The PSR's final decision on fighting APP scams has landed

The Payment Systems Regulator's policy statement on its new reimbursement requirement for victims of APP fraud has landed right before Christmas. Unsurprisingly, banks and payments firms (PSPs) using the Faster Payments scheme are set to see a step change in the requirements that apply to them. So, what does the policy statement say and how might this impact firms?

What does the policy statement say?

The PSR confirms that it will be pressing ahead with its proposals for a new reimbursement requirement for victims of APP scams which was introduced in a June 2023 policy statement. PSPs that participate in the Faster Payments scheme, or provide an account in the UK to their service users which can send or receive Faster Payments, will be in scope of the requirement.

To re-cap, the June 2023 proposals included:

• A requirement that sending PSPs reimburse customers who fall victim to APP fraud and that receiving PSPs must pay sending PSPs 50% of the reimbursement that the sending PSP paid to the customer.
• The two exceptions to this requirement are where the customer has acted fraudulently or has acted with gross negligence (the consumer standard of caution). 

Now the December 2023 policy statement confirms that the consumer standard of caution has four specific elements:

• A requirement for consumers to have regard to interventions by the sending PSP or the police. The PSR has specifically chosen the word 'intervention' to make it clear that in addition to providing consumers with warnings, PSPs can be expected to pause and potentially reject a payment instruction where appropriate. 
• A requirement for consumers to promptly notify their PSP that they have fallen victim to an APP scam.
• A requirement to respond to reasonable and proportionate requests for information made by their PSP to help them assess a reimbursement claim.
• Consumers should, on request by their PSP, consent to the PSP making a report to the police or to a request that that the consumer make a direct report to the police.

Where a consumer has, through gross negligence, not met one or more of these standards then their PSP will not be required to reimburse them. The consumer will need to have shown a significant degree of careless ness for this to be the case. The exception will not apply to vulnerable consumers.

The PSR has also confirmed that the maximum level of reimbursement per consumer will be set at £415,000. The PSR notes that this area of its policy attracted a high level of feedback and that it may consult on revising the level ahead of October 'if there is convincing evidence to do so'. Payments firms will be permitted to charge an excess of up to a maximum of £100 per claim to ensure that consumers do continue to exercise a level of caution when making payments. However, this excess will not apply to vulnerable customers.

An important date for in-scope PSPs is 7 October 2024 which is when the policy will start to apply. The PSR recognises that this will be a challenging target for some payments firms but considers that the protection of consumers from APP scams must be prioritised.

How might this impact firms?

The new rules will come with a potentially high price tag for the PSPs that are subject to them.

Smaller PSPs have raised concerns that the high maximum level of reimbursement could create prudential risks for them and heighten the risk of unprofitability and insolvency. This could ultimately lead to reduced competition in the payments sector and fewer payments firms applying for licences in the UK.

Potentially expensive upgrades to PSPs' fraud detection and prevention systems are likely to be required including reviewing and imposing appropriate transaction limits and improving KYC controls. Changes to consumer interfaces to ensure that they receive appropriate warnings are also likely to be required. Staff may also require additional training to ensure that they are equipped to identify vulnerable customers. 

PSPs will also need to work with the PSR to implement the requirements in a manner that works best for industry from a  practical perspective. Engagement via industry associations with the PSR will be helpful to achieve this.