PROJECT FINANCIAL CRIME
Tackling APP fraud: An industry at a crossroads By Nick Fleetwood, head of data services, Form3
A
uthorised push payment (APP) fraud has been steadily climbing the charts of global payment frauds with nearly £240m lost to UK consumers and businesses in the first six months of 2023. The Payment Systems Regulator’s (PSR) announcement in June 2023 highlighted the urgency to counter this issue by proposing a new reimbursement framework. The Payment Association’s survey, published in collaboration with Form3, offers insights into the industry’s preparedness and concerns as we edge closer to the regulatory deadline. Unravelling the institutional landscape Among the respondents, a significant 68.8% operate as selling participants directly connected to the Faster Payments Service (FPS). At the same time, 18.8% navigate their financial transactions using a Nostro account with a different entity. Another 6.2% favour agency banking. The diversity in institutional operation modes suggests that the PSR’s proposed obligations might be perceived and implemented differently across the spectrum. With varying operational frameworks, the capacity to counter APP fraud and align with the PSR’s requirements might differ significantly. Final legal instruments will be published in December 2023, finalising the mechanism for refunding victims and the definition of gross negligence and customer vulnerability, which further adds to the complexity of ensuring uniform understanding and implementation across various institutional types. Ticking clock: Anticipated readiness for new PSR obligations The 7 October 2024 deadline stands as a significant marker for the industry. However, there’s a pronounced call for clarity. A dominating 81.2% believe that the PSR must provide more explicit guidance, revealing an industry that’s
26
looking for direction. Moreover, only 12.5% of banks responded positively about being prepared for the PSR’s obligations by October 2024. This implies that the majority of banks need clarity in order to expedite their efforts to align with the regulations. Drawing a parallel with the survey’s primary objectives, we aimed to gauge institutional readiness for the impending APP rules. The substantial uncertainty reflected in the 81.2% underlines the necessity for enhanced communication from regulatory bodies. A significant 36% or respondents are concerned about their ability to fund reimbursements, especially among the smaller participants of the faster payments network. “Will mandating the cost of fraud to institutions reduce the overall fraud cost to the UK economy? The rules will have a much larger impact on institutions which do not currently have comprehensive financial crime solutions from others. As well as mandating the cost aspect, more needs to be done to create national solutions for better fraud identification, investigation, and prevention, requiring banking and tech industry collaboration,” says Nick Fleetwood, head of data services, Form3.
A dominating 81.2% believe that the PSR must provide more explicit guidance, revealing an industry that’s looking for direction. Moreover, only 12.5% of banks responded positively about being prepared for the PSR’s obligations by October 2024.”
The challenge spectrum The survey sheds light on multiple challenges. The complexity of processing reimbursements stands out for 64.3% of the respondents, driven by the lack of clarity around this instrument before the final publication from the PSR. Half the institutions highlight concerns related to internal resource constraints and tooling, indicating potential scalability and efficiency issues as the rules come into play. Nearly 30% of those surveyed emphasised challenges around screening inbound transactions for fraud risk. Furthermore, a substantial 50% underscore the challenge of meeting new reporting requirements to Pay.UK. This sentiment echoes the survey’s
