The U.K. Payment System Regulator (PSR) is continuing its fight against authorized push payment (APP) fraud. New rules and legislation will provide the regulator with more tools to reduce fraud and to demand compensation from banks.
APP scams occur when individuals and businesses are tricked into sending money to an account controlled by a fraudster. There are also a significant number of accidentally misdirected payments that are not recovered. According to figures published by the regulator, GBP 355 million were lost to APP scams in 2021.
To reduce this fraud, one of the actions taken by the regulator was to publish a new rule in February 2022 that paved the way for more banks and building societies to adopt Confirmation of Payee (CoP), the bank account name checking services. CoP was designed to help stop fraud and accidentally misdirected payments by checking whether the name of a payee’s account matches the name and account details provided by a payer.
The plan started in 2020 with the UK’s six largest banking groups, but the new rule in 2022 expanded the scope of the plan, and by May 31, 2022, Phase I will be closed. In Phase II, which starts on June 1, all the payment service providers (PSP) will need to make sure that the CoP service is available.
The PSR regulator will rely on Pay.UK, an institution in charge of supervising all payment systems in the U.K., to monitor the progress that PSPs are making in migrating CoP traffic to the Phase II.
“Confirmation of Payee is a key part of our fight against APP scams, and this new rule is an important step in taking protections to the next level. Today, we have made it clear to the industry the work that needs to be completed by the end of May to ensure that the right systems are in place to offer this vital protection to more people,” said Genevieve Marjoribanks, Head of Policy at PSR.
But CoP is not the only initiative launched by the PSR to combat APP fraud. In 2019, the PSR created a Contingent Reimbursement Model Code that PSPs can voluntarily adopt — in fact, the largest U.K. banks are signatories of the code — to compensate victims if they have done nothing wrong.
In January 2022, the PSR closed a consultation where the regulator proposed several measures to fight APP fraud. Under the proposal, some of the largest banks will have to publish data on their performance in relation to APP scams, reimbursement levels for victims, and which banks and building societies’ accounts are being used to receive the fraudulent funds. The results of the consultation may be published soon because the PSR, alongside the Financial Conduct Authority, is organizing an APP public event in September.
The regulator is seeking to make reimbursements mandatory to victims of APP scams. Just last week, the PSR’s Panel went one step further and recommended that Faster Payments participants reimburse consumers for APP scam losses, but where the fault lies with Payment Initiation Service Providers (PISPs), they bear appropriate liability for reimbursement.
But to implement these proposals, the regulator would need the support from the government to issue new legislation and grant new powers to the PSR. The regulator may soon get what it is asking for.
During the Queen’s speech in May 10, the formal act announcing the new U.K. parliamentary session, two bills were announced that will help the PSR to fight APP scams.
First, the Financial Services and Markets Bill will enable the Payment Systems Regulator to require banks to reimburse authorized push payment (APP) scam losses. There are not details yet about how this mandate will be articulated, but the regulator won’t have to rely on a voluntary code to demand banks compensate victims of scams; for the moment, the official documents don’t talk about PSPs.
Second, the Online Safety Bill will increase the duty of care for platforms and search engines to proactively identify and remove fraudulent advertising, which includes APP frauds. The companies subject to this bill may be held accountable if they fail to put in place the necessary mechanisms to remove these ads in a timely manner.