The new Payment Services (Amendment) Regulations 2024 came into force on 30 October 2024, giving payment service providers (“PSPs”) up to 72 hours to investigate payments suspected of fraud or dishonesty. This is the second measure implemented to protect victims of APP fraud this month, following the Payment System Regulator’s new mandatory reimbursement requirement.
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 a fraudster tricks an individual into sending them money. In 2023 alone, there were 232,429 reported cases of APP Fraud, causing some £459.7 million in loss.
The Payment Services Regulations 2017
The Payment Services Regulations 2017 are the foundational regulations for the banking and payment sector. They set the underpinning framework for the rights and responsibilities of PSPs relative to payment service users (their customers).
Under r 86(1) of the Payment Services Regulations 2017, PSPs were previously required to ensure that payments were credited to the recipient account by the end of the business day following the time of receipt of the payment order. PSPs therefore had limited time to identify and investigate payments that were potentially fraudulent before they were processed. UK Finance, which represents members of the banking and finance industry, had “long called for” PSPs to be allowed to delay payments in high-risk cases where fraud is suspected.
New Legislation – The Payment Services (Amendment) Regulations 2024
Announcing the draft Payment Services (Amendment) Regulations 2024 in March 2024, the then-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 there are reasonable grounds to suspect that a payment has been “placed subsequent to fraud” or “dishonestly perpetrated”. This is achieved through the new r 86(2B), which grants PSPs additional time to investigate payments that might be a product of APP fraud.
If reasonable grounds exist, the PSP 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 PSP 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” (r 86(2C)).
The PSP is liable to its payment service user for “any charges for which the payment service user is responsible” and “any interest which the payment service user must pay” as a consequence of a delay to the execution of a payment in relation on r 86(2B), irrespective of whether the payment order is ultimately executed (r 94A).
A welcome legislative response
The common law has long struggled to provide an adequate response to APP fraud. This was most notable in Philipp v. Barclays Bank UK PLC [2023] UKSC 25, where the Supreme Court held that “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 was an attempt to misappropriate the customer’s funds, not to execute that instruction without further enquiry. However, the Supreme Court held that the Quincecare duty does apply to cases of APP fraud where the customer itself explicitly instructs and authorises the bank to make a payment (despite have been duped into doing so). 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”.
Given the Supreme Court’s decision in Philipp v. Barclays Bank UK PLC [2023] UKSC 25, the new regulations are a welcome legislative response to the pervasive issue of APP fraud.
Concern from some sectors
Not everyone is praising the new regulations. Propertymark, the professional body for the property sector, have raised concerns that the new regulations could delay property transactions and questioned whether the regulations are “a sledgehammer to crack a nut”.
Comment
The team at Edmonds Marshall McMahon regularly see 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 landed in the fraudsters account and then disappeared to the other side of the world.
While the new regulations may, in some instances, cause inconvenience due to delayed payments, they will also give PSPs the necessary time to properly investigate transactions that appear fraudulent. Hopefully, as a result, fewer individuals will lose their precious funds into the hands of fraudsters.
