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The UK’s Payment Systems Regulator (PSR) has set out a new framework for coordinating with the Bank of England (BoE) on the supervision of the CHAPS payment system.
The framework, announced in a letter from the regulator to the central bank, is intended to reinforce efforts to combat authorised push payment (APP) fraud and ensure regulatory alignment.
CHAPS is the UK’s primary payment system for high-value payments, separate to others such as Faster Payments and Bacs.
“To ensure that the PSR and the Bank, as CHAPS PSO, can each effectively advance their own objectives, it is important that when exercising their respective functions, they cooperate in a timely and effective manner,” the letter, signed by PSR managing director David Geale, says.
The framework sets out key areas of collaboration, including compliance with APP fraud reimbursement measures, standardised reporting of fraud claims and formal procedures for notifying rule changes.
The PSR and the central bank have also committed to work together on regulatory updates affecting CHAPS, such as amendments to Specific Direction 21, which governs fraud reimbursement obligations.
An established partnership
Since taking over the direct operation of CHAPS in 2017, the BoE and the PSR have worked closely together to enhance financial stability and oversight.
In 2023, the bank voluntarily adopted fraud reimbursement measures similar to those mandated by the PSR for Faster Payments.
The PSR followed this with a consultation in May 2024 on formalising reimbursement requirements for CHAPS users, which was finalised in September of last year.
Although the PSR does not have direct regulatory authority over the BoE, the central bank has voluntarily aligned CHAPS reimbursement rules with Faster Payments to maintain consistency across UK payment systems.
The updated agreement strengthens coordination by introducing structured data sharing, formalising the process for the BoE to inform the PSR of changes to CHAPS reimbursement rules.
It also facilitates regulatory alignment on broader payment system policies, and the principles first established in 2017 have been revised to reflect these enhancements.
Tackling fraud
By increasing transparency and information sharing, the agreement allows for closer monitoring of fraud trends within CHAPS transactions.
This could lead to faster regulatory responses and improved fraud prevention measures across the UK’s payment infrastructure.
This is despite CHAPS being a relatively small stream of income for APP fraudsters — UK Finance statistics suggest that CHAPS payments make up less than 1 percent of overall APP fraud cases.
Nevertheless, UK Finance’s official position is that CHAPS should be aligned with other payment systems in the UK.
“Failure to do so would create confusion for consumers, even more so for those who may have made payments using both schemes as part of one scam claim,” the trade association said.
In addition, UK Finance has warned that “a lack of consistency in reimbursement models may result in customers choosing a channel to make a payment which is not their preferred, or the most suitable, choice”.
No immediate rule changes are mandated for CHAPS participants, but the framework lays the groundwork for future regulatory developments.
Banks, merchants and consumers alike should anticipate ongoing updates to fraud prevention policies, in CHAPS and beyond.
