1.    PSR consultation on reducing maximum reimbursement level for APP fraud

On 4 September 2024, the PSR published a consultation paper (CP24/11) on reducing the maximum reimbursement level for the Faster Payments APP fraud reimbursement requirement.

The consultation proposed to reduce the maximum level of reimbursement from £415,000 (which was aligned to the FOS compensation limit) to £85,000 (tracking the FSCS compensation limit). The limit would apply per 'FPS APP Scam Claim'.

The logic behind reducing the maximum reimbursement limit is primarily in response to concerns raised by some smaller firms about the disproportionate cost to them of complying with the higher limit and the impact this could have on their solvency and prudential capabilities. However, the PSR asserts that the reduction in the limit would still enable it to achieve its policy goals as 99.8% of all APP scam cases would still fall below the limit, and around 90% of total APP scams value would be reimbursed under its policy.

The consultation stated that PSR plans to publish its final decision and policy statement by the end of September 2024, with the new reimbursement policy starting on 7 October 2024. However, press releases over the last few days indicated the PSR will mandate the lower limit.

So what?

This last-minute change in the mandatory reimbursement rules has meant that firms have had to re-think their communication strategy and the content of those communications. Many firms have been holding tight until they have final clarity on the maximum reimbursement limit.

The consultation also discusses how victims of APP scams can still go to the Financial Ombudsman Service (FOS) to claim losses over the £85,000 per FPS APP Scam Claim should their PSP not voluntarily reimburse them. This is likely to lead to additional operational complexity when managing claims and assessing what constitutes one FPS APP Scam Claim.

In short, there is still a lot of uncertainty about the application of the rules and the impact of the reduced limit. If you have questions, please contact us.

2.    PSR confirms the reimbursement requirements will apply to CHAPS

On 6 September 2024, the PSR published a policy statement confirming its approach to the introduction of a CHAPS APP scam reimbursement requirement (PS24/5).

So what are the final requirements?

To support in implementing the CHAPS APP scam reimbursement requirement, the PSR is now directing in-scope CHAPS participants to reimburse their customers who fall victim to a CHAPS APP scam.

Specific Direction 21 (SD21) has been published with the final policy. SD21 is aimed to support effective implementation of the Bank’s CHAPS reimbursement rules which contain the detailed parameters of the policy.

Under the final policy:

• On 7 October 2024 the CHAPS reimbursement requirement and the CHAPS reimbursement rules come into effect. This is the same date as the Faster Payments APP scams reimbursement requirement.
• All in-scope PSPs must register in line with the requirements set out in the CHAPS reimbursement rules as soon as practicable and no later than 7 October 2024, by providing the information set out in the CHAPS reimbursement rules. Note that this requirement only applies to PSPs who are not already registered with Pay.UK as required by SD20 (which applies to directed PSPs in relation to Faster Payments).
• All in-scope PSPs are further required to report data to the Bank in line with the CHAPS Compliance Data Reporting Standard (CCDRS) (also published with this policy). This will enable the Bank to monitor PSP compliance with the CHAPS reimbursement rules.
• Similarly to Faster Payment APP Scam reimbursement requirements, all in-scope PSPs are also required to communicate the new protections to customers.
• Finally, direct participants of CHAPS will need to compile an up to date list of all indirect PSPs they provide access to.

So what?

Whilst it was expected that the APP scam mandatory reimbursement requirement would be extended to CHAPS, the confirmation has come very close to the implementation date.

The reduced limit of £85,000 per APP scam claim is also expected to apply to CHAPS payments.

In scope PSPs now need to concentrate on developing their communication plans and reviewing their complaints policies and processes to ensure effective implementation of the new requirement.

In scope PSPs should also refer to the compliance and monitoring metrics set out in this policy that they will need to report to the Bank each month and update their policies and governance arrangements accordingly.

3.    FCA Guidance Consultation on Authorised Push Payment Fraud: enabling a risk-based approach to payment processing

On 9 September 2024, the FCA published a guidance consultation (GC) paper (GC 24/5) on Authorised Push Payment Fraud: enabling a risk-based approach to payment processing.

The guidance aims to complement the Treasury's policy and draft SI Payment Services (Amendment) Regulations 2024 that proposes amendments to the Payment Services Regulations 2017 (PSRs) to enable PSPs to delay making a payment transaction where they have reasonable grounds to suspect fraud or dishonesty.

The policy aims to increase firms’ ability to tackle APP fraud while minimising the impacts on legitimate payments. The GC states that the FCA expect the Treasury to lay this instrument before Parliament in due course.

Why is this important?

The draft SI did not make it through the 'wash up' process in parliament before the general election. The GC now tells us that Treasury will lay this instrument before Parliament in due course. This does raise some uncertainty about timing of the final policy and when this guidance will take effect.

The GC proposes implementing the guidance by updating the FCA’s ‘Payment Services and Electronic Money – Our Approach’ (Approach Document). The GC then seeks to offer additional clarity and detail on issues such as how to assess whether there are reasonable grounds to delay a payment, that any delay should be no longer than necessary to decide whether a payment is fraudulent and when to tell customers. The GC also reminds firms to consider its obligations under the Consumer Duty when notifying and engaging with a customer.

Helpfully, the FCA have also set out how they intend to measure the success of the proposals by monitoring and evaluating PSPs’ implementation of the payment delays legislation, and the types of information they plan to get from PSPs.

Finally, whilst the draft SI only applies to outbound payments, the FCA are also consulting on changes to the Approach Document which explain how they expect PSPs to address suspicious inbound payments while continuing to process payments quickly and efficiently. Here they expand on how the force majeure provisions in the PSRs can be used for these purposes.

So What?

For some parts of the industry, the proposed amendments to the PSRs to enable PSPs to delay payments are a welcome additional tool to help tackle APP fraud. For others, there are concerns that there may be an overly cautious approach to the application of the new rules. This guidance seeks to help alleviate some of those concerns by clarifying how and when payments should be delayed.

The tension between whether payments should be faster for users or slowed down to help make them safer rages on.