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As the new era of financial security is unveiling for the UK’s Payment Systems Regulator (PSR), it is vital that payment firms are fully equipped and informed with the new regulations taking place.

The current requirements

In the recently issued ‘Dear CEO’ letter, the FCA outlined the renewed expectations for firms in relation to the APP Fraud reimbursement scheme, which came into force on 7th of October 2024. Adhering to the scheme requires a firm’s proactivity and enhancement of anti-fraud systems and controls as well as sufficient financial resources to cover any potential claims. Fundamentally, it is an underlying requirement that firms recognise the importance of the Consumer Duty and endeavour to prevent foreseeable harm to customers. 

To complement the continuous efforts of the Government to fight APP fraud, HM Treasury has published a final draft version of the Payment Services (Amendment) Regulations 2024.

Currently, for most payments firms, Regulation 86 of the Payment Services Regulations 2017 requires that once a payment order is received, the amount of the relevant transaction is either credited or refused to the payee’s payment service provider’s account by the end of the business day following the time of receipt of the payment order. While this ensures the efficient processing of payments, it allows a small window of opportunity for payment service providers (PSPs) to investigate suspicious payments.

Looking forward

The Amended Regulations introduce an exception to the current requirement that PSPs must process payment orders by the end of the following business day, by allowing PSPs to pause a payment for three additional business days, which subsequently provides them with more time to investigate payments.

However, there need to be reasonable grounds to suspect dishonesty. The newly drafted paragraphs (2A-2D) outline that PSPs will be able to pause a payment for three additional business days subject to the following conditions being met:

1. The payment service has established that there are reasonable grounds to suspect a payment order has been placed subsequent to fraud or dishonestly by a person other than the payer and;
2. Such grounds are established no later than the end of the business day following the time of receipt of the payment order.

PSPs may delay crediting the amount of the payment transaction to the payee’s account for the purpose of contacting the payer or another relevant third party, to establish whether the order should be executed. 

The delay must not be longer than necessary to achieve the purpose described above. Most importantly, the PSP must notify the payer of the   delay, the reasons for the delay and any information or action required to enable the PSP to decide whether to execute the order. Such notification must be made in a prompt manner and no later than the end of the business day following the time of receipt of the payment order. Likewise, a PSR’s liability for charges and interests as a consequence of a delay to a payment order under Regulation 86(2B), is set out in a new provision, namely Regulation 94A.

 While these amendments are made to complement the purpose of section3(2)(f) of FSMA 2023 of protecting consumers, there is an expected impact of providing a net benefit for PSPs by reducing instances of APP fraud. Referring to the reimbursement scheme, PSPs may also benefit by retaining losses that would otherwise have not been reimbursed.

How we can help

The Payment Services team at Thistle Initiatives can help PSPs with internal monitoring and evaluation regimes to meet the challenge of the new regulations. We can work collaboratively and uncover ways to ensure that your firm is ready and adaptable to the upcoming improvements.

Author: Andromachi Metheniti

For enquiries, please contact us at 0207 436 0630 or via email at info@thistleinitiatives.co.uk.