PSR to consult on APP scam reimbursement approach

The Payment Systems Regulator (PSR) intends to publish a consultation on its preferred approach to APP scam reimbursement in autumn 2022, according to a government policy paper published on 10 May 2022¹. The paper sets out how ministers plan to enable the regulator to act on authorised push payment reimbursement using its existing powers¹.

APP scams are cases where a payer is deceived or defrauded into authorising a payment to a criminal. The government says such scams have increased in both value and volume in recent years, with many individuals suffering financial and emotional harm¹.

Since 2016 the PSR and the payments industry have worked together on preventing payments fraud and on reimbursement mechanisms, including the voluntary Contingent Reimbursement Model (CRM) Code, which began operating in 2019¹. Under the Code, signatory payment service providers voluntarily reimburse APP scam victims. It has been signed by ten banking groups and covers 90% of relevant transactions, the paper states¹.

The government says reimbursement remains inconsistent, partly because some firms have made no voluntary commitments and partly because firms that have made commitments interpret their obligations differently¹. It welcomed the PSR's Call for Views on APP Scams and its subsequent consultation, which proposed introducing mandatory reimbursement for APP scams occurring over Faster Payments, alongside other fraud prevention measures¹.

The PSR has previously said it could use its regulatory powers on APP scam reimbursement if legislative changes were made to the Payment Services Regulations 2017¹. In November 2021, the Economic Secretary to the Treasury stated that the government would legislate to address any barriers to regulatory action on APP fraud¹.

The government intends to clarify that the PSR may use its existing regulatory powers under the Financial Services (Banking Reform) Act to require reimbursement in cases of APP scams in designated payment systems, including Faster Payments¹. The amendment is to be introduced when Parliamentary time allows as part of the Financial Services and Markets Bill¹.

Regulation 90 of the Payment Services Regulations 2017 concerns the liability of payment service providers in relation to payment orders. Where a payment is executed in accordance with the unique identifier provided by the customer, Regulation 90(1) states that a provider has correctly executed the payment. The government's amendment will make clear this does not affect the PSR's ability to use its existing powers on APP scams¹.

The government will also place a duty on the PSR requiring it to take regulatory action within a prescribed timescale¹:

Why it matters for households

People who are tricked into sending money to a fraudster by bank transfer currently depend on voluntary arrangements for a refund. The maximum refund for authorised push payment fraud and the circumstances in which firms pay out vary, because the Code is voluntary and not all providers have signed it¹. The government says this produces inconsistent outcomes, with many victims suffering losses without reimbursement¹.

If the legislative amendment passes and the PSR then imposes a requirement, reimbursement in Faster Payments would become mandatory for the firms covered, rather than voluntary¹. Faster Payments is the system used for most everyday bank transfers. The change would not take effect on the dates of the consultation or the amendment itself: the PSR's regulatory requirement would follow its own consultation, and the government's timetable requires a draft requirement within two months and a final requirement within six months of the provisions coming into force¹.

The paper does not set out the level of any future reimbursement, which firms would be covered, or how costs might be shared between sending and receiving providers. Those details have not been reported¹.

What happens next

The PSR intends to publish its consultation on its preferred approach to APP scam reimbursement in autumn 2022¹. The government's legislative amendment is to be brought forward when Parliamentary time allows, as part of the Financial Services and Markets Bill¹. The two-month and six-month deadlines for PSR action run from the provisions coming into force, a date not given in the paper¹.