TechnoXander 175 APP Fraud Prevention

The Payment System Regulator’s (PSR) June 2023 Policy Paper is set to steer a new course in the way the financial industry operates today. The upcoming reimbursement requirement addresses the ever-growing problem of Authorised Push Payment (APP) scams. This blog delves into the policy details, who is in scope, limits, exceptions and time limits. We also look at the risks and considerations.  

Understanding Policy Specifics   

  • Who is in Scope: The reimbursement requirement primarily targets Payment Service Providers (PSPs) operating within the Faster Payments system in the UK. High-street banks, building societies, EMI’s and smaller payment firms are in scope. This includes both sending and receiving PSPs engaged in Faster Payments, including payment initiation service (PIS) transactions.  
  • Limits: The policy paper in June 2023 did not specify a maximum reimbursement limit for APP fraud claims. There will be a maximum limit and PSP will consult on the appropriate maximum value for APP fraud claims.    
  • Excess: Sending PSPs will have the option to apply a claim excess under the new reimbursement requirement.  PSR will consult on the appropriate level ahead of Q4, 2023.  
  • Exceptions: The new rules do not apply to payments made on other payment systems, international payments, payments for illegal purposes or civil disputes. Civil disputes where the customer has not been defrauded are excluded from the definition of APP fraud. 

Reimbursement Framework Enhancements   

  • Reimbursement Cost Sharing: Introducing a significant change, receiving PSPs are now obligated to reimburse sending PSPs with 50% of the reimbursement initially paid to the customer. Pay.UK will establish a defined period for this process, reinforced by an ultimate backstop to ensure timely reimbursement by receiving PSPs.   
  • Time Limit Extension: Under the new reimbursement requirement, sending PSPs will now have 5 business days to reimburse customers, a sensible extension from the original 48-hour time limit. This recognises the operational complexities involved in getting reimbursement right.   
  • Claim Excess Consultation: Sending PSPs can now apply a claim excess. A consultation will determine the level of this excess and details will be published in PSR guidance in Q4 2023.   
  • Time Limit to Claim: Sending PSPs can deny APP fraud claims submitted more than 13 months after the final payment to the fraudster has been made, providing a defined timeframe for claim submissions.   

APP Fraud: The PSR’s Actions  

  • Balanced Scorecard: The PSR is taking a proactive stance by publishing a balanced scorecard of APP fraud data. This approach not only allows for transparency but also holds PSPs liable for the way they approach APP fraud. Consumers, however, are empowered with information that lets them make informed choices about their banking providers. 
  • Intelligence Sharing: The development of the Enhanced Fraud Data (EFD) program marks a key part of the steps taken to fight APP fraud. Joint efforts from Pay.UK and UK Finance strive to standardise the way customer data is shared to improve fraud detection.  
  • Confirmation of Payee (CoP) Expansion: The expansion of CoP, a name-checking service for UK payments, is another key measure. With more than 400 new PSPs joining the fight against fraud the risk of accidental misdirected payments and APP fraud is drastically lowered, especially with impersonation scams.  

As we come closer to the June 2023 policy deadline, it is important to understand the policy specifics and potential risks, and the multifaceted approach by the PSR is essential. Collaboration, being proactive and consumer protection will be key to this whole approach to APP fraud. 

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