Regulatory Influencer: PSR's Letter to FPS Participants Ahead of APP Scams Reimbursement Requirement Entering into Force

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The Payment Systems Regulator (PSR) has published its letter to Faster Payments System (FPS) participants on authorised push payment (APP) fraud, pointing out key areas of focus payment service providers (PSPs) must prepare for by October 7, 2024, when the reimbursement requirement will enter into force. 

The big picture 

An APP scam occurs when a victim is tricked, by way of manipulation, deceit or persuasion, into sending money to a fraudster’s account. 

UK Finance data demonstrates the impact of APP fraud, which accounted for a total of 232,429 out of 2,967,363 fraudulent transactions in 2023, valuing £459.7m (out of the total value of £1168.4m). It is worth noting that although APP fraud value decreased by 5 percent, the number of transactions increased by 12 percent in comparison to 2022. 62 percent of all APP losses, corresponding to a total of £287.3m, were returned to victims in 2023, an increase of 1 percent from 2022. 

To ensure efficiency in reducing APP fraud levels, the PSR introduced the reimbursement requirement. In a nutshell, the reimbursement requirement provides for the following measures:

• Reimbursement timeline: APP fraud victims are reimbursed within five business days from when the victim makes an FPS APP scam claim to the sending PSP, unless the sending PSP exercises the “stop the clock” provision. Stop the clock can be used by the sending PSP to pause the five business-day reimbursement for specific reasons, such as gathering additional information in relation to the claim. 
• Receiving PSP payment: When requested by the sending PSP, the receiving PSP must pay the sending PSP 50 percent of the amount the sending PSP has paid to the victim or the required reimbursement amount, whichever is lower if the amounts differ.
• Caution exception: PSPs are not required to reimburse any FPS APP scam payments where the consumer standard of caution exception applies. This exception does not apply if the victim was a vulnerable consumer and they did not have the ability to protect themselves from fraud when they made a FPS APP scam payment.
• Claim excess: Sending PSPs may apply a single claim excess of a maximum of £100 to each FPS APP scam claim.
• Maximum reimbursement threshold and claim timeline: The maximum level of reimbursement is £415,000. PSPs can refuse to reimburse amounts exceeding this threshold or frauds reported more than 13 months after the date of the final FPS APP scam payment of the claim. 

To ensure compliance with the reimbursement requirement, in December 2023, following consultations the PSR issued the following directions and requirements:

• Specific Direction 18: Requiring publication of information relating to APP scams. 
• Specific Direction 19: Directing Pay.UK to create and propose its plans for an effective compliance monitoring regime for APP scams reimbursement.  
• Specific Direction 20: Containing the APP scams reimbursement requirement and directing in-scope PSPs to comply with the reimbursement rules.  
• Specific Requirement 1: Requiring Pay.UK to create the APP scams reimbursement rules. 

Why should you care?

The letter outlines the three key areas for firms to focus their implementation activities over the coming months to ensure compliance by October 7, 2024:

1. Applicability: All PSPs participating in FPS will need to consider whether the requirements apply to them, either as a sending PSP or as a receiving PSP providing a relevant account to a service user. The requirements apply to both direct and indirect participants of the system. 
2. Reimbursement claim management system (RCMS) registration: Pay.UK has procured the RCMS, a central system to enable firms to communicate with each other and manage APP scam claims. It will further allow firms to report data to Pay.UK so it can monitor and manage firms’ compliance with its FPS reimbursement rules. Firms will need to register with Pay.UK as soon as possible, and not later than August 20, 2024. Additionally, the PSR encourages firms to attend Pay.UK’s engagement sessions.
3. Transparency in consumer communication: Firms will need to be transparent in communicating reimbursement requirements to consumers and take proactive steps to notify them of the protections available. 

As a compliance failure, breaching the reimbursement requirement makes a party liable to regulatory sanction.