What’s this about?

Mandatory reimbursement for authorised pushed payment (APP) came into force on 7 October 2024. At around the same time there was a flurry of other publications which have caused a certain amount of confusion across the payments industry. In this note, we look at what all these updates mean for payment service providers (PSPs).

Our Head of Economic Crime Compliance, Ben Cooper says... 

The new APP fraud reimbursement requirement and draft payment services regulations mark another step towards strengthening fraud prevention measures and levels of consumer protection within the payment services industry. However, firms should strive to continue to improve their anti-fraud systems and controls to ensure that they prevent consumer harm in line with both the FCA’s expectations and their obligations under the Consumer Duty.”

The points not to miss...

On 9 September 2024, the FCA published Guidance Consultation (GC24/5) on proposed changes to its Payment Services and Electronic Money Approach Document (covered in our September article here). The deadline for responses was 4 October 2024 and we await an update from the FCA.

On 2 October 2024, the Payment Systems Regulator (PSR) published Policy Statement (PS24/7) confirming:

  • The maximum level of reimbursement for Faster Payments and CHAPS APP scams is now £85,000: The PSR justified the reduction stating that 99.8% of Faster Payments APP scams by volume and 90% by value will still be reimbursed. The cap is also in line with the current Financial Services Compensation Scheme deposit limit but will not automatically track any changes in that limit going forward. The Payment Systems Regulator will keep the new limit under review and undertake an evaluation of its impact and effectiveness in 12 months’ time.

  • Customers will retain their rights to bring claims to the Financial Ombudsman Service (FOS) in addition to receiving compensation under the new APP fraud reimbursement requirement: The FOS can consider complaints made against its wider jurisdiction (including the Consumer Duty and alleged fault on the part of PSPs) and make awards up to a maximum limit of £430,000. The PSR has acknowledged in its Policy Statement that customers relying on this wider jurisdiction to recover losses above the new reimbursement requirement limit may result in a more ‘complex compensation environment’, and that it will keep this risk under review. The Policy Statement also highlights that firms must be clear with customers about their right to take cases to the FOS.

On 7 October 2024, the FCA published a 'Dear CEO’ letter setting out its expectations for firms to improve their anti-fraud controls going forward, including:

  • PSPs should continue to work to reduce APP fraud by improving their anti-fraud systems and controls: The FCA expects PSPs to regularly review the effectiveness of their fraud prevention systems, and to maintain appropriate customer due diligence controls (both during the customer onboarding stage and on an ongoing basis) to identify and prevent accounts from being used to receive proceeds of fraud or financial crime.

  • Firms’ approaches to ‘On Us’ APP Fraud and the Consumer Duty: The new reimbursement requirement for APP fraud will only apply to payments routed through Faster Payment Systems and CHAPS. The FCA’s concern is that this may lead to a lack of understanding from customers as to why they may receive lower levels of protection in respect of ‘on us’ or intra-firm payments (which are not within the scope of the new reimbursement requirement) and therefore result in poorer consumer outcomes. The FCA has consequently requested that firms who plan to provide lower levels of customer reimbursement protection for ‘on us’ or intra-payment APP fraud contact them to provide an explanation of the steps they have taken to deliver good consumer outcomes and meet their Consumer Duty obligations.

  • Other Consumer Duty Considerations: Firms are reminded of their obligations to avoid causing consumers foreseeable harm and to act in good faith where they have identified that harm has been caused to customers by taking appropriate action to rectify the situation (including considering whether remedial action is appropriate). Firms must also provide customers with information about the availability of (and how to access) alternative dispute resolution procedures in their pre-contractual information under the Payment Services Regulations 2017.

On 9 October 2024, HM Treasury published the Payment Services (Amendment) Regulations 2024 confirming that:

  • PSPs will be able to delay processing payment transactions where they have reasonable grounds to suspect fraud or dishonesty: PSPs will have up to four business days to make further enquiries (including contacting the customer or other relevant third parties) to establish whether they should execute a payment order. PSPs must also notify customers of any reasons for a delay, as well as any information or actions which are needed to help the PSP decide whether to process the payment order.

  • PSPs will be liable for any charges and interest incurred by customers as a result of delaying the execution of any payment orders: This is irrespective of whether a payment order is actually processed. The FCA plans to publish final guidance and an accompanying policy statement on how it expects PSPs to balance addressing suspicious inbound payments with processing payments efficiently (consulted on as part of its Guidance Consultation (GC24/5)) by the end of 2024.

  • Next steps: These provisions will come into force on 30 October 2024.The FCA has also outlined plans to gather data from PSPs on payment execution timings and values and volumes of delayed payments as part of its process for monitoring PSPs’ implementation of the Regulations.

If you would like to discuss or have questions about any of the topics in the speech or if you require legal advice on these issues, don’t hesitate to get in touch. 

At a glance...

Publication link

Policy Statement (PS24/7) (published 2 October 2024)

'Dear CEO’ letter (published 7 October 2024)

Payment Services (Amendment) Regulations 2024 (published 9 October 2024) 

Who has published it?

The Financial Conduct Authority

Payment Systems Regulator

Publication type

Policy Statement 

Draft legislation 

Letter

 Any key dates?

The new APP fraud reimbursement limit has been effective from 7 October 2024. 

The FCA plans to publish final guidance and an accompanying policy statement on changes to the guidance in its Payment Services and Electronic Money Approach Document by the end of 2024. 

What is it relevant to?

Payment services providers, e-money institutions, Consumer Duty, APP fraud


Co-author: Hannah Stanley

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.

 

Date published

29 October 2024

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