With the UK’s new APP fraud mandatory reimbursement requirements coming into force on 7 October 2024, four recent regulatory announcements have brought further complexity to firms’ compliance with the requirements.

Whilst all in-scope firms should have registered with the PSR by 20 August 2024, we have observed consistent confusion throughout the industry as to what the 7 October 2024 deadline means. For example, the PSR requires that existing customers’ terms and conditions must be updated by 9 April 2025 at the latest, but that consumers must be notified of their rights to be reimbursed by 7 October 2024. Meanwhile, there have been changes to the regime by the PSR that affect the information that needs to be provided to customers.  

What do these developments mean for payment service providers (PSPs)?

1. Payment Systems Regulator (PSR) confirms its decision to reduce the reimbursement cap to £85,000

On 25 September 2024, the PSR confirmed its decision to reduce the mandatory reimbursement cap for APP fraud Faster Payments claims under its rules from £415,000, as first announced in a consultation on 4 April 2024, to £85,000 and that the Bank of England would also set the limit at £85,000 for CHAPs.

The new cap is aligned with the current Financial Services Compensation Scheme (FSCS) reimbursement limit and has been widely welcomed by the industry. The PSR made the change following feedback from PSPs about the risks and impacts of the higher limit, including concerns about how it would impact smaller firms.

On 2 October 2024, the PSR published its full policy statement and an accompanying cost benefit analysis. In justifying its decision to lower the cap, the PSR stated that 99.8% of Faster Payments APP scams by volume and 90% by value will still be fully reimbursed if they fall within the scope of the new policy and made a commitment to reassess the reimbursement cap after the policy has been in place for at least 12 months. 

The PSR acknowledged that the change to the cap may cause confusion for some consumers, including those who may have already received communications and stated that it will “continue to work closely with all stakeholders to support the delivery of effective communications and raise awareness of the requirements” and will adopt “a pragmatic and proportionate approach” to PSPs’ compliance with their obligations to notify customers of their rights. There is, however, a lack of clarity about what the PSR’s expectations on customer notifications are, with it saying, “We expect firms to take reasonable steps to become compliant as soon as practicable. What is reasonable and practicable will vary on a case-by-case basis. As with any potential non-compliance, we will consider a range of factors and circumstances when deciding on whether to intervene”. It also remains to be seen what approach the FOS will take if consumers bring claims to it on the basis that they were not informed of the new limit by the time they were subject to fraud.

A further complexity is that consumers who are subject to APP fraud will still be able to complain to the Financial Ombudsman Scheme) FOS and receive awards of up to £430,000 from it. This will mean that rather than the sending and receiving firms sharing the cost of reimbursement, it is likely that the full cost will fall on the sending firm. Although the FOS can technically make awards against the receiving firm, it is likely customers will complain about the sending firm, and the awards will then be made against the sending firm only.

In addition, there will potentially be different standards in play regarding customer negligence:

  • the consumer standard of caution under the PSR’s rules (and the rules on vulnerable customers in relation to this);
  • the CRM code’s concept of gross negligence; and
  • the FOS’s approach. 

It may also be the case that the FOS could take the PSR’s rules into account for cases above the £85,000 cap in deciding what is “fair and reasonable in all the circumstances of the case”. The PSR has recognised that the fact that consumers could receive awards from the FOS of up to £430,000 “may result in a more complex compensation environment” and has stated that it will “continue to engage with the FOS and industry” and that it “will keep this risk under review once the policy has gone live”.

2. Inclusion of CHAPS in the scope of APP fraud reimbursement requirements

On 6 September 2024, following a separate consultation, the PSR confirmed that CHAPS will now also fall within the scope of APP fraud reimbursement requirements. This means that payments made through CHAPS, commonly used for high-value transactions, will be subject to the same reimbursement rules as those which apply to payments made over the Faster Payments System (FPS). The Bank of England has decided that the maximum reimbursement level for CHAPS will also be £85,000.

3. New legislation permitting PSPs to delay payments

On 3 October 2024, the government confirmed that regulation 86 of the Payments Services Regulations 2017 will be amended to allow PSPs to delay making outbound sterling payments (executed in the UK) by up to an extra 72 hours after receipt of a payment order if they have reasonable grounds to suspect fraud or dishonesty on the part of someone other than the payer. This means that payments can be delayed by up to 4 days in these scenarios. HM Treasury’s final draft statutory instrument is available here.

On 9 September 2024, the FCA had already announced that it was consulting on updates to its Payment Services and Electronic Money Approach Document on how PSPs should adapt to proposed legislative changes to allow them to delay outbound payments in certain cases where they suspect fraud.

The FCA has said that it wants to “help PSPs take a proportionate approach in line with the legislation’s intended effect” and wants to provide clear guidance on:

  • when and how to consider delaying an outbound payment transaction and what to tell customers about delays;
  • how to treat potentially suspicious inbound payments; and
  • how the FCA will monitor and evaluate the implementation of the new legislation. 

You can view the FCA’s consultation, which closed on 4 October 2024, here. The FCA plans to publish a revised Approach Document by the end of 2024.

4. PSR Policy Statement: Supporting the identification of APP scams and civil disputes

On 23 September 2024, the PSR published a new Policy Statement (PS24/6). This document, available here, provides PSPs with guidance on how to assess whether an APP scam claim solely relates to a civil dispute and therefore is not covered by the requirement to reimburse. This follows the PSR’s June 2023 policy statement which confirmed that civil dispute claims would not be reimbursable under the new requirements.

The guidance sets out factors that PSPs should consider when determining whether a claim is a reimbursable APP scam or a civil dispute and explains that civil disputes typically involve situations where there is no intent to defraud and where a consumer has paid a legitimate supplier for goods or services and has either not received them or alleged that they are in some way defective.

If you would like more information on the APP fraud mandatory reimbursement framework and how it affects you, please get in touch.


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