Payment service providers that participate in the Faster Payment Scheme in the UK and make payments on behalf of consumers from UK accounts will soon be subject to the Faster Payments Scheme Reimbursement Rules. The rules will require (subject to certain exceptions) payment services providers that send or receive funds on behalf of consumers to reimburse consumers when the payment was authorised by the consumer as a result of a scam.
The rules come into force on 7 October 2024, so payment service providers that participate in the Faster Payment Scheme must ensure that they are prepared. In addition to registering with the Faster Payments Operator, in-scope payment service providers must ensure that they have the relevant procedures and practices in place to monitor for scam transactions through the Faster Payments Scheme to avoid having to reimburse victims for scam transactions.
Authorised push payment (APP) scams happen when a person uses a fraudulent or dishonest course of conduct to manipulate, deceive, or persuade someone into sending money to an account outside their control.
With the aim of identifying and reducing the number of APP scams, the Financial Services and Markets Act 2023 (FSMA 2023) placed a statutory obligation on the UK Payment Systems Regulator (PSR) to introduce a Reimbursement Requirement for APP scam payments made over the Faster Payments Scheme (FPS) given that the PSR has oversight over payment systems in the UK (as opposed to payment services which are regulated by the Financial Conduct Authority).
The PSR decided to implement a policy that requires APP scam victims to be reimbursed by payment service providers (PSPs) because they provide services that enable the transfer of funds using the FPS. This is known as the FPS Reimbursement Requirement. The PSR decided to implement this policy by requiring the Faster Payments Operator to put the FPS Reimbursement Requirement into the Faster Payments Scheme rules. The resulting rules are known as the FPS Reimbursement Rules and will come into effect on 7 October 2024.
Application
The new FPS Reimbursement Requirement will apply to all PSPs that directly or indirectly participate in the Faster Payments Scheme and that operate ‘relevant accounts’, which are accounts that are held in the UK and can send or receive payments using the FPS, but they do not include accounts provided by credit unions, municipal banks, and national savings banks.
The FPS Reimbursement Requirements only apply to FPS APP scam payments, which are fraudulent or dishonest acts or courses of conduct to manipulate, deceive, or persuade a consumer into transferring funds from the consumer’s relevant account to a relevant account not controlled by the consumer, if:
- The transfer is executed through the FPS.
- The recipient is not who the consumer intended to pay.
- The payment is not for the purpose the consumer intended.
FPS Reimbursement Requirement
The FPS Reimbursement Requirement requires a ‘sending PSP’ (the PSP that operates the account from which the FPS APP scam payment was made) to reimburse the victim of an FPS APP scam payment, subject to certain exceptions.
Reimbursable FPS APP Scam
An FPS APP scam is only reimbursable if the sending PSP determines that:
- The Consumer Standard of Caution Exception does not apply or the victim was a vulnerable consumer when the APP scam payment was authorised.
- The victim is not party to the fraud.
- The victim is not claiming fraudulently or dishonestly.
- The victim is not claiming for an amount which is the subject of a private civil dispute.
- The victim is not claiming for an amount which the victim paid for an unlawful purpose.
PSPs are not required to reimburse an FPS APP scam payment when the Consumer Standard of Caution applies. The Consumer Standard of Caution Exception applies when a sending PSP can demonstrate that a consumer who has made an FPS APP scam claim has, as a result of gross negligence, not complied with one or more of the following standards (the Consumer Standard of Caution):
- The consumer should have regard to any intervention made by their sending PSP or a competent national authority (CNA).
- The consumer should, upon learning or suspecting that they have fallen victim to an APP scam, report the FPS APP scam claim promptly to their sending PSP.
- The consumer should respond to any reasonable and proportionate requests for information made by their sending PSP.
- The consumer should, after making an FPS APP scam claim, consent to the sending PSP reporting to the police on the consumer’s behalf or request they directly report the details of an APP scam to a CNA.
Note that the Consumer Standard of Caution Exception does not apply if the victim was a vulnerable consumer when they made at least one of the FPS APP scam payments in the FPS APP scam claim and this had a material impact on their ability to protect themselves from the scam.
Guidance on what is a ‘vulnerable customer’ is set out in the Financial Conduct Authority ‘Guidance for firms on the fair treatment of vulnerable customers’, which states that all customers are at risk of becoming vulnerable and this risk is increased by characteristics of vulnerability related to four key drivers:
- Health – health conditions or illnesses that affect the ability to carry out day-to-day tasks.
- Life events – life events such as bereavement, job loss, or relationship breakdown.
- Resilience – low ability to withstand financial or emotional shocks.
