UK financial authorities are taking steps to combat the surge in authorized push payment (APP) fraud, a persistent threat that has resulted in significant financial losses for consumers and businesses. The Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) have jointly published a review aimed at mitigating the risks associated with APP fraud and improving the industry’s overall response.
Rising APP Fraud Cases: The report reveals a troubling trend. In the first six months of 2023, losses due to APP scams reached £239.3 million, comparable to the previous year’s annual losses of £485.2 million. Even more concerning is the 22% increase in reported cases in H1 2023 compared to H1 2022, totaling 116,324 cases. These figures are likely an underestimate, as the National Crime Agency estimates that 86% of fraud instances go unreported.
Reimbursement for Victims: Encouragingly, £152.8 million, representing 64% of the losses, was returned to victims in H1 2023, marking a 13% raise from H1 2022. This reflects an effort to support those who have fallen victim to fraud.
Government Initiatives: The UK government has taken action to address economic crime, acknowledging that 40% of recorded crimes in the UK are now related to fraud. The Economic Crime Plan and the Fraud Strategy, both published in 2023, outline measures for transforming the nation’s response to economic crime.
Firms Under Review: The review involves a risk-based sample of various financial firms, including those of different types, sizes, and risk profiles. Data submitted by these firms, as well as supervisory insight and customer complaints, played a role in the selection of a diverse sample of 12 current account providers, challenger banks, and payment firms.
PSR’s New Reimbursement Requirement: In June 2023, the PSR introduced a policy statement, PS23/3, which outlines a new reimbursement requirement effective from 2024. This requirement applies to payments made and received by payment service providers using the Faster Payments system and introduces consistent minimum standards for reimbursing APP fraud victims.
Building Stronger Anti-Fraud Strategies: Many firms in the review had anti-fraud control frameworks that were still developing and had room for improvement. Most firms recognized the need to enhance systems and controls for detecting, preventing, and managing fraud throughout the customer relationship, from onboarding to ongoing monitoring.
Expectations from Firms: The FCA and PSR expect firms to establish effective governance arrangements, controls, and management information systems to reduce APP fraud and losses. Additionally, firms are urged to treat customers fairly, provide easy ways for reporting fraud, and offer support to vulnerable customers. Mitigating the risks of money mule accounts is also emphasized.
Preparation for PSR’s Initiatives: Firms are encouraged to prepare for the PSR’s new reimbursement requirement and the expansion of Confirmation of Payee, which enhances security measures in payment processes.
Preparing for Security Measures in Payment Processes
The FCA and PSR highlight that while tackling financial crime, including APP fraud, remains a priority, the landscape of fraudulent activity is evolving. APP fraud is a type of scam where individuals or businesses are tricked into authorizing payments to fraudsters. The report delves into key findings and emphasizes the importance of proactive measures to protect customers and reduce financial losses.