On 12 March 2024, the Government released draft legislation which will give banks up to 72 hours to investigate payments suspected of being fraudulent. The Payment Services (Amendment) Regulations 2024 have been published for technical checks and will likely be laid before Parliament this summer. This is a welcome development in the continued fight against Authorised Push Payment fraud, following the Supreme Court’s recent decision in Phillipp v. Barclays Bank [2023] UKSC 25.
Authorised Push Payment Fraud
In recent years, the United Kingdom has seen a significant increase in Authorised Push Payment (“APP”) fraud. APP fraud is a type of scam whereby the fraudster tricks an individual into sending them money. To gain the victim’s trust, fraudsters will often pose convincingly as well-known legitimate businesses or government bodies, such as the Post Office or HRMC. In one well-known scam, the fraudster will pose as the child of the victim and send a message saying “Hi Mum, I’ve lost my phone. Can you please transfer money to my new bank account?”. The possible forms of APP fraud are almost endless – constrained only by the creativity of the fraudsters. In 2022, APP fraud losses reached £485.2 million, constituting 40% of all fraud losses.
The Payment Services Regulations 2017
The Payment Services Regulations 2017 are the foundational regulations for the banking and payment sector. They set the framework for the rights and responsibilities of payment service providers relative to payment service users (their customers).
Under r 86(1) of the Payment Services Regulations 2017, banks must currently ensure that payments are credited to the recipient account by the end of the business day following the time of receipt of the payment order. As a result, banks have limited time to identify and investigate payments that are potentially fraudulent before they are processed. UK Finance, which represents members of the banking and finance industry, has “long called for” banks to be allowed to delay payments in high-risk cases where fraud is suspected.
New Draft Legislation – The Payment Services (Amendment) Regulations 2024
Last month, the Government introduced the Payment Services (Amendment) Regulations 2024, which will give banks additional time to investigate payments that might be a product of APP fraud. Making this announcement, the Economic Secretary to the Treasury commented:
Fraudsters spin whole webs of lies and fabricate all sorts of things to convince people to send them money – this legislation will give banks, other payment service providers and law enforcement more time to get in touch with victims and break the fraudster’s spell before money is sent.
The Payment Services (Amendment) Regulations 2024 aim to slow down payment processing when the bank has established that there are reasonable grounds to suspect that a payment has been “placed subsequent to fraud” or “dishonestly perpetrated”.
If reasonable grounds exist, the bank may delay the execution of the payment for the purpose of “contacting the payer or other relevant third parties”, such as the police or other banks. In such cases, the bank must notify the payer of:
- the fact of the delay;
- the reasons for the delay; and
- any information or action required of the payer to enable the payment service provider to decide whether to execute the order.
The delay to a payment must not be “longer than necessary to achieve the purpose described” and, in any event, “no longer than the end of the fourth business day following the time of receipt of the payment order”.
The Quincecare duty
The new Regulations are no doubt a reaction to the failure of the common law to provide a solution to APP fraud. The Supreme Court held on 12 July 2023, in Philipp v. Barclays Bank UK PLC [2023] UKSC 25, that what is known as the “Quincecare duty” (derived from a case bearing that name) did not apply to APP fraud on an individual.
The Quincecare duty was previously thought to require a bank, if it reasonably believed that a payment instruction from a customer’s agent – such as an employee – was an attempt to misappropriate the customer’s funds, not to execute that instruction without further enquiry. The Supreme Court confirmed that the Quincecare duty does not have any application to cases of APP fraud where the customer itself explicitly instructs and authorises the bank to make a payment. The Court emphasised that the bank’s duty is strict and, where the customer has authorised it to make a payment, it must carry out that instruction promptly without concerning itself with the “wisdom or risks of its customer’s payment decisions”. Hence the requirement for legislation to deal with the problem.
Comment
Edmonds Marshall McMahon has seen first-hand the devastating impact of APP frauds. In many cases, the victim will not realise that they have been deceived until it is too late. By this time, their money has arrived into the fraudsters’ account and then often disappeared to the other side of the world. The Payment Services (Amendment) Regulations 2024 will give banks important additional time to properly investigate transactions that appear to be fraudulent and, hopefully, prevent money getting into the hands of fraudsters. With that said, however, victims of APP fraud should still act rapidly upon discovering or suspecting fraud. This includes seeking legal advice, as experienced lawyers will often know who to contact at the relevant bank and what steps need to be taken to suspend fraudulent transactions and recover the stolen funds.
Written by
Oliver Fredrickson