- Capability – low knowledge of financial matters, low confidence in managing money (financial capability), or low capability in other relevant areas such as literacy or digital skills.
The guidance also provides specific examples.
In its consultation paper, the PSR describes ‘gross negligence’ as a ‘very high bar which will critically depend on the individual circumstances of each case’. It interprets gross negligence to be ‘a higher standard than the standard of negligence under common law’, with the consumer having to have shown a ‘very significant degree of carelessness’.
Time Limits to Claim Reimbursement
PSPs are not required to reimburse FPS APP scam payments reported more than 13 months after the date of the final FPS APP scam payment of the claim (consistent with the timeframes for reimbursement for unauthorised payments under the Payment Services Regulations 2017) or FPS APP scam payments that occurred before 7 October 2024.
Maximum Amount of Reimbursement
PSPs are not required to reimburse APP scam victims above the maximum level of reimbursement, even if the consumer was assessed as vulnerable. The PSR had previously set the maximum level at £415,000 in line with the Financial Ombudsman maximum reimbursement limit. However, after a brief consultation, the PSR recently decided to lower this amount to £85,000 per FPS APP scam claim, in line with the maximum level of reimbursement set under the Financial Services Compensation Scheme.
Assessment of FPS APP Scams
Once a sending PSP receives a reported FPS APP scam, the sending PSP must notify the receiving PSP (the PSP providing the relevant account into which APP scam payments are received) within two hours of the claim being reported. The receiving PSP then has the opportunity to respond to the sending PSP with any information it believes to be relevant to the FPS APP scam claim, up to a maximum of three business days after the notification from the sending PSP of the claim being raised.
The sending PSP cannot complete its assessment of the FPS APP scam claim until either the opportunity to respond has elapsed or all receiving PSPs have responded to the notification.
Payment of the Reimbursable Amount
If the sending PSP determines that the reported FPS APP scam payments are reimbursable, it must pay the reimbursable amount to the victim of the scam within five business days of the claim being raised.
Sending PSPs may pause the five-business-day reimbursement timescale by using the ‘stop the clock provision’ only when it has requested further information to assess the reported FPS APP scam claim. However, in any case, the sending PSP must complete the assessment, decide whether the FPS APP scam claim is to be reimbursed or not, and close the claim before the end of the thirty-fifth business day following the reporting of the FPS APP scam claim.
Excess
The sending PSP may apply a single claim excess to each FPS APP scam claim, up to the maximum claim excess value set by the PSR (£100). However, sending PSPs may not apply an excess if the victim was a vulnerable consumer.
Payment of the Reimbursable Contribution Amount
Once a sending PSP has paid the reimbursable amount to the victim of the FPS APP scam, then the reimbursable contribution amount shall become payable by the receiving PSP. The result is that both sending PSPs and receiving PSPs must be vigilant when processing payments through the Faster Payments Scheme.
The reimbursable contribution amount owed by the receiving PSP to the sending PSP is half the reimbursable amount and would be proportioned if there is more than one receiving PSP. The reimbursable contribution amount is payable within five business days following notice from the sending PSP.
Key Milestones
The FPS Reimbursement Rules set out certain key milestones:
- By 20 August 2024, all in-scope PSPs must have registered with the Faster Payments Operator for the purposes of identification within the FPS reimbursement directory, reporting data, and compliance monitoring and management.
- By 20 September 2024, all in-scope PSPs must have been onboarded to the Reimbursement Claims Management System (RCMS) Core for the purposes of accessing the FPS reimbursement directory, reporting data, and compliance monitoring and management.
- From the proposed date of 1 May 2025, all in-scope PSPs must be onboarded to the RCMS Core + Claims and using the system to complete all actions required of them as defined by the FPS Reimbursement Rules to manage FPS APP scam claims, communicate with PSPs about FPS APP scam claims, and comply with the information collation, retention, and provision obligations.
The Bank of England, as the operator of CHAPS, also published its draft of the CHAPS Reimbursement Rules in May 2024 and updated them in August 2024.
The intention of the new requirements is to mirror the protections set to be afforded to victims of APP scams who lose money via the FPS and to provide consistent outcomes, as well as consistent processes for firms, across both payment systems.
The PSR also published a policy statement and Specific Direction 21 on 6 September 2024. The Specific Direction requires banks and other PSPs participating in CHAPS to comply with the Bank of England’s new CHAPS Reimbursement Rules. It also confirmed that the CHAPS Reimbursement Rules will also come into force on 7 October 2024 in line with the FPS Reimbursement Requirements.
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