Report: UK Regulator Makes Massive Cut to Fraud Reimbursement Plan

The U.K.’s payment regulator is reportedly making a drastic cut to its fraud reimbursement plan.

Banks and payment companies in England would have had to reimburse victims of scams up to £415,000 ($544,000), but will now have to pay a maximum of £85,000 ($111,000), the Financial Times reported Wednesday (Sept. 4), citing sources familiar with the matter. 

The move follows pressure from the banking/payments sector on the Payment Systems Regulator (PSR) to scale back the reimbursement plan, set to go into effect Oct. 7.  According to the FT, a consultation on the new limit is expected to be announced as soon as Wednesday.

The report also notes that the PSR says it will release findings on how much of recent payment fraud was on individual transactions of more than £85,000. However, the regulator declined to say whether it would reduce the proposed threshold for mandatory reimbursement by banks from £415,000.

A spokesperson for the PSR told PYMNTS the regulator would answer questions after the release of its findings Wednesday morning.

The PSR had called for the reimbursement plan following a surge in authorized push payment (APP) fraud, which refers to cases when someone is duped into sending money from their bank account to a fraudster pretending to be a legitimate payee.

Such fraud cost U.K. residents $433 million last year, according to a report issued by the PSR in August.  That was a 12% drop from the prior year, although the volume of fraud cases increased by the same amount.

Industry groups such as the Payments Association had been lobbying the PSR to hold off on imposing the new measure for at least a year.

Riccardo Tordera-Ricchi, head of policy and government relations at the association, said in June that if the planned APP fraud reimbursement changes proceeded as planned, “the prudential risk and requirements to participate in the U.K. payments market will increase significantly.”

“It will also result in an increase in cost and friction of real-time payments and a decrease in investment into the U.K. FinTech market due to higher risks of failure and lower profitability,” Tordera-Ricchi added.

However, the PSR was committed to going forward with its plan as recently as August 21.

“We have extensively consulted on these measures for over two years and continue to engage closely with the industry to ensure timely and effective implementation,” Kate Fitzgerald, head of policy at PSR, told Bloomberg News at the time.

Dan McLoughlin, Fraud and Security Specialist at Lynx, told PYMNTS he was disappointed by the decision.

“Dropping the value of reimbursement so dramatically takes away a big part of banks’ financial motivation to prevent fraud,” he said. “While most APP fraud cases will still be covered by the regulation, the dropping shows an unwillingness from banks to accept responsibility and make tough decisions. It takes away their drive to invest in robust fraud detection and prevention systems, which ultimately safeguard consumers.”