UK regulator set to cut fraud refund limit but sticks by deadline for controversial rules

The UK’s payments regulator is poised to lower the maximum amount banks and fintechs would have to reimburse fraud victims under a new regime, but stuck by its October implementation date despite mounting pressure.

In their current form, new rules from the Payment Systems Regulator (PSR) are due to force banks and fintechs to reimburse victims of authorised push payment (APP) fraud up to a limit of £415,000 per claim from 7 October.

The PSR announced on Wednesday that, following a review into high-value scams, it would consult on lowering the cap to £85,000 – which trade bodies UK Finance and Innovate Finance have lobbied for.

The consultation is due to close on 18 September, with multiple people familiar with the matter telling City A.M. that a lowering of the cap is expected to follow. The PSR declined to comment on its plans.

An £85,000 threshold would fall in line with the deposit protection limit offered by Financial Services Compensation Scheme if a UK bank fails. The PSR said this limit was “well understood by consumers”.

The news comes as the regulator faces mounting pressure from the industry and government over fears that its rules could be unaffordable for smaller fintechs and encourage new types of scams.

Trade bodies lobbying for an £85,000 limit have pointed out that it would cover roughly 99.7 per cent of fraud claims. APP fraud cost Britons £460m last year, according to banking trade body UK Finance.

After proposing a £415,000 threshold in December, the PSR noted “a particularly high level of feedback” on the cap and that it might consult on the issue if there was “convincing evidence to do so”.

It has since found that of more than 250,000 cases, there were 18 instances of people being scammed for more than £415,000 in 2023, and 411 instances of more than £85,000.

The PSR added that nearly all high-value scams comprise multiple smaller transactions, which it said reduced the effectiveness of transaction limits to manage firms’ exposure.

‘Pragmatic step’ welcomed

“We listened to concerns about the reimbursement limit and committed to collecting more evidence to inform our approach,” said David Geale, the PSR’s managing director.

“As a result, we are now consulting on a limit that still covers the vast majority of authorised push payment scams and strikes the right balance.

“Under our proposals, consumers in the UK will still receive world-leading protection, payment providers will still be heavily incentivised to improve anti-fraud protections and we maintain effective market competition and innovation.”

Still, some in the industry have warned the rules continue to put firms at risk of heavy losses from multiple claims submitted by organised fraudsters and that not all businesses will be prepared to implement the measures by the October deadline.

Janine Hirt, chief executive of Innovate Finance, said Wednesday’s announcement was “positive news” for consumers and competition in fintech.

“We remain concerned that the PSR is still proposing that many cases which British courts have judged as gross negligence – such as ignoring repeated warnings from their bank or lying about a payment – would still be eligible for reimbursement,” she added.

Tony Craddock, director general of trade body The Payments Association, said: “We want to praise the regulator for seeing the societal benefit of this change and listening to the payments sector regarding its concerns.”

“We still don’t have legislation that involves tech giants such as social media platforms where a significant number of these cases begin,” he continued.

Ben Donaldson, managing director of economic crime at UK Finance, added: “We are pleased that the PSR, under the leadership of David Geale, has listened to industry concerns and welcome this pragmatic step to review the maximum reimbursement limit.”