Banks in the UK are set to receive enhanced powers to freeze large transactions for up to four days as part of new fraud prevention measures.
Starting this October, these measures aim to tackle the growing issue of Authorised Push Payment (APP) fraud, safeguarding consumers and the financial system.
New Legislation for Fraud Prevention
The new changes, to be implemented on 7 October, extend the time banks can hold authorised payments from 24 hours to 96 hours.
Currently, banks can only temporarily hold payments, approved by the customer but flagged for investigation, for up to 24 hours. The extended period allows a more thorough review when there are reasonable grounds to suspect fraudulent activity.
Bipartisan Support and Legal Concerns
Proposed by the Conservative government and backed by Labour, this legislation will pass through Parliament this autumn.
Bim Afolami, former city minister, referred to this measure as ‘another weapon in our arsenal to tackle fraud.’ Some legal experts, however, are cautious, suggesting the added bureaucracy could disrupt sectors like real estate.
Gareth Richards from the Society of Licensed Conveyancers expressed concerns, stating existing measures already help banks identify suspicious activities.
Impact on APP Fraud and Reimbursement Policies
This legislative change coincides with new rules that will require banks to reimburse nearly all victims of APP fraud.
APP fraud includes scams such as fake purchases, romance fraud, and investment schemes. The Payment Systems Regulator (PSR) specifies that victims will be eligible for refunds unless they ignored bank warnings, delayed reporting, or acted negligently.
Vulnerable customers will have additional protections to ensure banks do not unjustly refuse refunds. The maximum liability per case will be capped at £415,000.
Funding and Compliance Requirements
The new scheme will be administered by Pay.UK, with its first year funded by a levy on transactions made through the Faster Payments system.
Over 480 businesses have already registered with Pay.UK, and banks were mandated to comply by 20 August. Reminders were sent to firms that had not yet registered.
Voluntary vs. Mandatory Reimbursement Models
Before these new rules, banks could choose to adhere to the Contingent Reimbursement Model (CRM) voluntarily.
In 2018, reimbursement rates stood at around 19%, but this figure rose to 62% by 2022 when more banks opted into the CRM.
These figures illustrate the positive impact of voluntary adherence to reimbursing APP fraud victims.
Industry Reactions and Future Outlook
The Treasury has declined to comment on these upcoming measures, though industry insiders are divided in their opinions.
Some see this as a much-needed step to combat the rising tide of fraud, while others fear the potential for operational disruptions in critical sectors.
Conclusion and Final Thoughts
As the financial sector braces for these new measures, the ultimate goal remains protecting consumers.
While some challenges are anticipated, the strengthened fraud checks aim to strike a balance between security and efficiency.
The introduction of these new powers is a significant step in the fight against financial fraud.
By allowing banks to freeze suspicious transactions for longer periods, the hope is to reduce the growing prevalence of APP fraud significantly.
Time will tell how these measures will impact both banks and consumers, but the move is undoubtedly a proactive approach to tackling financial crime.
