FCA releases consultation on its approach to APP fraud

The amended legislation allows PSPs to delay processing outbound payment transactions so that PSPs can adopt a risk-based approach to preventing APP fraud.

The new legislation provides PSPs with the ability to delay making an outbound payment transaction by up to 4 business days after the PSP receives the payment order if they have reasonable grounds to suspect fraud or dishonesty on the part of someone other than the payer. The aim of the amended legislation is to both protect customers and reduce the compliance cost to firms, as PSPs will have longer to decide whether to block fraudulent transactions that would otherwise have to be reimbursed.

PSPs, credit institutions providing payment services, payment institutions, electronic money institutions and Gibraltar PSPs providing payment services in the UK. Merchants that use PSPs for processing large volumes of transactions may also be interested in the GC.

The aim of the GC is to ensure the Approach Document helps the industry to take a targeted approach to implementing the payments delay legislation. The amendments to the Approach Document will include clarifying:

• when and how PSPs should consider whether to delay an outbound payment transaction, and when to tell customers about these;

• how PSPs should treat potentially suspicious inbound payment transactions; and

• how the FCA will monitor and evaluate PSPs’ implementation of the payment delays legislation, and the types of information the FCA plans to obtain from PSPs.

One of the areas the FCA has provided extensive proposed guidance on is the approach to defining ‘reasonable grounds to suspect fraud or dishonesty’. Respondents are invited to comment specifically as to whether there are any further aspects the Approach Document should cover. It is important that the guidance here is fit for purpose and helpful as it is the establishment of this suspicion which triggers the PSPs’ ability to delay crediting a payment transaction.

Under the amended legislation, PSPs must notify the payer and give them information about the reasons for delay. The proposed guidance sets out further detail regarding the substance of what the PSP should communicate to the payer, as well as how the payer should be notified. It is worth noting that the communication will not be required to take any specific form, however, PSPs should consider their obligations under the Consumer Duty.

Whilst the payments delay legislation is restricted to outbound payments, the FCA has also proposed guidance on the scope for delaying inbound payments. The guidance seeks to provide clarity on how PSPs should balance their obligations to assess inbound payments for fraud and process such payments with the parameters of the PSRs. PSPs should be reminded that the threshold for triggering the delay of an inbound payment is high and PSPs are expected to take a rigorous case-by-case approach to assess when the threshold is reached.

The proposed amendments to the Approach Document confirm that PSPs must consider their obligations under the Consumer Duty. Additionally, PSPs are reminded that they must monitor and regularly review the outcomes their customers are experiencing to ensure good outcomes are being delivered. The FCA’s inclusion of Consumer Duty guidance serves as a reminder that the Consumer Duty must be a key consideration when firms seek to rely on the amended legislation.

The FCA has issued 10 specific questions in relation to the proposed guidance (which can be found in Annex 1 of the GC). The consultation period will run from 9 September 2024 until 4 October 2024.