receiving PSPs. Sending PSPs can charge a voluntary excess up to £100 per claim, except for vulnerable consumers.
  • Consumers must promptly report the APP fraud to their PSP within 13 months of the last relevant payment. They must also provide reasonable information to help assess the claim.
  • If a consumer has been grossly negligent in meeting the “consumer standard of caution” (e.g. not heeding fraud warnings), the PSP can refuse reimbursement, except for vulnerable consumers.
  • The PSR will publish APP fraud data annually to increase transparency and incentivize PSPs to improve fraud detection and prevention.

In summary, the rules aim to ensure consistent reimbursement, as the voluntary reimbursement regime did not work out, and to encourage PSPs to enhance their APP fraud controls while placing some responsibilities on consumers as well.

FCA`s proposed "name and shame approach"

Another promising measue in tackling payment fraud is the new proposed name and shame policy of the Financial Conduct Authority (FCA).

 In its Consultation Paper, CP 24/2 (the ‘CP’) published in February 2024, the UK Financial Conduct Authority (FCA) proposed publishing much more information about its investigations in payment companies including the name of the firm being investigated.

The new proposed name and shame approach is argued as follows:

Firstly, transparency is the cornerstone of a healthy financial system. By publicly disclosing firms under investigation, the FCA demonstrates its commitment to holding businesses accountable for their actions. An investigation signals to the market that the FCA has found sufficient evidence to warrant further scrutiny. This transparency fosters trust among investors, consumers, and stakeholders, ensuring that any misconduct will be addressed promptly and openly.

Secondly, naming and shaming firms under investigation acts as a deterrent against unethical behavior. It’s like a neon sign flashing “Play Fair or Pay the Price.” Public scrutiny serves as a powerful incentive for firms to adhere to regulatory standards and conduct business ethically. The possibility of their actions being made public motivates firms to prioritize compliance and ethical practices, ultimately reducing the likelihood of misconduct.

As was to be expected, the lobby of the payment industry is not happy about the upcoming mandatory reimbursement rule and about the proposed “name and shame approach” of the FCA.  The banking lobby is already putting pressure on the Payment Service Regulator to adjust or at least to postpone the implementation and on the FCA to rething their proposed “name and shame approach”.

For the sake of the vulnerable consumers, let us all hope that the payment lobby will not succeed in fighting these urgently needed measures to tackle payment fraud.

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