What is Authorised Push Payment Fraud
Authorised Push Payment (APP) Fraud occurs when someone is tricked into authorising a payment to a fraudster posing as a legitimate recipient. APP Fraud can vary widely, ranging from impersonation schemes where the fraudster poses as bank officials, law enforcement agents or other trusted figures to convince the victim to transfer money, to invoice scams where businesses are tricked into paying false invoices. These schemes happen when a scammer tricks someone into sending a payment to an account outside of their control and often target the vulnerable and elderly, causing severe financial and emotional impact to victims.
According to the APP fraud scams performance report 2024 produced by the Payment Systems Regulator (PSR), £341 million was lost in 2023 to APP scams. To combat APP Fraud, regulatory bodies like the PSR are introducing mandatory reimbursement rules to protect consumers and hold Payment Service Providers (PSPs) accountable.
New reimbursement regulations
The latest Dear CEO Letter regarding Payment and e-money institutions published by the Financial Conduct Authority (FCA), sets out the FCA’s expectations on APP fraud reimbursement. From the 7th of October 2024, PSPs must reimburse victims of APP fraud conducted via Faster Payments System (FPS) and CHAPS, unless the customer was involved in the fraud or acted with gross negligence.
These costs will be shared equally between sending and receiving firms and PSPs can delay processing payments by up to 4 business days if fraud is suspected, allowing more time to assess potentially fraudulent transactions.
Preparing for the upcoming changes
The FCA plan to publish final guidance regarding the reimbursement regulations, with an accompanying policy statement by the end of 2024.
To strengthen their framework and comply with the new reimbursement requirements, PSPs should take several proactive measures to mitigate the risks of APP fraud:
- Enhance Anti-fraud systems and controls: Firms can implement advance transaction monitoring to detect suspicious activities, strengthen onboarding processes and due diligence to identify and prevent fraudulent accounts, participate in industry-wide data sharing initiatives to stay updated on emerging fraud patterns and collaborate on prevention strategies.
- Improve Governance and Oversight: Firms can establish robust governance frameworks to oversee fraud prevention measures and ensure compliance with regulatory requirements and conduct regular reviews and updates of fraud prevention systems to ensure they remain effective against evolving threats.
- Manage Capital and Liquidity Risks: Regular assessment of potential liabilities from APP fraud reimbursements should be carried out to enable firms to adjust their business models accordingly. It is important that firms ensure that adequate financial reserves are maintained to cover potential reimbursement claims without impacting overall financial stability.
- Consumer Education and Support: Customers should be educated on APP Fraud risks and prevention measures through targeted awareness campaigns. Firms should aim to provide robust support services to assist victims of fraud, including clear communication about reimbursement processes and rights.
- Compliance with Consumer Duty: To remain compliant with consumer duty, firms should act promptly to rectify any harm caused, including providing appropriate redress and support to affected customers.
- Monitoring and Reporting: By collecting and analysing data on payment execution timings and delayed payments, firms can better monitor the effectiveness of fraud prevention measures, ensuring timely and accurate reporting to regulatory bodies
How Complyport can help
Complyport, a leading compliance and regulatory consultancy, can provide invaluable support to PSPs in adapting to the new APP fraud reimbursement regulations. We can help PSPs enhance their anti-fraud systems and controls, ensuring robust customer due diligence and effective transaction monitoring. Additionally, Complyport can assist in managing potential financial liabilities and ensuring that PSPs’ business models are resilient against the impacts of APP Fraud. Their comprehensive approach includes regular reviews, staff training and strategic advice to ensure PSPs meet their obligations under the Consumer Duty and maintain market integrity.
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