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Extra time for payment service providers to investigate fraud

Payment Services (Amendment) Regulations 2024
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On March 12, 2024, HM Treasury announced its proposal for the Payment Services (Amendment) Regulations 2024. These new regulations aim to empower PSPs with more time to investigate transactions suspected of fraud or dishonesty, thereby enhancing the industry’s ability to combat fraud effectively.

What are the proposed changes?

Under the forthcoming legislation, PSPs will have the authority to delay outbound payments for up to four business days if there are reasonable grounds to suspect fraud or dishonesty. This extends the current requirement, which mandates crediting the transaction amount to the payee’s account by the end of the next business day.

The government’s decision to introduce these changes stems from a recognised need to enhance scrutiny of outbound payment activity. Moreover, the timing aligns seamlessly with the implementation of the Authorised Push Payment (APP) Fraud reimbursement requirement by the Payment Systems Regulator, scheduled for October 7, 2024.

Who does it apply to?

It’s essential to note that these regulations apply solely to firms executing authorised push payments within the UK in sterling. However, exemptions exist for businesses, regardless of size, that must make timely payments to suppliers, subject to agreement with their payment service provider.

How does it benefit payment service providers?

The proposed amendments offer several advantages to PSPs:

  • Enhanced Control: PSPs gain better control over the payment flow process, enabling them to scrutinise transactions more effectively.
  • Risk-Based Approach: Adopting a risk-based approach to customer acceptance or rejection allows for fair and effective decision-making aligned with the firm’s risk appetite.
  • Extended Due Diligence: More time for conducting due diligence checks on suspected fraudulent transactions leads to a stronger evidence base for rejection.
  • Improved Fraud Management: PSPs can bolster their fraud management controls by confidently refusing transactions based on substantial evidence, thereby protecting themselves from financial and reputational harm.
  • Consumer Protection: The extended timeframe allows for a more thorough review of customer activity, contributing to the prevention of consumer harm, including vulnerable customers.

How does it help tackle APP Fraud?

The extension in processing time provides PSPs with the opportunity to halt fraudulent transactions promptly. This is especially crucial in combating the rapid actions of APP Fraudsters. Additionally, the Financial Conduct Authority (FCA) plans to impose reporting requirements on affected firms, enhancing monitoring effectiveness.

When will the extension come into effect?

Recognising the urgency, the government aims to enact the regulation in Summer 2024, providing timely support to impacted firms in managing APP Fraud effectively.

Important considerations:

While the extension offers significant benefits, it’s essential to consider the following:

  • Communication: Firms must inform customers of any payment delays and reasons behind their decision, ensuring transparency.
  • Refusal reasons: Refusal reasons must be communicated professionally without tipping off customers about suspicions.
  • Good reason requirement: A ‘good reason’ must justify the four-day delay, ensuring responsible decision-making by PSPs.
  • Cost implications: Firms must bear costs resulting from payment delays, including interests and charges.
  • Increased reporting: Internal investigations may lead to more suspicious activity reports, incurring additional operational costs for firms.

What can affected firms do now?

Firms are encouraged to provide formal feedback to HM Treasury by 12 April 2024, to influence the final instrument and policy intent. Additionally, they should begin assessing how the regulatory changes will impact their internal fraud frameworks, including policies, due diligence processes, and training.

How Neopay can help

In the face of upcoming changes to APP fraud regulations, Neopay brings a wealth of regulatory compliance expertise, ensuring that your organisation stays informed and prepared for the imminent shifts. We specialise in crafting customised fraud prevention solutions tailored to the specific needs of PSPs, aligning seamlessly with the joint liability shared with banks. Our collaborative approach aims to enhance your fraud prevention measures, mitigate potential liabilities, and ultimately fortify your position in the fight against APP fraud.

Contact our team to find out more about how we can support your business.

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