Payments Industry Seeks Delay in APP Fraud Rules Amid New Leadership at PSR

The Payments Association is urging for a delay in the rollout of new authorised push payment (APP) fraud rules, leveraging the recent leadership change at the Payment Systems Regulator (PSR) as a pivotal moment to push for reconsideration.

Chris Hemsley, who led the PSR since 2019, stepped down at the start of June. David Geale, previously director of retail banking and payments supervision at the Financial Conduct Authority (FCA), has stepped in as interim managing director for nine months.

Geale now faces immediate calls from the Payments Association to postpone the APP fraud rules to ensure that the necessary infrastructure and policies are in place.

APP fraud has rapidly become one of the most significant types of fraud in the UK, with losses totalling nearly £500million last year. This surge has intensified pressure from consumer groups and politicians on banks to expedite reimbursement for victims. In response, the PSR will enforce a £415,000 maximum reimbursement level from October, aiming to cover the majority of money lost to APP fraud.

However, the Payments Association and some of its members argue that this cap could harm smaller payment providers. In May, they wrote to the British Economic Secretary to the Treasury, Bim Afolami, advocating for a lower cap of £30,000, which aligns more closely with the average APP fraud loss. They contend that this would be more manageable for providers while still offering substantial protection to victims.

Briefing paper

Hemsley’s resignation represents a new opportunity for both immediate and future collaboration between the payments industry and one of its most important regulators, according to The Payments Association.

In a private briefing paper shared with Geale, the association highlights the community’s concerns and proposed actions: principally a 12-month postponement of the full implementation of authorised push payment fraud rules in its current form, to ensure “the right policies, technology and systems are in place to avoid permanent damage to the UK’s payments industry and its ability to enable safe, instant, cheap and convenient payments”.

Tony Craddock, director general of The Payments Association, said: “This move by the PSR represents a prime opportunity to re-set the relationship between the payments industry and one of its most important regulators. We believe that to mitigate systemic risk and prevent damage to the payments industry from some of the PSR’s current plans, significant changes are needed.”

Pay.UK’s functionalities 

A key concern is the readiness of Pay.UK, the operator of the Faster Payments System (FPS), to effectively monitor and ensure compliance with the new reimbursement requirements. The rule changes require the FPS to ensure that Pay.UK implements an effective monitoring regime to measure whether payment firms consistently comply with the reimbursement requirements.

Riccardo Tordera, head of policy and government relations for The Payments Association, said: ““If the current changes are implemented, we believe the prudential risk and requirements to participate in the UK payments market will increase significantly – resulting in reduced competition and an increase in the unbanked population. It will also result in an increase in cost and friction of real time payments and a decrease in investment into the UK fintech market due to higher risks of failure and lower profitability.

“We welcome the appointment of Geale to be the interim managing director of the PSR and are fully committed to collaborating with the regulator at this critical time in our history. Our shared aim is that we lead our market and consumers to a period of innovation and growth, and this is why we’re working proactively in helping the PSR with the main priorities regarding APP fraud and the payments infrastructure.

“We hope the PSR listen to our recommendations, allow all stakeholders more time to prepare and that this is the start for increased collaboration.”

‘Well placed’ Geale

Geale has joined the PSR from the FCA where he has most recently been director of retail banking with responsibility for supervision and policy. He has also been a non-executive director on the PSR board since February 2020.

Upon his appointment, Aidene Walsh, chair of the PSR said: “I am delighted that David has agreed to assume the interim managing director role for the PSR at an important time of delivery. His time on the PSR Board along with his leadership and wealth of experience in both payments and retail banking in the FCA leaves him very well placed to lead the PSR in its work across the payments ecosystem.

“We will continue to deliver the important outcomes outlined in our annual plan, our mid-year strategy review and importantly on our horizon scanning at a time of great change in payments both domestically and internationally.”

After the general election, the PSR will begin the recruitment process for a new managing director. Meanwhile, Hemsley is joining Fingleton, a strategic regulatory advisory firm, this Autumn.