The Payment Systems Regulator (PSR) issued Fighting authorised push payment scams: final decision on 19 December 2023.
Any reimbursable scam payments taking place on or after 7 October 2024 will be covered by the new regime. The date has been revised from April 2024.
While many payment service providers (PSP) have systems in place already to receive and handle APP scam claims, all relevant firms should ensure they are ready for the new regime, particularly with regards to identifying vulnerable consumers.
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What does this mean?
From October 2024, PSPs must reimburse consumers who have fallen victim to an APP scam when using Faster Payments. The reimbursement will be split 50:50 between sending and receiving PSPs.
Sending PSPs may charge an excess up to a maximum of £100 per claim. The excess does not apply to claims made by vulnerable consumers. The maximum level of mandatory reimbursement is £415,000, applicable to all consumers. Sending PSPs may reimburse more than the maximum reimbursement level, but cannot claim amounts above the maximum from receiving PSPs.
Where a consumer has not, as a result of gross negligence, met one of the four requirements of the consumer standard of caution below, a PSP may refuse the reimbursement request. The standard of caution exception does not apply to customers identified as vulnerable.
The requirement to have regard to interventions: Consumers should have regard to interventions made by their sending PSP or by a competent national authority, such as the police. However, even where a PSP personally engages with a consumer to help assess the trustworthiness of a prospective payment, it cannot transfer responsibility for assessing transaction risk entirely onto the consumer. PSPs can pause and potentially reject a payment instruction where appropriate.
The prompt reporting requirement: Consumers should, upon learning or suspecting that they have fallen victim to an APP scam, report the matter promptly to their PSP and, in any event, not more than 13 months after the last relevant payment was authorised.
The information sharing requirement: Consumers should respond to any reasonable and proportionate requests for information made by their PSP to help them assess a reimbursement claim. This includes requests under the PSR’s ‘stop the clock’ rules, giving the sending PSP up to 35 business days to gather evidence and make a decision on whether to reimburse an APP scam case under the policy.
The police reporting requirement: Consumers should, after making a reimbursement claim, and upon request by their PSP, consent to the PSP reporting to the police on the consumer’s behalf, or request the consumer directly report the details of an APP scam to a competent national authority.
The PSR will interpret ‘gross negligence’ to be a higher standard than the standard of negligence under common law. As a result, the consumer needs to have shown a significant degree of carelessness in order for a PSP to refuse the reimbursement.
The PSR expects Pay.UK to publish the final Faster Payments scheme reimbursement rules and compliance monitoring regime by 7 June 2024, to enable PSPs to finalise their implementation plans.
The Bank of England has also announced its intention to implement a comparable reimbursement model for CHAPS payments. The PSR is considering giving a specific direction to CHAPS participants to support the implementation and may consult on the rules in Q1 2024.
In October 2023, the PSR published an Authorised push payment (APP) fraud performance report which included 14 PSP groups’ data on their APP scam management. The PSR will collect the 2023 cycle of APP scam data in February 2024 and publish it in July 2024.
What do firms need to do?
All PSPs should review their existing systems and processes to ensure they comply with the new rules, irrespective of existing processes.
PSPs should prioritise staff training, particularly around identifying vulnerable consumers.
PSPs will need to develop policies and procedures around customer standards of caution, being mindful that failing to meet one of the four requirements may not in itself constitute gross negligence.
The new regime will place an onus on PSPs to prove that a consumer has behaved with gross negligence if they wish to reject a reimbursement claim.
PSPs need to have the systems and capabilities to understand the reason why the consumer did not meet the requirement, in order to determine whether the consumer was grossly negligent. The adoption of behavioural biometrics can help firms to identify customers acting under duress or pressure. PSPs should also consider the technology investment required to adopt inbound payment screening for identifying potential scam receipts.
The PSR expects PSPs to continue to prevent and investigate all APP fraud cases, even when they fall under the claim excess level of £100. Firms need to further adopt innovative, data-driven approaches to achieve compliance and change customer behaviours.
Firms should expect more regulatory scrutiny around fraud as regulators continue to place increasing importance on good customer outcomes. Many of the areas for improvement link to customer experience (e.g. having simple fraud reporting methods, quick resolution of issues at the first point of contact, supporting vulnerable customers and recognising emotional distress caused by fraud). Firms will need to think about fraud risk appetite not just through the lens of financial outcomes, but also using customer-centric measures. Quick payment journeys need to be balanced with robust controls.
Firms should consider how they can use customer communication and education strategies, including behavioural economics techniques, to enhance customers’ awareness of APP scam risks and how to avoid them.
Firms must also ensure that they comply with their Consumer Duty obligations.
“The PSR’s final notice provides more clarity on how the mandatory reimbursement regime will be implemented. PSPs now need to translate the requirements into operational standards, and develop systems and procedures to handle customer claims in compliance with the requirements..”
Alex West
Director, PwC
Next steps
The PSR will continue to monitor the progress, compliance and effectiveness of the new regime. Pay.UK will publish the final Faster Payments scheme reimbursement rules and compliance monitoring regime by 7 June 2024, to enable PSPs to finalise their implementation plans.
