New fraud reimbursement proposals “fundamentally flawed”, say MPs

In a new report the cross-party committee of MPs has criticised what it describes as “the painfully slow” implementation of mandatory reimbursement for fraud victims, and objects to new proposals by the regulator which would hand the refund process to an industry body.  

The Payment Systems Regulator (PSR) has proposed banks and building societies will be required to fully reimburse victims of authorised push payment (APP) scams within two days of the fraud being reported where the loss is over £100, handing responsibility to Pay.UK. 

The committee sees this as an inherent conflict of interest, as Pay.UK will be responsible for ensuring the banks and building societies that are its own guarantors to pay out large sums to reimburse consumers. 

This, it believes, creates an opportunity for the banking industry to slow down the implementation of the reimbursement plans, with the MPs adding that mandatory reimbursement must be fully implemented by the end of this year. 

It also outlined that Pay.UK lacks effective tools to ensure the financial services industry is complying with the rules, as it has no regulatory or enforcement powers. As such the MPs are calling for the PSR to revise its plans and take back control of the reimbursement process.  

Treasury select committee’s chair Harriett Baldwin said: “Victims of fraud have been waiting far too long for a fair and functional scam reimbursement scheme.  

“However, while these new proposals are a step in the right direction, the way the regulator plans to implement them is fundamentally flawed. Putting an industry body in charge of reimbursing scam victims is like asking a fox to guard the henhouse.  

“The regulator needs to take back control of the reimbursement process, rather than leave it in the hands of an industry body which is inherently conflicted.” 

In response the PSR said, in its consultation on APP scams, it set out proposals for the reimbursement rules, which it will define, and set out its view that the most effective way to make sure victims of are reimbursed is by using its statutory powers to require changes to Pay.UK’s rules.  

This means if any financial firm wanted to use the faster payments system, they would only be able to do so by adhering to the system rules, including APP scam reimbursement. 

Additionally, its consultation considered whether the PSR would use its powers more broadly, placing further regulatory requirements on payments to secure compliance with the requirements in faster payment rules.  

It said its “pleased” the treasury select committee supports its proposals around reimbursement in principle, but added the committee’s report does include a misinterpretation of its proposal on how its powers can be used and, as such, has provided clarification to the committee on this matter.