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Payments & FinTech Lawyer

UK’s PSR consults on ‘contingent reimbursement model’ in report on authorised push payment scams 

The UK’s Payment Systems Regulator (‘PSR’) published on 7 November 2017 its report and consultation on authorised push payment (‘APP’) scams (‘Report’), which details the work the PSR, the Financial Conduct Authority (‘FCA’) and industry have carried out over the past year to tackle such scams, where consumers are tricked into authorising the transfer of money from their own account to another, fraudulent account. The work on APP scams follows the first-ever ‘super-complaint’ to financial regulators, which was filed by consumer body Which? as a designated body under the Financial Services (Banking Reform) Act 2013 and received by the PSR in October 2016; the super-complaint expressed concerns about the level of protection for consumers in respect of APP scams.

The PSR notes the work industry has undertaken to combat APP scams, which includes developing a common understanding of the information payment service providers (‘PSPs’) can share under the law, and what legal barriers prevent further information being shared, as well as work on developing a set of best practice standards to be followed by a PSP when a consumer reports an APP scam. “The common understanding on information sharing is crucial to the best practice standards,” said Fiona Simpson, Partner at Kingsley Napley LLP. “However, work needs to be carried out to ensure that PSPs can continue sharing relevant information under the best practice standards when the General Data Protection Regulation comes into force in May 2018.”

The PSR explains that while there is no single solution to APP scams, a number of initiatives are underway to try to mitigate the risks. Key to the Report is the consultation on the PSR’s proposal for a ‘contingent reimbursement model’ that PSPs would agree to, which is based on a concept suggested by FFA UK (a body now integrated into UK Finance) that aims to incentivise both industry and consumers to help prevent APP scams. The model proposed would reimburse victims of APP scams where one or both of the PSPs have failed to follow certain standards to prevent APP scams and where the consumer has taken ‘appropriate care’ when the payment is being made; such required standards for PSPs would take the shape, the PSR suggests, of the measures developed by industry to combat APP scams, which would include transaction analysis and Confirmation of Payee, while the aforementioned standards on dealing with APP scam reports would be included too, the PSR proposes. Additionally the model would determine who should reimburse the victim, if necessary - the PSP that has received the money or the PSP that sent the money - and the PSR notes that reimbursement would still occur where it is applicable, even if the money transferred in the scam is not itself recoverable.

The PSR points out that should such a contingent reimbursement model be implemented, ‘no blame’ situations could still occur in which both PSPs follow the required processes, and the customer takes adequate care when making the payment. The PSR notes that here, the outcome could be that the victim would still be reimbursed, for example through a central fund to which all PSPs contribute, or alternatively in ‘no blame’ cases the customer would bear the cost, as the PSPs had adhered to the required standards. “Establishing a central fund to which all PSPs contribute in order to compensate APP victims provided they have taken an appropriate level of care, could dis-incentivise the PSPs to prevent and respond appropriately to APP scams because the PSPs would be bearing the cost of reimbursement/compensation even in instances where they had met the required standards,” notes Simpson.

The PSR notes that the contingent reimbursement model has ‘merit’ and its consultation includes questions on which organisation should design and implement the model; such organisation could be UK Finance or the Joint Fraud Taskforce, for example. The PSR would like to see such a model in place by the end of September 2018. Its consultation is open until 12 January 2018.

“While push payment scams are correctly the priority right now, the issue is likely to grow in the future as PSD2 gets implemented and PISPs can initiate push payments on behalf of consumers, e.g. for retail transactions when the consumer is paying a merchant,” said Zilvinas Bareisis, Senior Analyst at Celent. “There will be cases where the payment is appropriately authorised and correctly directed, but consumers still might have a dispute because the goods were faulty or did not arrive - an issue which the current proposals don’t address.”

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