The Payment Systems Regulator (PSR) has published a policy statement on its new reimbursement requirement to fight authorised push payment (APP) fraud. Subject to a few exceptions (eg removal of the minimum threshold for claims and extension of the time limit for reimbursement to five business days), the core elements of the new regime are largely unchanged from the consultation proposals. However, there are several loose ends still in need of tying up before the requirement is introduced in 2024, for example the development of additional guidance on the customer standard of caution (gross negligence). The PSR highlights that the UK is the first country in the world to implement consistent standards to reimburse victims of APP fraud, and maintains that other jurisdictions are ‘watching closely in considering their own approaches’. It acknowledges that payment firms will need support to achieve some of the outcomes it’s seeking, but it expects industry to start implementation work now.
“There are still several steps to go in this process, and the Sub-Committee will continue to hold the regulator’s and the banks’ feet to the fire until the scheme is introduced to ensure fraud victims are properly protected and that no more foot-dragging occurs.”
(Harriett Baldwin MP, Chair of the Treasury Sub-Committee on Financial Services Regulations)
Key takeaways from the policy statement
Some key changes from the PSR’s September 2022 consultation proposals (CP22/4) are:
- The £100 minimum threshold for claims has been removed. However, the PSR will consult on the appropriate level for the claim excess and acknowledges that this could act as a de facto minimum threshold depending on how it is structured and implemented.
- There will now be a maximum level of reimbursement for APP fraud claims (by value), but the PSR states this doesn’t prevent payment service providers (PSPs) from voluntarily reimbursing customers above this limit. It will consult on the appropriate maximum value for individual APP fraud claims in Q3 2023 (including whether this will apply to vulnerable customers) and publish this in PSR guidance in Q4 2023.
- Sending PSPs must reimburse customers within five business days under the new reimbursement requirement (not 48 hours, as was proposed in the consultation). The PSR also clarifies that the sending PSP can ‘stop the clock’ for specific reasons such as to gather additional information from victims to assess claims or vulnerabilities. There is no limit to how many times a PSP can use the ‘stop the clock’ provision (subject to other legislative requirements eg in the Payment Services Regulations 2017, regulation 101(7)), but it should be used in proportion to ‘the value and complexity of the claim’.
- On the gross negligence exception to reimbursement, in response to consultation feedback the PSR will develop additional guidance to be consulted on in Q3 2023 and published in Q4 2023. It has formed a steering group with the FCA and FOS to help advise on the guidance. It will also be engaging with key stakeholders. The guidance will reinforce the PSR’s expectation that PSPs must reimburse APP fraud victims in most cases.
- Implementation will now be via two routes, following concerns expressed by the Treasury Sub-Committee on Financial Services Regulations about the role of Pay.UK as an industry body rather than a regulator. As originally proposed, the first will be for the PSR to require via section 55 of the Financial Services (Banking Reform) Act 2013 (FSBRA) that Pay.UK establishes scheme rules for the Faster Payment Service, to require all PSPs using Faster Payments to comply with the APP fraud reimbursement policy. The second, additional measure will be for the PSR to issue a General Direction under section 54 FSBRA to all PSPs, requiring them to comply with the scheme rules established by Pay.UK under the section 55 requirement. The PSR is awaiting the enactment of the Financial Services and Markets Bill, which is currently before Parliament, to give it the statutory authority to undertake these actions.
Next steps
The new reimbursement requirement will come into force in 2024. The PSR will consult on a specific start date alongside its draft legal instruments in early Q3 2023, with the final legal instruments due to be published in Q4 2023. However, it expects industry to start work now to implement the new reimbursement requirement.
For more on the PSR’s policy statement and next steps, click here.
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