Key takeaways

• The draft guidance applies to claims for payments made via Faster Payments and CHAPS, ie those potentially in scope of the new mandatory reimbursement requirement.

• It does not form part of Specific Direction 20 or any future specific direction for APP scam payments using CHAPS, but it is intended to support PSPs’ compliance with the legal requirements. When assessing whether a PSP is compliant with Specific Direction 20 or any future direction for CHAPS, the PSR will apply the guidance flexibly, considering each case individually.

• The draft guidance acknowledges that where the consumer has paid the intended recipient, it may be more difficult for PSPs to distinguish between an APP scam and a civil dispute. Here, the focus needs to be on whether there was an intent to defraud and the draft guidance sets out high-level key factors that a PSP should consider. PSPs should also consider any process that may be put in place for complex cases as set out in the PSR’s recently published FPS APP scams reimbursement compliance and monitoring policy statement (PS24/3), which provides that the PSR will be engaging with Pay.UK and industry on the development of a detailed operational process for the allocation and management of complex cases over the summer.

• The high-level factors are categorised into five key areas:

  • The communication and relationship between the consumer and the alleged scammer: Points to consider include that a claim is more likely to be a civil dispute where the consumer previously had a good relationship with the alleged scammer and received satisfactory goods/services. However, every case needs to be considered on its own merits.

  • The trading status of the alleged scammer: PSPs should review the information available from Companies House and the FCA register against any information provided by a third party. A claim is more likely to be a reimbursable APP scam claim if there is a warning on the FCA register which suggests that the consumer has been contacted by a cloned investment firm. Other sources of information could include but are not limited to information held by the police, trading standards or a foreign regulator/government, and open-source research.

  • The alleged scammer’s capability to deliver the goods and services related to the claim: Points to consider include that non receipt of goods or services does not on its own indicate that an APP scam has taken place. It is more likely to be a civil dispute where the goods or services have been provided but not to a satisfactory quality, and there is no evidence of an intent to defraud.

  • The extent to which the alleged scammer deceived the consumer as to the purpose of the payment: Dishonesty alone is not sufficient to constitute an APP scam. PSPs must be able to establish that the alleged scammer’s dishonest actions relate to the intended purpose of the payment.

  • Information held by the receiving PSP(s) about the relevant account(s): Receiving PSPs should share relevant information on the account(s) and the account holder with sending PSPs, within the constraints of data-sharing restrictions. Broadly, this information should comprise (although is not limited to): account opening information; account history/usage; any markers on the account; any previous fraud claims; and information gathered from the account holder.

• The guidance makes it clear that the above high-level factors are independent of one another and are not an exhaustive list. A claim does not have to meet all factors to be considered a civil dispute or reimbursable APP scam.

What should firms be thinking about?

• The short consultation period for the draft guidance could suggest that the PSR has already largely finalised its thinking and won’t necessarily be open to suggestions for any substantive changes. Nonetheless, in-scope firms would be advised to review the document to ensure it clarifies any previously identified points of uncertainty and practical difficulty.
• Having said that, it appears the PSR might be seeing the draft guidance as only the first (more straightforward?) step in addressing industry concerns in relation to accurate categorisation of claims. In recognition that some cases may involve a ‘complex set of factors’ in need of careful balancing, as noted above the PSR will be engaging with Pay.UK and industry over the summer on the development of a ‘detailed operational process for the allocation and management of complex cases.’ This will be another aspect of the new mandatory reimbursement regime for in-scope firms to be looking out for as the October deadline rapidly approaches.

What’s next?

The consultation is open until 8 August 2024. The PSR will aim to publish the final guidance in mid-September. Firms can request a meeting to discuss the guidance further or email their comments to [email protected]. The PSR will also be engaging with Pay.UK and industry over the summer on the development of a ‘detailed operational process for the allocation and management of complex cases.’

If you would like to discuss the draft guidance or any aspect of the new APP fraud reimbursement requirement, please get in touch with any of the people listed above or your usual Hogan Lovells contact.

Authored by Virginia Montgomery.