FCA ‘Disappointed’ In Firms' Approach To APP Fraud

November 7, 2023
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Poor customer service and corporate governance has meant that payment service providers’ approach to fraud is falling short, the UK regulator has warned, noting that this goes against the principles of the flagship Consumer Duty.

Poor customer service and corporate governance has meant that payment service providers’ (PSPs) approach to fraud is falling short, the UK regulator has warned, noting that this goes against the principles of the flagship Consumer Duty. 

The Financial Conduct Authority (FCA) has said that it is working with firms to strengthen their approach to authorised push payment (APP) fraud after a review revealed inefficiencies. 

In the first six months of 2023, over 116,000 people reportedly fell victim to APP fraud. 

“With more people potentially vulnerable due to cost-of-living pressures, and fraud methods evolving, it is critical that firms continually evaluate their approach and have robust frameworks in place to detect fraud, as well as effective support for victims when it happens,” the FCA said in a press statement. 

The review comes a week after the Payment Systems Regulator’s report into APP fraud, which made for uncomfortable reading for challenger banks like Starling and Monzo. 

The FCA also restricted the activity of one PSP mentioned in the report — the e-money institution, Dzing Finance. It was revealed in the PSR report that for 1m transactions, 187,895 were fraudulent.

Poor customer service is a core issue

In its review, the FCA has revealed an “insufficient focus” on delivering good consumer outcomes in many of the firms that were assessed.

The FCA's review outlines issues such as customers being provided with decision letters that are unclear and confusing, or that include unhelpful and, occasionally, accusatory language and limited evidence that firms are appropriately taking account of characteristics of customer vulnerability when making decisions about fraud claims and complaints. 

The FCA has said that customer treatment must be improved, including how complaints are handled, to deliver “consistently good consumer outcomes” in line with the Consumer Duty. 

“We are concerned that customers cannot always report fraud easily or promptly,” the FCA review says. 

Firms’ websites, for example, do not always provide clear information about how a customer can contact a firm to report fraud or what action to take if the fraud occurs outside of standard opening hours. 

“This can exacerbate the impact of fraud on customers and reduce the chances of being able to take prompt action to stop the fraud or to attempt to recover the funds,” the FCA warns.

There is also a resource issue, which often impacts the quality and speed of customer service when investigating fraud cases or dealing with complaints. 

The FCA warns that this has the potential to cause further consumer harm and distress, resulting in: long call-waiting times to report fraud; incorrect advice being provided; customers being passed to multiple departments, leading to significant delays; and overly long call durations.

Customers whose accounts are frozen due to concerns about fraud, meanwhile, can suffer further distress and inconvenience if unable access funds or make legitimate payments. 

“Where this has occurred, firms should consider what they can do to investigate as soon as possible, so that they can quickly unfreeze accounts where their concerns are unfounded,” the FCA has recommended, adding that firms should consider how they support customers and communicate effectively with them during this period.

Governance must be stronger

In some firms, the FCA has said that it observed governance frameworks that appear to be effective and well established — but, in many cases, firms need to do better. 

“We were particularly disappointed that some firms could not evidence [of] effective oversight and challenge by relevant senior management forums or board committees,” said the FCA. 

In many cases, the FCA said that management information focused primarily on reporting against commercial risk appetite and financials, which can result in customer complaints being neglected. 

The strongest examples of management information, meanwhile, included relevant customer-centric measures and demonstrated how these measures informed decision-making to strengthen anti-fraud systems and controls, and improve customer outcomes and service. 

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