Payment Delays: New FCA Guidance Consultation

Under the PSRs 2024, PSPs will have up to 4 business days to investigate potentially fraudulent transactions from the point at which they receive a payment order, a significant increase to the timeframe which PSPs are currently required to adhere to (ie. the end of the next business day). The FCA’s proposed guidance explains, however, that PSPs will only be able to use the maximum 4 business days where this is necessary to decide whether the payment is fraudulent.

PSPs will have the option to delay a payment where:

1. the PSP has reasonable grounds to suspect fraud or dishonesty;
2. those grounds are established by no later than the end of the next business day following receipt of a payment order;
3. the PSP needs more time to contact the customer or a third party (such as a law enforcement agency or the payee’s PSP) to establish whether to make the payment; and
4. the payment is (i) authorised by the payer in accordance with regulation 67 of the PSRs 2017, (ii) executed wholly within the UK in sterling, and (iii) not initiated by or through a payee.

The proposed guidance explains that ‘reasonable grounds to suspect fraud or dishonesty’ is an objective test similar to the approach adopted in the Joint Money Laundering Steering Group guidance.  The guidance proposes to update the FCA Approach Document to set out that PSPs will meet this test where they are able to demonstrate that they ‘…took reasonable steps in the particular circumstances, in the context of a risk-based approach, to understand the nature and rationale of the transaction, the amount involved, the intended destination of the funds, and whether the payee appears to have any links with criminality.’

The guidance consultation also proposes to introduce examples of factors that might increase the risk that a payment order has been made subsequent to fraud or dishonesty, including where:

• payments are made to new payees and the size, purpose or frequency of those payments is inconsistent the payee’s normal spending patterns;
• the payee account is a full or partial match to the name of the payee specified in the payment order, and the size or purpose of the payments is inconsistent with the payee’s normal spending patterns;
• there is evidence from the payee’s PSP or law enforcement agency that the payee has previously received payments which they have quickly transferred on to third parties without a clear rationale;
• where a payer’s PSP identified evidence of increased digital or behavioural risk before or during the payer making the payment;
• a payer is unwilling to explain or evidence the checks they have made to confirm that the payee and purpose of the payment are legitimate;
• the payer’s PSP obtains other evidence from third parties that the payment transaction has a higher risk profile; and
• there are signs that the transaction’s purpose may fall into one of the signs of common fraud types (eg. romance or investment scams).

Finally in respect of outbound payments the proposed guidance:

• sets out further detail about how a PSP should communicate with its customer when delaying a payment, as well as what should be communicated; and
• clarifies that a PSP will be liable to its customer for any charges for which the customer is responsible (in addition to interest) as a consequence of a delay.

Although the PSRs 2024 is restricted to outbound payments, the FCA proposes to update the FCA Approach Document to cover when and how PSPs should consider delaying inbound payments within the parameters in the PSRs 2017.

In particular, the FCA’s proposed guidance explains that a PSP will not fall foul of the requirement to make funds available to a payee immediately after they have been credited to the payee’s PSP’s account where doing so would breach any of the provisions of Part 7 of the Proceeds of Crime Act 2002 and/ or Part 3 of the Terrorism Act 2000 (or, for reasons outside of the payee’s PSP’s control, it is impossible to determine whether there would be a breach of these provisions).

In its guidance consultation the FCA confirms its plan to monitor and evaluate the impact of the PSRs 2024 to assess the effectiveness of the guidance and whether there is a need for any additional clarifications to improve FCA compliance. Data will be collected on an ad-hoc basis through existing supervisory engagement processes, and likely include information on volumes and values of delayed inbound and outbound payments, the length of delays, the outcomes and the value of APP fraud prevented.