In response to rising concerns over financial fraud, banks in the UK are set to receive enhanced powers to freeze substantial payments.
- The new legislation, effective from October, aims to extend the period banks can hold payments under suspicion of fraud.
- This measure, backed by both Conservative and Labour parties, will require banks to reimburse nearly all victims of Authorised Push Payment (APP) fraud.
- Amidst its introduction, concerns are raised by legal experts about potential disruptions in sectors like real estate.
- Vulnerable customers are provided with extra safeguards, complicating refusal of refunds by banks.
Amid mounting fraud-related concerns, UK banks will soon be empowered to freeze large payments. This legislative update, coming into effect in October, allows for payment freezing for up to four days when fraud is suspected, exceeding the current 24-hour threshold. Notably, these powers extend only under reasonable grounds for suspicion of fraud or irregular financial activities, marking a proactive stance in fraud deterrence.
The cross-party legislative support underscores its significance. Initially proposed by the Conservative government and endorsed by Labour, this measure signifies a robust commitment to reducing financial scams. As affirmed by a Treasury source, these rules are viewed as crucial anti-fraud instruments, with a former city minister referring to them as an essential ‘weapon’ in tackling fraud.
Despite its intent to shield consumers, this legislative shift has sparked apprehension among legal practitioners, particularly within the property sector. Gareth Richards, from the Society of Licensed Conveyancers, articulates that existing protocols sufficiently enable banks to detect suspicious activities, hinting that additional bureaucracy might hinder operational efficiencies.
This policy forms part of broader reforms mandating banks to reimburse victims of APP fraud, encompassing scams such as romance and investment frauds. According to the Payment Systems Regulator, victims qualify for refunds unless they neglected warning signs, acted in gross negligence, or failed to report incidents promptly. These provisions ensure heightened protections for vulnerable groups, challenging banks to deny refund claims. With banks’ liability capped at £415,000 per case, this implementation is closely monitored.
Previously, the voluntary Contingent Reimbursement Model (CRM) prompted a rise in reimbursement rates, from 19% in 2018 to 62% by 2022. More than 480 businesses have aligned with Pay.UK to oversee the scheme, funded initially via a levy on Faster Payments transactions. As the deadline approached, reminders were disseminated to non-compliant firms, illustrating the urgency and scale of this anti-fraud initiative.
The enhancement of banks’ powers aims to significantly curb fraud while balancing operational challenges in financial services.
