On October 7, financial institutions and regulators around the world will be watching closely as the United Kingdom (UK) embarks on a new frontier of fraud mitigation and consumer protections.
In a global economy experiencing increasing bank and consumer fraud losses, reaching $485 billion in 2023, the UK’s Payment Systems Regulator will soon require financial institutions to reimburse consumers for losses associated with authorized push payment (APP) scams.
A Global First
This shift in liability from consumers to financial institutions sets a global precedent. The UK’s Financial Services and Markets Act 2023 mandates full reimbursement for APP fraud victims starting October 2024, with specific conditions including:
- A 50/50 reimbursement split between the sending and receiving institutions.
- The reimbursement amount being capped to a maximum of £415,000.
- That sending institutions must reimburse fraud victims within five business days, with certain provisions in place that can allow up to 35 days for settlement.
Expert Insights: The UK’s Journey
Fraud expert Jonathan Frost’s recent white paper, Shifting Liability: Authorised Push Payment Reimbursement Models, gives a broad and insightful overview of the UK’s journey to reimbursement. Frost explores how the UK’s success at implementing an instant payments network played a role in the rise of authorized fraud and examines how large global economies are responding to pressures from consumers, fraudsters and new payment technologies. Ultimately, Frost sees the UK’s efforts as a bellwether for broader change across other jurisdictions, bringing greater shared liability and need for an industry-wide response.
Technological Response: A New Frontier
Financial systems around the world all face threats of increased fraud. While provisions to address repayment for unauthorized fraud are well established globally, the UK’s decision to address APP reimbursement will push financial institutions to increase their fraud prevention and detection methods.
As fraudsters become more sophisticated and organized, taking advantage of technology and socially engineered scams and tactics, financial institutions need to harness a broader technological response that leverages the collective power of an industry. As noted by Frost, the application of machine learning, combined with consortium infrastructure is the solution the industry needs. An approach that allows financial institutions to cooperatively learn and address the risks of new fraud scams, overlayed with insights into risky transactions on both the receiving and sending sides, elevates the industry’s collective response to a growing fraud problem.
Reframing and Refocusing
As rates of fraud increase, scams evolve, and new payment technologies are implemented, the financial industry needs to respond accordingly — and the impetus may be rapidly approaching. While the UK’s new legislation unfolds, the industry at large should consider how refocusing on more effective approaches to prevention can temper the impact of fraud on a local and global scale.