Key takeaways

• The proposed specific direction to Faster Payments participants is one of three implementing legal instruments for the new APP fraud reimbursement requirement.
• Following industry feedback on the need for further clarity, the draft specific direction replaces a draft general direction to all Faster Payments participants which was published alongside the other two draft instruments that were consulted on in July 2023 (see ‘APP fraud: UK PSR consults on implementing instruments for mandatory reimbursement requirement‘).
• Key changes include that the reimbursement requirement is now subject to the reimbursement rules, a draft of which has been published alongside the consultation. References to the consumer standard of caution, excess and maximum level of reimbursement have been moved from the proposed specific direction into the reimbursement rules to provide more clarity to PSPs on the reimbursement requirement.
• The PSR has also taken on board industry feedback on the operational feasibility of an April 2024 go-live date and is now proposing pushing this back to 7 October 2024.

What do firms need to be thinking about?

• Publication of the draft Pay.UK Faster Payments rules (albeit still subject to finalisation) should mean that PSPs can at least make a start on preparing to implement the reimbursement policy and estimate how long it might take them to be operationally ready.
• However, PSPs will still have to wait until December 2023 for the final position on the consumer standard of caution, excess, maximum level of reimbursement and legal instruments. They are unlikely to want to make any final decisions on the design of the necessary end-to-end processes and systems until these key pieces of the jigsaw are in place.

What’s next?

• The consultation closes at 5pm on 19 October 2023. This is a hard deadline; the PSR is clear that no extensions for responses will be granted.
• The PSR intends to finalise and publish all three legal instruments in December 2023, along with the final consumer standard of caution policy and guidance and the excess and maximum level of reimbursement policy.
• The implementation (go-live) date will be confirmed at the same time as publication of the final legal instruments and related policy documents.
• CHAPS: if the PSR decides to give a direction on the planned similar reimbursement requirement for CHAPS for direct and indirect CHAPS participants, it expects to consult on this by the end of Q1 2024.

Read on for a more detailed look at the PSR’s consultation paper.

Package of three implementing legal instruments

The proposed specific direction is one of three legal instruments that the PSR will use to implement the reimbursement requirement policy. In July 2023 it consulted (CP23/4) on the other two legal instruments, namely the specific direction and specific requirement on the Faster Payments operator, Pay.UK. For more on the July 2023 consultation, take a look at our Engage article ‘APP fraud: UK PSR consults on implementing instruments for mandatory reimbursement requirement‘.

As part of that previous consultation, the PSR provided a draft copy of a proposed general direction to all Faster Payments participants. In light of industry feedback on the need for further clarity on scope and on the PSPs it would capture, the PSR is now proposing to instead issue a specific direction under section 54 of the Financial Services (Banking Reform) Act 2013 (FSBRA) in order to provide the requested clarity.

The current consultation (CP23/10) therefore relates to a proposed specific direction on PSPs who participate in Faster Payments and who provide their users with a payment account in the UK which can send or receive Faster Payments (Annex 1 to CP23/10). The PSR emphasises that the change to a specific direction does not alter the scope of the transactions covered by the policy.  

While the specific requirement on Pay.UK contains the reimbursement rule requirements, this proposed specific direction on Faster Payments PSPs will comprise:

• the reimbursement requirement and its scope;
• an obligation on both direct and indirect Faster Payments PSPs to comply with the new reimbursement scheme rules created under the PSR’s section 55 FSBRA specific requirement;
• an obligation on all Faster Payments participants to report APP scam case data to the payment system operator (PSO, currently Pay.UK).  This is to ensure consistent outcomes for consumers who have fallen victim to an APP scam and for use by the PSR in assessing the effectiveness of the reimbursement requirement and for any enforcement action; and
• an ongoing obligation on indirect access providers to inform the PSR of any indirect PSP customers they provide access to.

The purpose is to ensure that all PSPs who provide their users with a payment account in the UK , which can send or receive Faster Payments, comply with the new reimbursement rules. The specific direction will apply to all reimbursable scam payments which occur after the implementation (go-live) date (see below).

The PSR intends to remove the requirement to comply with scheme rules and report data once it is satisfied that they are no longer necessary to support Pay.UK’s implementation and oversight of the reimbursement requirement. The June 2023 policy statement contains more detail on this point.

