News on changes to APP fraud regulation

It was good news to hear that the regulators changed the ceiling of reimbursements to £85,000 from £415,000 and stopping the yellow journalism of all APP frauds would immediately rise to £415,000. The £85,000 level covers 90% of today’s APP scams. It’s important to match the ceiling on bank deposit compensation schemes world-wide.

The new regulations ensure retail and SMEs are compensated 100% against 50% historically refunded. The Payer and Payee bank split the scammed amount equally. Bank/PSPs have the option whether the customer pays or not to pay the first £100 of any loss.

Given being scammed is grim enough as it destroys self-esteem. Having to confront the bank/PSP lack of reimbursement doubles down on mental anxiety. Given last year reported scams cost £459.7 million, average scam is £1,349 means over 340,000 people suffer this angst. The consumer group Which? reckons that 40% of actual scams are unreported as often it’s too painful or shameful for people to admit to being duped.  A total of 500,000 per year are experiencing psychological impairment.

The new regulations for bank/PSPs reimbursing the customers have the following benefits:

• Financial incentives to understand which bank/PSP are the ‘scammers go to bank/PSP’ and working with Pay.UK change the situation.
• By using the £100 option to help change the account holder’s behaviour towards the next scam attempt, for example, forgiving the first scam but not subsequent scams. Scammers target vulnerable people.
• The reduction of consumer correspondent aids:
  • Financial Ombudsman Service (FOS) as APP fraud complaints against bank/PSP limited to scams above £85,000 are estimated at 400. This compared to APP scams of 13,500 in 2023/24, up 18% on 2022/23.
  • Action Fraud and The Police as they do best focused on large scams
  • Bank/PSP customer service by lowering the volume of distressed clients 

The setting of the upper limit could encourage insurance companies to examine a policy to reimburse bank/PSP for APP scams. The cost of the deposit programme can be upwards of 0.4% of deposits per year. Given, in 12 months, the scam amounts per bank/PSP would be known, then the risk can be assessed and priced. This additional cost to cover the loss through scams maybe smaller given the existing safeguards.

While this is a great change to the regulations, there still needs to address the “old chestnut” of bank/PSP request for delaying implementation until they feel that they are ready. The FCA and PSR are doing an excellent job in preparing regulations that are well thought through and the industry has been consulted every step of the way. 

The FCA/PSR should adapt and counterbalance this traditional knee jerk resistance to change. APP fraud isn’t going to change without urgent activity. These new regulations counter the corrosive effect on social life on scams. The October 7 date needs to be firm. At least 500,000 new people per year and their families would agree.