UK banks are set to receive enhanced powers to freeze large payments for up to four days. This change is part of a broader initiative aimed at enhancing fraud prevention measures.
The forthcoming legislation will extend the current 24-hour holding period for authorised payments by an additional 72 hours under specific conditions, providing a substantial boost to anti-fraud efforts.
Introduction of New Fraud Prevention Measures
Banks in the UK are set to gain new powers, allowing them to freeze large payments for up to four days. This move is part of updated fraud prevention measures that will be implemented this autumn.
Currently, banks can only hold authorised payments for up to 24 hours while conducting investigations. However, the impending legislation will extend this period by an additional 72 hours if there are reasonable grounds to suspect fraud or unusual activity inconsistent with a customer’s normal financial behaviour.
Increased Reimbursement Requirements
From 7 October, new rules will come into effect requiring banks to reimburse nearly all victims of ‘Authorised Push Payment’ (APP) fraud. This type of scam cost consumers £460 million last year. The legislation, initially proposed by the Conservative government and supported by Labour, will be processed through Parliament this autumn.
APP fraud includes various scams such as romance fraud, fake purchase schemes, and investment scams. Under the new guidelines from the Payment Systems Regulator (PSR), victims will be eligible for refunds unless they ignored warning messages from their bank, delayed notifying the bank of the fraud, refused to share details of the fraud with their bank or the police, or acted with gross negligence.
Impact on Customers and the Banking Sector
The financial sector is preparing for these controversial new rules. Over 480 businesses have already registered with Pay.UK, the operator overseeing the scheme, which will be funded in its first year by a levy on transactions made through the Faster Payments system.
Banks and payment providers had until 20 August to register, with the PSR sending reminders to firms that have yet to comply. Vulnerable customers will have additional protections, making it even more challenging for banks to deny refunds. The maximum liability for banks under the new regime will be capped at £415,000 per case.
Concerns and Criticisms
While the new measures have been welcomed by some, there are concerns about the added bureaucracy and potential disruptions, particularly for home movers. Gareth Richards from the Society of Licensed Conveyancers commented, ‘We believe that there are already sufficient steps in place for banks to identify unusual or suspicious activity on the accounts under their control.’
Some legal experts warn these changes might cause significant delays in financial transactions. These disruptions could make it more challenging for consumers and businesses to manage their finances effectively.
Background on APP Fraud
Prior to the new legislation, banks could voluntarily adhere to the Contingent Reimbursement Model (CRM) agreement to reimburse victims of APP fraud. Reimbursement rates increased from 19% in 2018 to 62% by 2022 under the voluntary scheme.
The new, mandatory measures aim to provide more consistent protections for consumers. Bim Afolami, the then city minister, described the changes as ‘another weapon in our arsenal to tackle fraud.’ A Treasury source confirmed the new rules, describing them as an additional tool to combat fraud.
Future Implications
The introduction of these new powers will significantly impact the banking sector and consumers. The legislation, supporting the broader push for consumer protection and fraud prevention, marks a substantial step forward in the fight against financial crimes.
It remains to be seen how effectively these new measures will be implemented and what their long-term impact will be on both the banking sector and consumers.
The new powers granted to UK banks represent a crucial advancement in fraud prevention.
While the new measures may pose some challenges, they are a necessary step towards safeguarding consumers from financial scams.
