The upcoming fraud reimbursement plan mandates banks and fintech companies to compensate victims of authorized push payment fraud, with refunds reaching up to £415,000. However, there are growing concerns that this plan may negatively impact investment in the fintech industry.
UK Treasury and FCA Raise Concerns Over New Fraud Reimbursement Plan
The UK Treasury and the Financial Conduct Authority (FCA) have voiced significant concerns regarding a new fraud reimbursement scheme set to be implemented soon, according to a report from CityA.M.
Under the Payment Systems Regulator (PSR)’s new regulations, which are slated to come into effect on October 7th, banks and fintech companies will be required to reimburse victims of authorized push payment (APP) fraud up to £415,000. The financial burden of these reimbursements will be shared between the sending and receiving institutions.
Industry Impact Concerns
Despite the consumer protection intent behind these regulations, there is increasing anxiety within the financial sector that this initiative could have detrimental long-term effects, particularly for smaller firms. Last year, APP fraud cost individuals in the UK nearly £460 million, prompting the PSR to take decisive regulatory action. However, the fast-approaching deadline for implementing these rules has led to widespread concern within the industry.
Insiders have revealed that Labour City Minister Tulip Siddiq and Chancellor Rachel Reeves have both expressed concerns about the feasibility of the October deadline. Siddiq, in particular, has highlighted the risk of implementing the rules too quickly, which could undermine their effectiveness.
The new regulations require all firms involved in the payment process, including around 1,500 payment companies, to adhere to a strict five-day reimbursement period. This requirement has raised fears that many firms might struggle to manage the claims process, potentially leading to manual reporting methods that could complicate inter-company communications and delay refunds to fraud victims.
Industry Skepticism
While Pay.UK, the organization responsible for developing the claims management system, has assured that it will be ready by the deadline, skepticism persists across the industry. There is concern that smaller companies may find the scheme financially burdensome, which could stifle investment in the UK’s fintech sector.
As the October 7th deadline approaches, the financial industry is preparing for the potential challenges posed by the PSR’s new regulations. The combined concerns of the Treasury and the industry suggest that the plan could encounter significant obstacles in its early stages.
Silvija Krupena, Director of the Financial Intelligence Unit at RedCompass Labs, commented on the situation, saying: “The fact that the regulator is considering delaying or altering the reimbursement threshold indicates that these new rules might not be robust enough. It’s crucial that the industry’s concerns are addressed.”
Krupena further explained, “While it’s important to assist scam victims, simply reimbursing losses does not address the root cause of the problem. A more comprehensive approach involving technology and social media companies is necessary.”
Additionally, last month, the FCA introduced new regulations aimed at simplifying the UK’s listing regime, including a single category and enhanced eligibility for companies intending to list their shares. These updates are part of an effort to better align the UK’s financial regulations with international market standards.
