Pay.UK publishes FPS Reimbursement Rules and Compliance Monitoring Regime

On 7 June 2024, Pay.UK published the final version of the Faster Payment Scheme Reimbursement Rules and Compliance Monitoring Regime.  

The FPS Reimbursement Rules and Compliance Monitoring Regime form part of the implementation of the new reimbursement requirement for Authorised Push Payment (APP) fraud, which is due to come into force on 7 October 2024. This new requirement will introduce consistent minimum standards to reimburse victims of APP fraud within the Faster Payments Scheme (FPS).

The new requirement will apply to all Payment Service Providers (PSPs) participating in the FPS that provide relevant accounts (being an account that is provided to a service user, is held in the UK, and can send or receive payments using the FPS, but excludes accounts provided by credit unions, municipal banks, and national savings banks). For further information about the scope of the new requirement see our previous article.

FPS Reimbursement Rules

The publication of the FPS Reimbursement Rules follows the specific requirement imposed on Pay.UK by the Payment Systems Regulator (PSR) to include within the Faster Payment rules the new reimbursement requirement and associated reimbursement rules (Specific Requirement 1).

The FPS Reimbursement Requirement

In accordance with Specific Requirement 1, the FPS Reimbursement Rules include a requirement on sending PSPs to reimburse APP fraud victims, except where:

1. The Consumer Standard of Caution applies;
2. the victim was a party to the fraud, or is making the claim fraudulently or dishonestly;
3. the claim is for an amount which is subject to a civil dispute or other civil legal action;
4. the claim is for an amount which the was paid by the victim for an unlawful purpose; and/ or
5. the claim is made outside of the 13-month time limit.

The Consumer Standard of Caution Exception

The Consumer Standard of Caution Exception applies where a sending PSP can demonstrate that a consumer has, as a result of gross negligence, not complied with one or more of the following standards:

1. The consumer should have regard to any intervention made by their sending PSP and/or by a Competent National Authority (CNA);
2. The consumer should report the fraud promptly to their sending PSP;
3. The consumer should respond to any reasonable and proportionate requests for information made by their sending PSP; and
4. The consumer should, after making a claim, consent to the PSP reporting to the police on the consumer’s behalf or request they directly report the details of an APP fraud to a CNA.

The Consumer Standard of Caution Exception does not apply if (1) the victim of the fraud was vulnerable at the time they made the APP fraud payment and (2) this had a material impact on their ability to protect themselves from the fraud.

Maximum Reimbursement Level

A maximum reimbursement level of £415,000 applies per claim. If a sending PSP reimburses any sum above the maximum level of reimbursement, other than as required by Specific Direction 1, this will be considered a voluntary reimbursement.

50:50 Reimbursement

A sending PSP must notify a receiving PSP within two hours of a claim being reported by the consumer.

If a sending PSP submits details of a reimbursement to the Faster Payments operator, the receiving PSP, where based in the UK, must pay the reimbursable contribution amount to the sending PSP within five business days (though the receiving PSP does have a period of three business days to respond to the sending PSP with any information it believes to be relevant to the claim).

The reimbursable contribution amount is 50% of the lower of:(a) the reimbursable amount paid by the sending PSP to the victim that is attributable to any reimbursable APP fraud payment made to that sending PSP; or (b) if different, the required reimbursable contribution amount that is attributable to any reimbursable APP fraud payment made to that sending PSP.

Stop the Clock

A sending PSP can pause the five-business day reimbursement timescale if it has asked for further information to (a) assess and/ or verify the reported claim, (b) assess if a consumer was vulnerable at the time they made the APP fraud payment, or (c) where the APP fraud involved multiple PSPs, gather information from all other PSPs involved.

Repatriation of Funds

The status of any claims will remain dormant for a maximum of 13 months following payment of the reimbursable contribution amount to allow for any repatriation of funds to be completed. Where any funds are recovered, these will be apportioned between the sending and receiving PSP in accordance with clause 6 of the FPS Reimbursement Rules.

Compliance Monitoring Regime

In addition to the obligation to change the Faster Payment rules, in its final policy statement the PSR confirmed the implementation of a specific direction on Pay.UK to create and implement effective monitoring of PSPs (Specific Direction 19), including a requirement on Pay.UK to:

1. Develop and implement arrangements for the monitoring of compliance by PSPs with the reimbursement rules.
2. Monitor the nature, extent, and effectiveness of such compliance.
3. Take steps to improve compliance.
4. Gather data and information from PSPs to monitor compliance.
5. Report to the PSR on its findings.

Accordingly, Pay.UK has designed a series of KPIs and Measures to monitor and measure the compliance and performance of a directed PSP.

Reporting

PSPs will be required to provide information to Pay.UK, which it will then use as the basis for monitoring compliance. There will be two separate reporting standards, ‘Reporting Standard A’ expected to apply until 30 April 2025 and ‘Reporting Standard B’ applying thereafter.

Non-Compliance

Certain confidential thresholds will be set and managed between Pay.UK and the PSR, and a potential non-compliance alert will be triggered where a threshold is reached by a PSP.

Where Pay.UK considers that further action is necessary, it will commence a series of flexible consequence management steps, which may include the implementation of a mitigation action plan, enhanced monitoring and/or senior executive level engagement (non-exhaustive).

Reporting to PSR

Pay.UK will report monthly to the PSR with an overview of PSP performance, as well as on progress being made by PSPs that are in consequence management. Where required, Pay.UK may also escalate priority issues to the PSR at any time.

Next steps

It is important that all in-scope PSPs familiarise themselves fully with the FPS Reimbursement Rules and Compliance Monitoring Regime in advance of the new reimbursement requirement coming into force on 7 October 2024.

A detailed understanding of these rules is crucial to ensuring compliance with the new reimbursement requirement, and avoiding any escalation. Further, all directed PSPs must ensure that they are registered with the Faster Payments operator for the purposes of reporting data and compliance monitoring and management from 20 August 2024.

PSPs should also be mindful of the proposed extension of the reimbursement requirement to payments made within the CHAPS system when making preparations over the coming months.

The PSR has been working with the Bank of England (BoE) to define a reimbursement model which is similar to the FPS model but which works with the CHAPS payments system.

The PSR is in the process of considering responses to its May consultation regarding the extension, with any further specific direction expected to be published in September 2024 (with a go-live date of 7 October 2024, aligning its introduction with that of the FPS requirement).

If you would like support in understanding how the FPS Reimbursement Rules and Compliance Monitoring Regime should feed into your firms preparations ahead of the reimbursement requirement coming into force, please contact a member of our Fraud team.