The FCA has issued a “Dear CEO” letter to banks and building societies to set out its expectations regarding the new mandatory reimbursement scheme for victims of Authorized Push Payment (APP) fraud. This comes as new rules from the Payment Systems Regulator (PSR) have come into force, requiring Payment Service Providers (PSPs) to reimburse eligible customers who fall victim to APP scams.
Key Risks and Issues Highlighted
- Inadequate Systems and Controls: The FCA is concerned that many firms have weak systems for detecting and preventing APP fraud. This includes insufficient customer due diligence at onboarding and a lack of robust ongoing transaction monitoring.
- Poor Consumer Outcomes: There’s a significant risk of consumer harm if firms do not act in good faith and provide adequate support to victims of fraud. This is a direct concern under the Consumer Duty.
- Lack of Clarity on “On-Us” Payments: The FCA is particularly concerned about “on-us” (internal) transfers, which may not be covered by the new reimbursement rules. They expect firms to ensure customers are not left with a lower level of protection for these types of payments.
- Prudential Risk: For some firms, the potential liability from APP fraud reimbursements could have a significant impact on their capital and liquidity.
Actions for Firms to Consider
- Strengthen Anti-Fraud Systems: Firms must improve their systems and controls to better detect and prevent APP fraud. This includes enhancing customer due diligence, ongoing monitoring, and using data to identify fraudulent activity.
- Review and Enhance Customer Support: In line with the Consumer Duty, firms should ensure they are providing adequate support to customers throughout the entire process, from making a payment to handling a complaint. This includes providing clear information about dispute resolution procedures.
- Address “On-Us” Payments: Firms need to review their approach to “on-us” payments to ensure it aligns with their obligations under the Consumer Duty. If a lower level of protection is provided, firms must be able to justify this to the FCA.
- Assess Prudential Impact: Firms should review their business models and financial resources to mitigate any potential prudential risks arising from APP fraud reimbursement liabilities.
- Improve Governance and Oversight: Firms must have effective governance arrangements to oversee their anti-fraud measures and ensure they are compliant with all regulatory requirements.
How Bannekr Can Help
The FCA has made it clear that they expect a proactive and robust response to the new APP fraud reimbursement requirements. Navigating these expectations while managing the operational and financial implications can be challenging.
Bannekr is a specialist regulatory compliance consultancy that can provide the expert guidance and support you need. We can help you to:
- Conduct a thorough gap analysis of your existing anti-fraud systems and controls against the FCA’s expectations.
- Develop and implement a robust action plan to address any identified weaknesses and ensure compliance with the new reimbursement scheme.
- Review and enhance your customer journey to ensure you are meeting your obligations under the Consumer Duty.
- Provide assurance to your board and senior management that you have effective governance and oversight in place to manage the risks associated with APP fraud.
Don’t wait for regulatory scrutiny. Contact Bannekr today to ensure your firm is fully prepared to meet the FCA’s expectations and protect your customers from the growing threat of APP fraud.
