In a significant move to enhance fraud prevention, banks in the UK will soon have new powers to freeze large payments for up to four days. This change coincides with a new fraud regime that requires banks to reimburse most victims of APP fraud, a scam that posed a £460 million problem last year.
- The current 24-hour hold on authorized payments will extend by 72 hours if fraud is suspected, effective 7 October.
- This legislation, backed by major political parties, aims to combat financial scams as part of broader reforms set to pass through Parliament.
- Some experts warn that these measures could disrupt transaction processes, especially in the housing market.
- The new guidelines will provide refunds in APP fraud cases unless customers fail to comply with their bank’s warnings and conditions.
Starting 7 October, UK banks will have the power to extend the hold on authorized payments for up to 96 hours. This extended period is contingent on the presence of reasonable grounds for suspecting fraudulent behavior or unusual account activity, extending the current 24-hour investigation window. This development is part of a comprehensive fraud regime aimed at reimbursing victims of Authorised Push Payment (APP) fraud, a significant financial threat which amounted to £460 million in losses last year.
The legislation, initially introduced by the Conservative government and receiving support from Labour, seeks to fortify the UK’s approach to combating financial fraud. It will be deliberated in Parliament this autumn as a crucial tool for fraud prevention, according to a Treasury source. Former city minister Bim Afolami has described the measure as an additional weapon in the fight against fraud.
Legal experts express concern over potential disruptions caused by these changes. Gareth Richards from the Society of Licensed Conveyancers highlighted the challenge, stating that existing procedures might be sufficient to identify fraudulent activities. The housing market, particularly home movers, might experience significant delays due to increased bureaucracy.
The Payment Systems Regulator (PSR) outlines that under the new guidelines, banks must refund victims of APP scams unless the customers disregard warning notifications or fail to report the fraud promptly. Special provisions are included to protect vulnerable customers, raising the stakes for compliance by financial institutions.
Additionally, the new rules cap liability for banks at £415,000 per fraud case. With over 480 businesses already registered with Pay.UK, the new protocol demands strict adherence by payment providers, who were required to register by 20 August. The change builds on the Contingent Reimbursement Model (CRM), which saw reimbursement rates rise from 19% in 2018 to 62% in 2022.
This legislative shift underscores a robust commitment to combating financial fraud and strengthening consumer protection.
