Fighting APP Scams.

Authorised Push Payment (APP) scams, where fraudsters impersonate legitimate entities to deceive victims into making payments, are now being countered by a new regulation from the Payment Systems Regulator (PSR). This regulation, which comes into effect on 7 October 2024, requires mandatory reimbursement for eligible victims of APP fraud within the Faster Payments system. Faster Payments, known for quick transaction processing up to ￡1 million, has been a frequent medium for these scams.

Previously, victims often did not receive reimbursement because the payments were authorised. However, a voluntary code implemented in 2019 resulted in a fair amount of reimbursements. The new regulation changes this, making reimbursements compulsory for all Payment Service Providers (PSPs) using Faster Payments and introducing a 50:50 cost-sharing mechanism between the sending and receiving PSPs. This aims to encourage PSPs to develop stronger fraud prevention strategies.

The regulation particularly poses a financial and reputational risk for smaller or newer PSPs, often targeted by fraudsters as receiving banks. These smaller entities are seen as vulnerable due to potentially less robust onboarding and compliance systems, making them easier to exploit. The new rule will hold both sending and receiving PSPs accountable for reimbursements, which could have serious implications for younger companies.

Coverage under this regulation includes individual consumers, small charities, and businesses that meet specific criteria. There's a maximum reimbursement limit of ￡415,000 per claim. Restrictions apply, such as claim time limits and a potential excess of up to ￡100, exempting vulnerable victims. It doesn’t apply where the victim has committed fraud or demonstrated exceptional carelessness.

For victims of APP fraud who meet the outlined criteria, the new regulation promises a more streamlined and reliable reimbursement process beginning late this year. However, for smaller or newer PSPs, this regulation increases both their financial liability and the urgency to enhance their fraud prevention systems.

How prepared are you for this?