Category: Payment Services

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Financial Conduct Authority publishes two ‘Dear CEO’ letters on authorised push payment fraud reimbursement

On 7 October 2024, the UK Financial Conduct Authority (the FCA) published two ‘Dear CEO’ letters setting what it expects firms to do on authorised push payment (often called ‘APP’) fraud reimbursement. The letters are addressed to:

– banks and building societies; and

– payment and e-money institutions.

These letters quickly follow the Payment Systems Regulator’s policy statement, PS24/7, which was published on 3 October 2024 setting out new maximum reimbursement limits for APP fraud victims at £85,000 (which followed the Payment Systems Regulator’s press release and consultation on 4 September 2024). That decision came into force on 7 October 2024.

The Dear CEO letters set out the FCA’s expectations. These include:

– Anti-fraud systems and control: Firms should have effective governance arrangements, controls and data to detect, manage and prevent fraud, and regularly review their fraud prevention systems and controls to ensure that these are effective. Firms should also maintain appropriate customer due diligence controls (both at onboarding and throughout the relationship).

– Consumer duty: There is a perhaps unnecessary reminder that the consumer duty requires firms to avoid causing foreseeable harm. There is an example of such harm: a consumer becoming victim to a scam where a firm has inadequate systems to detect and prevent scams.

– On us APP fraud reimbursement: Where there are internal transfers (often called “on us” or intra-firm payments) which do not use an external payment system, the FCA is concerned that consumers may not understand that a different (and lower level) protection will be provided. Firms are required to ensure their approach complies with the consumer duty.

– Capital and liquidity: for payment and e-money institutions, the FCA reminds firms to recognise and manage their potential liability and the impact APP fraud may have on their capital and liquidity.

– Systems and controls: the FCA says firms must ensure that they have appropriate oversight, systems and controls in place to comply with its requirements.

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Payment Systems Regulator publishes new Powers and Procedures Guidance

On 20 September 2024, the UK Payment Systems Regulator (the PSR) published an updated version of its guidance entitled ‘Powers and Procedures Guidance’. Section 96 of the Financial Services (Banking Reform) Act 2013 requires the PSR to published guidance.

The guidance updates the PSR’s guidance which was first published in 2015 (and updated in 2020). The PSR’s response paper sets out the changes. These updates include:

– changes to paragraph 5.7 of the guidance: dealing with the process for opening an investigation; and

– changes to paragraph 5.12 of the guidance: dealing with flexibility for staff deployed on monitoring or enforcement to work across functions.

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FCA publishes final report on strategic review of retail banking business models 

On 20 January 2022, the UK Financial Conduct Authority published its final report following its strategic review of retail banking business models, together with a webpage and press release.

This report follows the FCA’s progress report from June 2018.

The key points from the final report are:

– large banks have a strong position but are facing challenge from others;

– low levels of consumer engagement have historically contributed to high barriers to entry and expansion;

– digital challenges have rapidly gained a share of the personal current account and business current account markets

– competition in the mortgage market has increased (causing yields to come down)

– yields for consumer credit firms have fallen too (particularly on unarranged overdrafts);

– large banks did proportionately more micro-business lending under the government schemes than most other banks; and

– increased competition and innovation have improved outcomes for many consumers and some small businesses.

The FCA says it will be “discussing the points raised in our 2022 Final Report with firms and consumer organisations but are keen to hear from other stakeholders”. The FCA has invited written submissions by 31 March 2022.

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Pay.UK publishes report on impact of COVID-19 on current account switching behaviours

On 6 January 2021, Pay.UK published a report on how COVID-19 has affected current account switching attitudes and behaviours for in the United Kingdom.

The report says:

– current account switching in 2020 was 30% lower than previous years;

– consumer attitudes towards current account switching and the Current Account Switch Service “remain positive and largely unchanged“;

– the availability of switching rewards and differentiation in prices fell whilst consumer vulnerability increased “significantly“;

– attitudinal factors have “seen less change“;

– gig economy works have been disproportionately impacted by COVID-19;

– young people (ie aged 18 to 34) have also been disproportionately impacted relative to older age groups;

– priorities have changed for small and medium enterprises (for example, they place less importance on branch access); and

– identifying and targeting support, interventions and remedies at the most affected groups is “a sensible strategy“.

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Pay.uk publishes summary paper on consumer protections in payments

On 5 November 2020, Pay.uk published a summary paper on consumer protections in payments.

The summary paper provides an overview of the work Pay.uk has undertaken to explore the consumer protection landscape in the UK for various types of payment transactions. The research highlights:

– There are several viable payment mechanisms available as options to consumers (all of them offering varying levels of payment protection);

– Open Banking and PSD2 mean that there will be a lot more activity in the market, in terms of new payment methods and PISPs, which will accelerate the use of FPS for the purchase of goods and services; and

– Payment protections in the UK do not exist in isolation. They are viewed by consumers together with and/or as supplemental to legal, personal and retailer protections.

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pay.uk confirms launch of confirmation of payee service in the UK

Earlier this week, on 8 June 2020, Pay.uk published a press release confirming the launch of the confirmation of payee service in the United Kingdom.

Pay.uk says that if a customer’s bank or building society is confirmation of payee enabled, the new service lets the customer know if the customer’s account name matches the recipient’s account name.

Pay.uk’s research suggests:

– 34% of consumers have in the past made bank or building society payments to a person using a nickname; and

– 37% of business brands also trade under a different name to that on their business bank or building society account.

It remains to be seen the extent to which confirmation of payee provides a real level of protection for customers making electronic payments.

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Seven payment services firms agree to extend industry code for ‘no blame’ authorised push payment victims

On 28 November 2019, UK Finance published a press release saying seven payment services firms have agreed to extend the period of interim funding for the reimbursement of authorised push payment victims in a ‘no blame’ situation. The interim funding period is now expected to last until at least 31 March 2020 to allow further proposals and discussions to take place.