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The UK's treasury minister has said that payment service providers (PSPs) will be allowed more time to investigate potentially fraudulent transactions to rein in authorised push payment (APP) scams.
The government has published draft legislation to allow payment service providers to delay outbound payments processing when there are reasonable grounds to suspect fraud or dishonesty and more time is needed to contact the customer or relevant third parties.
Once passed, payments will be able to be delayed until "the end of the fourth business day following the time of receipt of the payment order", according to the amendment put forward.
“The government has published draft legislation to allow the financial services industry more time to investigate fraudulent payments and 'break the spell' of fraudsters,” said Bim Afolami, economic secretary to the Treasury, in a post on X.
“This is an important step in our fight against fraud and will help protect victims from this terrible crime.”
As part of the fraud strategy released last year, the UK government had committed to exploring whether to allow PSPs more time to investigate suspicious payments.
The government has published this draft legislation for technical checks and welcomes feedback until April 12, 2024.
The government also intends to lay this legislation before parliament in Summer 2024.
Reacting to the news, the Payment Systems Regulator told Vixio that it welcomes "this draft legislation from the government, which would give payment firms another tool to prevent money being sent to fraudsters”.
“We’ve maintained more action is needed to improve fraud prevention and focus all firms on protecting people through technology improvements, data and customer engagement,” a spokesperson for the regulator said.
“We continue to push forward big changes in payments, including our new reimbursement rules which come into effect this year.”
"Any attempt to crack down on push payment fraud is clearly a good thing given the very real and personal impact this type of fraud can have on victims,” commented Nisha Sanghani, a partner at Ashurst law firm.
However, Sanghani said that the devil will be in the detail, and in this case it will depend on the quality of execution.
“While the anti-scam legislation will allow banks and payment groups to delay processing transactions by a further 72 hours if they have reasonable grounds to suspect fraud or dishonesty, there will be some work required by banks and payment firms to put in place processes to ensure that genuine payments are not caught up for longer than necessary, which would ultimately lead to poor customer outcomes,” she said.
This could be an area of the new legislative amendment that has repercussions. For example, while stemming fraud, it could also lead to bad outcomes for consumers whose legitimate transactions are caught up in the process accidentally.
"Designing the right framework to define what is reasonable will be a fine balancing act.”
Sanghani explained to Vixio that as well PSPs will need to consider the impact on customer outcomes. “If not properly managed, this could cause harm to both the average customer and those that are more vulnerable.”
“Any delays caused to genuine payments could also have further second-order impacts to customers who may face late payment fees, service denial, or other forms of penalty,” she said.
“The problematic question is, who will and should be liable for this?"
