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Understanding and preparing for the upcoming changes in APP fraud regulations

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In the ever-evolving landscape of digital transactions, staying ahead of fraudulent activities is crucial for financial institutions and payment service providers (PSPs). One of the imminent challenges on the horizon is the anticipated changes to regulations concerning Authorised Push Payment (APP) fraud. The UK’s Payment Services Regulator (PSR) is in the process of finalising new regulations that will significantly impact PSPs using the Faster Payments Service (FPS). While the exact details are still being refined, it’s imperative for PSPs to get a head start in understanding and preparing for these forthcoming changes.

What is APP fraud?

APP fraud is a deceptive practice where fraudsters manipulate individuals or businesses into making payments under false pretences. Common scams involve tricking victims into believing they are making legitimate purchases or investments, resulting in financial losses.

The regulatory changes

The PSR’s new regulations aim to provide enhanced protection for victims of APP fraud. Key aspects of these changes include:

  • Reimbursement requirements: PSPs using the UK’s FPS will be obligated to reimburse victims of APP fraud, either directly or indirectly through their provider.
  • Timeline for reimbursement: The regulations propose a swift reimbursement process. The PSP that initiated the transaction must refund the victim within 5 days of the fraud report. The recipient PSP is then required to reimburse 50% of the losses to the sending PSP.
  • Scope and exclusions: The reimbursement obligation applies specifically to UK-UK payments through the Faster Payments Service. International payments are excluded, as are transactions involving other payment systems or payments made for illegal purposes.
  • Liability sharing: PSPs and originator banks share joint responsibility for preventing fraud and repaying losses. The primary responsibility lies with the originator banks, but PSPs may share equal liability, especially if they are part of the payment chain.
  • Excess and gross negligence: While a potential excess of £35 for customers may be introduced, the element of “gross negligence,” making customers liable for inappropriate actions, is likely to be removed for these types of fraud.

Implications for PSPs

As a PSP, these regulatory changes have direct implications for your operations. Here’s what you need to consider:

  • Joint liability: You will share joint liability with banks for preventing fraud and reimbursing losses. A 50:50 split of the fraud refund between parties aims to incentivise all participants to bolster fraud prevention measures.
  • Enhanced fraud controls: Prioritise strengthening your fraud controls to mitigate potential liabilities. Proactive monitoring activities are crucial to identifying and investigating suspicious transactions before customer settlement.
  • Demonstrate anti-fraud controls: Before the regulations are in force, be prepared to demonstrate and evidence robust anti-fraud controls, especially for collections, to ensure compliance.
  • Building trust: Implementing these changes not only secures your operations but also builds trust with customers. Transparency in your anti-fraud measures can strengthen customer confidence in your services.

Implementation timeline

While the exact implementation date is yet to be decided, it is expected to be in effect from October 2024. Despite the seemingly distant timeline, early preparation is key to adapting seamlessly to the changes ahead.

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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