Regulator’s fraud reimbursement scheme is ‘fundamentally flawed’, top MP says

The Payment Systems Regulator’s (PSR) new fraud reimbursement scheme is “fundamentally flawed,” Chair of the Treasury Committee Harriet Baldwin has said.

The PSR is considering using its statutory powers to force Pay.UK – Britain’s interbank payments standards body – to amend its rules to ensure fraud victims are reimbursed by banks, according to draft proposals published today.

Pay.UK operates the digital network that facilitates payments between banks, building societies, other financial institutions, and their customers. Any bank or payments processor seeking to use the Pay.UK system must follow the network’s rules.

Under the draft plans, which the PSR said has got “broad support”, Pay.UK will be responsible for ensuring the banks and building societies that are its own guarantors pay out large sums to reimburse consumers.

However, Baldwin said Pay.UK faced conflicting interests as both regulator and industry body.

“Putting an industry body in charge of reimbursing scam victims is like asking a fox to guard the henhouse,” she said. 

“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,” Baldwin added.

The committee also argued Pay.UK lacks effective tools to ensure the financial services industry is complying with the rules.

The MPs called for the PSR to revise its plans and “take back control” of the reimbursement process.

The PSR said it aims to publish its final plans in May 2023, with a view to ensuring “people are properly protected from these devastating scams.”

Fraud is the most common crime in England and Wales, and one of the most reported in Scotland. 

Authorised push payment fraud, or APP fraud, where a scammer tricks someone into sending them a payment, is widespread. At least 196,000 consumers lost £583 million to these scams in 2021, according to the treasury committee.