On the 7th of October, the Financial Conduct Authority (FCA) issued a ’Dear CEO’ letter outlining clear and actionable expectations for firms under the Authorised Push Payment (APP) Fraud Reimbursement scheme titled “FCA Expectations on Authorised Push Payments Fraud Reimbursement”. Two versions of the letter were published, one for payment and emoney institutions, and another for banks and building societies.
This letter underlines the FCA’s expectations around APP fraud reimbursement and includes the role of Consumer Duty in relation to the scheme.
For more information on the reimbursement scheme itself – click here to read our recent blog.
By aligning the APP Fraud Reimbursement Scheme with Consumer Duty, Eva Koreskova, Senior Associate from the Financial Crime team, and Alejandro Bondjale, Senior Associate from the Payment Services team, have highlighted key points and outlined specific requirements for firms.
In its letter, the FCA outlined what it expects firms to do from now on, following the launch of the reimbursement scheme on the 7th of October.
The FCA mandates that firms take proactive measures to reduce APP fraud by enhancing their anti-fraud systems and controls. Effective anti-fraud controls are not only essential for limiting potential liability but also crucial in strengthening consumer trust.
Firms’ systems and controls must be able to prevent customers from falling victims of APP fraud, and they must help identify fraudsters and prevent them from receiving payments.
The reimbursement requirement creates the need for firms to actively assess and manage their potential liability and the impact it may have on their capital and liquidity. The FCA expects Payment Services Providers (PSPs) to regularly review their capital and liquidity to mitigate any potential risk of prudential impact that may arise from potential reimbursement liabilities.
Established PSPs should start making the necessary arrangements to include potential APP fraud reimbursement claims in their financial forecasts, and ensure they have sufficient financial resources to cover potential reimbursement claims to uphold prudential requirements and financial stability.
Similarly, firms seeking FCA authorisation should also adjust their financial forecasts and liquidity calculations to account for potential APP fraud reimbursement claims, to demonstrate readiness and organisation at point of authorisation.
The FCA emphasises the need for firms to proactively prevent foreseeable harm to consumers by implementing robust systems to detect and prevent scams. Firms should design, test, tailor, and continuously monitor the effectiveness of scam warning messages presented to customers to ensure they are timely and effective.
By taking these preventive actions, firms can reduce the likelihood of consumer harm. Additionally, firms should have well-defined measures in place to promptly address any instances where harm may still occur, including immediate consumer support and structured redress procedures, thus reinforcing their commitment to consumer protection.
Lastly, firms are required to ensure their customers are adequately supported throughout the lifecycle of a product or service, particularly if making a complaint.
In order to fulfil these obligations, it is good practice for firms to review and monitor the effectiveness of their systems used to detect and prevent scams, as well as ensuring remedial measures are designed to effectively remediate consumer harm.
As a continued expectation, the FCA requires PSPs to clearly inform payment service users about the availability of alternative dispute resolution (ADR) procedures, including the Financial Ombudsman Service. This information, including how to access these services, should be provided as part of the pre-contractual information under the Payment Services Regulations 2017.
Intra-firm payments, or ‘on us’ transactions, occur when both the sending and receiving accounts are within the same firm or group, allowing them to be processed internally rather than through external channels like FPS or CHAPS. These transactions are not covered by the APP reimbursement requirement, potentially allowing firms to avoid liability.
The FCA is concerned that consumers may not understand that their protection against APP fraud varies based on how the transaction is processed, leading to poor outcomes. Therefore, the FCA expects firms to ensure their approach to ‘on us’ APP fraud complies with the Consumer Duty. PSPs planning to offer lower protection for ‘on us’ APP fraud must inform the FCA and explain the steps taken to meet their obligations under the Duty.
Firms should ensure their systems can detect APP fraud and keep customers informed about their risk exposure during intra-firm payments through regular reminders and communications, and by adjusting contractual terms accordingly.
Thistle offers specialised support to help firms meet their regulatory requirements, including APP fraud and Consumer Duty. With dedicated teams in Payment Services and Financial Crime, Thistle provides tailored solutions to address each component of the FCA’s expectations.
By partnering with Thistle, firms can enhance their anti-fraud systems, improve governance, and meet FCA expectations for APP fraud reimbursement with confidence. For enquiries, please contact us at 0207 436 0630 or via email at info@thistleinitiatives.co.uk.