UK banks to receive extra time for investigating payments

Until now, payment service providers (PSPs) were allowed to process payments by the end of the next business day, which did not offer them sufficient time to investigate. To support victims of APP fraud and mitigate this issue, the UK Government plans to take several measures, including legislating to mandate the Payment Systems Regulator to launch a mandatory reimbursement requirement concerning payment orders executed over the Fast Payment System and which were conducted after fraud or dishonesty. PSPs, including banks, are set to receive an additional 72 hours to investigate payments if they suspect fraud or dishonesty and require more time to contact the customer or other parties, such as the police. The UK regulators plan to institute this legislation before Parliament so it can begin by 7 October 2024, also when new safeguard measures for consumers against APP fraud are being set to take effect.

Furthermore, according to officials, the amended legislation aims to provide banks and other PSPs, as well as law enforcement agencies, more time to contact victims and stop the fraudster before money is sent. The UK Government expressed its commitment to mitigating fraud, recognising the impact of this crime on victims. The new legislation is set to come as additional support for decreasing fraudulent activities in the payments landscape in the UK.

Additionally, the extended timeframe for banks and other PSPs to delay payments intends to concentrate the focus on financial institutions’ IT systems, as technology that inaccurately flags legitimate transactions as suspicious can result in delays to customers’ money transfers. To monitor the impact of the regulations and ensure it is leveraged proportionately, the Financial Conduct Authority (FCA) plans to engage with PSPs over reporting requirements regarding compliance with the new provisions. The Government’s legislative amendment also mentions that PSPs are set to be required to inform customers of any delays, the reasons behind their decision, and what actions are needed to support the order execution. Yet, this does not apply to the extent that complying would be unlawful, where doing so would contravene obligations under Anti-Money Laundering (AML) or economic crime law.

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