UK plans to slow down payments where fraud is suspected

Banks and other firms will be able to delay processing payments where there are grounds to suspect fraud, according to draft legislation released by the UK government. Firms have a month to comment on technical aspects of the drafting.

Delaying payments

As part of its ongoing fight against fraud, the government wants to give payment service providers more scope to delay executing some payment orders. New draft legislation aims to do this by amending the Payment Services Regulations 2017.

Payment service providers must execute payment transactions within a time limit. The government’s proposals would allow them to delay outbound payment transactions for up to four business days. The option to delay would only be available where there were reasonable grounds to suspect that the payment order results from fraud or dishonesty.

Impact on customers and firms

The change applies to UK authorised push payments made in sterling. The UK regulators have committed to slowing the growth of APP fraud which involves fraudsters tricking people into sending them money directly. For example, later this year the Payment Systems Regulator will require firms to reimburse victims of APP fraud in the Faster Payments scheme.

Once the latest changes to payments law take effect, customers may find more of their payments being slowed down to allow for more checks to take place. To mitigate this, the new rules would require payment service providers to inform their customers about the reasons for any delay. They would also need to explain what information or action the payer must provide to enable the payment firm to execute the order.

Firms will welcome the opportunity to investigate potential fraud cases. As they take on more liability for compensating victims, it is in their interest to stop fraud from happening in the first place. They should note, however, that payment service providers will be liable for any interest or charges resulting from delays to payments.

Next steps

The government invites technical comments on the Payment Services (Amendment) Regulations 2024 by 12 April. It plans to lay the regulations before parliament in summer 2024.