Banks will be required to reimburse APP scam victims from next year

New rules compelling banks to reimburse scam victims who have been tricked into paying fraudsters will come into force next year, a regulator has said.

Most victims of authorised push payment (APP) fraud will be reimbursed within five business days and there will also be additional protections for vulnerable customers, the Payment Systems Regulator (PSR) said.

The regulator said the new requirements will prompt a “step-change” in the culture of payments, improving fraud prevention and focusing all firms on protecting people.

Under the plans, there will be new rules around Faster Payments – the payment system across which the vast majority of APP fraud currently takes place – according to the PSR.

It said all payment firms will be incentivised to take action, with both sending and receiving firms in the UK sharing the costs of reimbursing victims 50:50.

The PSR’s policy statement said the new requirement will not apply to civil disputes, payments which take place across other payment systems or international payments.

However, the regulator said it is considering whether the new reimbursement requirement, or comparable protections, should apply to other payment systems.

Payment service providers within the scope of the new policy will include high street banks and building societies as well as smaller payment firms.

APP scams happen when someone is tricked into making a payment, often due to criminals posing as a legitimate organisation such as a bank, HM Revenue and Customs (HMRC) or the police. Scammers may also pretend to be selling goods or services that do not exist.

According to latest UK Finance figures, APP fraud losses reached £485.2 million in 2022.

Many banks are currently signed up to a voluntary reimbursement code, although there have been concerns that this is not always being applied consistently. Some account providers, such as TSB, have their own fraud refund guarantees.

The PSR said the new requirement will mean customers are more protected under consistent minimum standards, with the industry having clearer guidance to follow.

Later this year, the PSR plans to consult on the ability to apply a claim excess and the maximum level of reimbursement.

The Financial Services and Markets Bill, which is making its way through Parliament, will allow the PSR to direct firms to reimburse customers.

The Bill is expected to receive Royal Assent in 2023.

By the end of 2023, the PSR will publish details of the claim excess and maximum level of reimbursement as well as additional guidance, ahead of the new requirement coming into force in 2024.

The regulator said it accepts that a customer standard of caution will be required, to ensure people take appropriate care when making payments.

The PSR will also consult on a specific start date for the new reimbursement requirement but added that it expects the industry to start work now.

Chris Hemsley, managing director at the PSR, said: “Once implemented, our changes will deliver a major shift from the status quo, giving everyone across the payments ecosystem a reason to act to prevent fraud from happening in the first place.

“That means everybody who makes payments can do so with much greater confidence, knowing that they will be better protected against fraudsters.

“In delivering this step-change, the UK will be at the forefront of the fight against APP fraud globally.

“And by confirming these changes now, it means we will be ready to act once new laws come into effect.

“We will continue to work with Pay.UK, industry, consumers and organisations beyond the payments sphere to drive effective intervention and start to turn the tide against APP fraud.”

Economic Secretary Andrew Griffith said: “This is an important step in the Government’s fight against fraud.

“As payment scams become ever more sophisticated, it is right that the Government, the regulator and industry work together to ensure victims are not left out of pocket by fraudsters.

“In parallel, the Government is looking at how to enable banks to have the ability to identify and pause suspicious payments in-flight where appropriate.”

A spokesman for Pay.UK, the payment system operator for Faster Payments, said: “The PSR’s reimbursement regime will mean better outcomes for innocent victims of fraud.

“We’re pleased the PSR has said it will now use its powers to compel all banks and building societies which make and receive payments over the UK’s Faster Payment system (FPS) to reimburse victims of APP scams when the regime goes live in 2024.

“As the independent rules and standards setter for FPS, we will ensure that our payment system rules reflect the PSR’s new requirements and work in concert with the overall obligation that the PSR is placing on banks and building societies.

“Together with the PSR’s strong regulatory enforcement powers, this will ensure that reimbursement happens more consistently.

“This, together with other work by the payments and banking industry and beyond to detect and stop fraud, should ultimately mean less money ending up in the hands of criminals.”

Paul Davis, director of fraud prevention at TSB, said: “Having guaranteed refunds to innocent fraud victims for over four years, we know first-hand the life-changing impact reimbursement has on victims – so these new rules must be introduced swiftly.”

Rocio Concha, director of policy and advocacy at Which? said: “New rules must be properly monitored to ensure firms comply, with tough enforcement action for those that fall below the required standards.

“With many victims losing life-changing sums of money to increasingly sophisticated scams, it will also be important that the regulator does not set the maximum level of claims too low, or exclude different types of fraud from the reimbursement obligation, which could see some people blocked from getting their money back.”

Emma Lovell, chief executive of the Lending Standards Board (LSB), which oversees the voluntary code currently in place, said: “We have long said that the focus across industries must be on stopping scams; this is the only way to truly protect customers, and reinforces the need to maintain an industry code.”