At UK first Global Fraud Summit, HM Treasury plans to introduce legislation, only to apply to suspicious Authorised Push Payments executed within the UK in sterling. The proposed statutory instrument amends the Payment Services Regulations 2017 and allows PSPs to delay the execution of an outbound payment transaction by up to four business days from the time the order is received which is currently not permitted in legislation.

HM Treasury intends to lay this instrument before Parliament in summer 2024 and for it to commence at the same time as the Payment Systems Regulator (PSR) rules on mandatory reimbursement for APP fraud to take effect on 7 October 2024.

UK Faster/Instant Volume

In 2023 faster Payments processed 4.5 billion payments and continues to grow strongly. February 2024, Faster Payments processed 384 million payments, up 17% year on year. 2023 saw Faster Payments break the record for the highest amount of payments processed in a single year, £3.2 trillion.

Faster Payments is the fastest growing payment channel in the UK and within a few years will exceed Bacs to become the largest payment channel. The EU, seeing the success of instant payments, starting 2024 mandates instant payments and verification of payer/payee.

Why October

The PSR brings in mandatory and prompt reimbursement for APP fraud to customers. The liability split 50%/50% between payer and payee. In 2022 APP fraud was £485 million with 40% of the scams being reimbursed to customers. That could mean a £290 million cost increase to the banking industry in 2025.

Issues with suspicious APPs

In the early days of payments there were two areas – the payment process and “repairs”. The latter dealt with data and formatting. This in turn led to SWIFT becoming the channel of international payments. The big push after the arrival of SWIFT was ‘Straight through Processing’ of the payment message. STP was pushed hard and the era of ‘False Positives’ arrived. FPs often actual positives by factors of 10 to 20.

The cost of investigation becomes a factor. First the true state of the payment must be established and then discussed through with the customer. Also informing the customer of a suspected APP fraud can be psychologically distressing. UKFinance estimates case fraud, depending on the complexity could average £15,000.

Unintentional Consequences

One example of this was the UK mandated Suspicious Account Reporting (SARs) to be filed with the Financial Intelligence Unit. The incoming volume was large that even today less than 10% of these cases are reviewed.

Suggested approach

Make certain the mandated verification of payer/payee takes place as outlined by the PRS. All 350 PSP/Banks in the UK have Confirmation of Payee (CoP).

The EU regulation makes it very clear to the bank account holder where the responsibility lies should APP fraud occur. A similar clarity and notification are required here.

To safeguard UK’s world leadership development of the instant payments the actual four business day delay needs to be clearly defined and actions taken by the PSP/Banks subject to 3rd Party review.

Incentives to follow the rules are necessary. One incentive the social platform companies understand is the EU fine of up to 10% of annual worldwide revenues for being non-compliant. One UK bank was recently fined £60 million for regulatory failures. The EU max fine would have been £6 billion.

Summary

The UK is experienced in instant payment and APP fraud. With the EU mandating Instant Payments with some countries yet to start we are in a great position to help.

While a four-day hold may help, it does bring back the question why Bacs payments take three working days. Well risk management of cheque failure could be covered within that timeframe was the logic used. Bacs was seen as a replacement to cheques. The cheque timeframe also helped preserve the bank’s earnings on float.