Tuesday, 11 June 2024

The Payments Association Calls on New PSR Head to Delay APP Fraud Implementation to Prevent Irreparable Damage

by BD Banks

Following the resignation of the Managing Director (MD) of the Payment Systems Regulator (PSR), taking effect on 7th June 2024, The Payments Association, which celebrates innovation and collaboration across the industry, has today produced and shared a private Briefing Paper for the new interim MD, David Geale, to highlight the community’s concerns, as well as prioritised proposals that would benefit from immediate attention in the run up to the 7th October implementation date of APP Fraud rules.

The Payments Association has identified that the proposed Faster Payments System (FPS) rule changes raise serious concerns. If the current changes are implemented, the prudential risk and requirements to participate in the UK payments market will increase significantly. The Payments Association proposes the PSR make changes to FPS that include postponing the implementation by 12 months until after the Pay.UK case management system is fully operational, dispute resolution mechanisms are tested and operational and the full rollout of Confirmation of Payee has been completed.

This is because despite being a regulated payment system operator, Pay.UK lacks certain functionalities present in other (global) schemes, such as exceptions handling, remediation, and a dispute resolution mechanism. With the absence of these key features, the feasibility of implementing the APP fraud reimbursement scheme through Pay.UK’s current framework by October 7th 2024 is uncertain.

Tony Craddock, Director General of The Payments Association, commented: “This move by the PSR represents a prime opportunity to re-set the relationship between the payments industry and one of its most important regulators. We believe that to mitigate systemic risk and prevent damage to the payments industry from some of the PSR’s current plans, significant changes are needed.”

Among the other key areas of change presented in the Briefing Paper is the PSR’s implementation of its APP Fraud Reimbursement rules. By postponing by 12 months the industry can prepare for such a shift, as well as the involvement of the source of the APP scams (big tech) in solving the problem: a one-ecosystem approach. This also follows recommendations by the Home Affairs Committee that strongly urge the Government to consider introducing a fraud levy on social media companies, the funds of which can be used to compensate victims of fraud.

While The Payments Association has never contested the principle of reimbursement, it has also called for changes to the regulation as currently set. Principally, it has made the case for a reduction in the threshold to £30,000 from £415,000. With the average scam costing £11,000 for business and £1,500 for members of the public, a recommended mandatory reimbursement threshold of £30,000 is still more than double the average scam for businesses and 20x the average scam for consumers.

The Payments Association has also called for the PSR to refocus on its original mission to regulate payments systems and to ensure fair access to strategic payment systems at lowest cost and least systemic risk. Specifically, the PSR should focus more on its statutory objective to promote competition and concentrate on supervising Payment System Operators and market infrastructure.

Riccardo Tordera, Head of Policy and Government Relations for The Payments Association, commented: “If the current changes are implemented, we believe the prudential risk and requirements to participate in the UK payments market will increase significantly – resulting in reduced competition and an increase in the unbanked population. It will also result in an increase in cost and friction of real time payments and a decrease in investment into the UK Fintech market due to higher risks of failure and lower profitability.”

He added: “We welcome the appointment of David Geale, currently Director – Retail Banking and Payments Supervision at the FCA, to be the interim Managing Director of the PSR and are fully committed to collaborating with the regulator at this critical time in our history. Our shared aim is that we lead our market and consumers to a period of innovation and growth, and this is why we’re working proactively in helping the PSR with the main priorities regarding APP fraud and the payments infrastructure. We hope the PSR listen to our recommendations, allow all stakeholders more time to prepare and that this is the start for increased collaboration.”

The Briefing Paper developed and shared to the new MD of the Payment Systems Regulator is a private document that will not be disclosed publicly.

For more information on the work and services of The Payments Association you can visit here.

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