UK lawmakers have criticized proposals that would transfer the responsibility for compensating scam victims to an organization backed by the banking sector, labeling them as “fundamentally flawed.”
A new report from the cross-party Treasury Committee highlights the slow progress in implementing mandatory reimbursement for fraud victims and opposes the regulatory plans to delegate this process to an industry body.
Authorized push payment fraud, which occurs when scammers deceive individuals into making payments, has become increasingly common, with over 196,000 consumers reportedly losing £583 million to such scams in 2021. The Payment Systems Regulator (PSR) has suggested that banks and building societies should be mandated to reimburse victims of these scams within two days of reporting, provided the loss exceeds £100.
However, instead of directly overseeing the implementation of mandatory reimbursement, the PSR plans to assign this responsibility to Pay.UK, an entity backed by the financial services industry. The Treasury Committee views this as an inherent conflict of interest, as Pay.UK will oversee the banks that are its own guarantors, some of which oppose the reimbursement plans.
This scenario may allow the banking sector to delay the implementation of these reimbursement policies, which have already been postponed until 2024. MPs are urging that enforcement takes place by the end of this year. Furthermore, the Committee notes that Pay.UK lacks the effective regulatory tools needed to ensure compliance within the financial services industry, as it holds no enforcement powers. The MPs are calling for the PSR to reassess its approach and regain control of the reimbursement process.
Harriett Baldwin MP, Chair of the Treasury Committee, remarked: “Entrusting an industry body with scam victim reimbursements is akin to asking a fox to guard the henhouse. The regulator must reclaim oversight of this vital process rather than entrust it to a conflicted organization.”
Additionally, the Treasury Sub-Committee on Financial Services Regulations has expressed concerns over types of fraud not covered by the PSR’s scheme. In a letter to the Bank of England, they questioned the exclusion of high-value transactions, such as house purchases made through CHAPS, which, while comprising only 0.2% of all fraud, account for 4% of its total value.
In correspondence with the Financial Conduct Authority (FCA), the Sub-Committee raised the potential oversight of transactions that occur within the same bank regarding mandatory reimbursement coverage.
The PSR has already faced criticism for allowing banks to set a £100 threshold for reimbursements, potentially leaving a significant number of scam victims without compensation. MPs have also voiced their concerns over this specific decision in discussions with the PSR.
In response, the PSR contends that there is widespread support for its proposals and argues that ministers have misunderstood the scope of its authority in ensuring victim reimbursements and enhancing fraud prevention.
The PSR noted, “Payment system operators have established rules that their users must adhere to, and any bank wishing to utilize these systems must comply with these regulations. We have outlined our proposals for reimbursement rules in our consultation on APP scams, emphasizing our belief that using our statutory powers to modify Pay.UK’s rules is the most effective means to guarantee reimbursements to victims.” The PSR also considered broader regulatory requirements to ensure compliance with these reimbursement rules within Faster Payments systems.