The PSR advises that the proposed specific direction should be reviewed alongside the draft Pay.UK Faster Payments rules which have been published with CP23/10 but which have not been finalised and are not part of the current consultation. The rules have been drafted based on the PSR’s proposed specific requirement on Pay.UK, which has been consulted on. However, the PSR is still considering the responses to the consultation on the proposed specific requirement and therefore these rules may change.

What are the key changes from the previously proposed general direction?

In the consultation paper, the PSR highlights some of the key changes in the specific direction as opposed to the previously drafted general direction, including the following:

• Issuing a specific direction will allow the PSR to provide more clarity on the scope of the PSPs captured by the direction.
• Removing the requirement for PSPs to tell any existing or new indirect participants they provide access to about the obligations that apply to them under the reimbursement requirement. But there will be an obligation on indirect access providers to inform the PSR of any indirect PSP customers they provide access to. The PSR proposes that all indirect access providers provide a complete list of all their indirect PSP customers for the previous calendar year by 31 March 2024 and then annually on 31 March. The PSR also proposes that the lists will be provided to Pay.UK to help with compliance and monitoring of the policy. The PSR thinks the scope of the obligation under the proposed specific direction is different to that of its existing annual request for information on indirect access providers and is therefore a proportionate requirement.
• Moving the references to the consumer standard of caution, excess and maximum level of reimbursement from the proposed specific direction into the reimbursement rules to provide more clarity on the reimbursement requirement to PSPs.
• Changes to some of the definitions based on industry’s comments. The consultation paper states that these changes have been highlighted in the proposed draft specific direction in Annex 1, but this should perhaps be a reference to the separate comparison document published alongside it (see below).
• Redrafting the reimbursement requirement to be subject to the reimbursement rules.
• Proposal to include in the definition of ‘payment service provider’ only those institutions that are included in, and not exempted from, the Payment Services Regulations (PSRs) 2017. This will mean that PSPs that are exempt from the liability requirements for fraudulent unauthorised payments under the PSRs 2017 would also be excluded from the scope of the direction requiring reimbursement. Limitations on reimbursement: namely a consumer standard of caution exception, maximum levels of excess per claim and a maximum level of reimbursement, and a time limit to claim - these will now be included in the reimbursement rules. This is another change from the proposed general direction where the limitations to reimbursement were in the direction. The aim is to clarify the reimbursement requirement to PSPs and is not a change to the PSR’s policy. It directs stakeholders to the June 2023 policy statement for more information on the scope of the reimbursement policy and the transactions that will not be covered.

The PSR has also provided a comparison document showing changes made.

New proposed implementation (go-live) date

Following industry feedback on the operational feasibility of the originally proposed implementation (go-live) date for the reimbursement requirement (2 April 2024), the PSR is now proposing 7 October 2024 as its ‘preferred’ go-live date. It recognises that this might still be a ‘challenging target’ for some firms, and so it welcomes further views. The go-live date will be confirmed in December 2023, alongside publication of the final implementing legal instruments.

Potential PSR direction relating to planned CHAPS reimbursement requirement

There is a reminder that the Bank of England has also announced its intention that similar reimbursement requirements should apply to CHAPS and will draft the relevant scheme rules. However, these may need to include some differences to reflect differences in the characteristics and users of the two systems.

The PSR is considering giving a direction for direct and indirect CHAPS participants. Where possible, this would mirror the direction on Faster Payments PSPs. If the PSR decides to give a direction, it expects to consult on this by the end of Q1 2024.

Next steps

The consultation closes at 5pm on 19 October 2023. The PSR makes it clear that because it intends to finalise all the legal instruments by December 2023, it will not grant extensions for responses.

Subject to the consideration of consultation responses, the PSR intends to finalise and publish all three legal instruments in December 2023, rather than the original timeline in its June 2023 policy statement. This is also when the PSR plans to publish the final consumer standard of caution policy and guidance and the excess and maximum level of reimbursement policy. The implementation (go-live) date will be confirmed at the same time as publication of the final legal instruments and related policy documents.

As highlighted above, the PSR’s proposed new implementation (go-live) date is 7 October 2024, which it believes should give PSPs sufficient time to prepare operationally and develop systems.