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The UK Payment Systems Regulator (PSR) has doubled down on its controversial reimbursement requirements, as the industry warns of firms shutting down or exiting the market.

The incoming authorised push payment (APP) rules were front of mind at the PSR’s Annual Meeting on Thursday (May 9) with the regulator insisting that this is the smartest way to tackle fraud. 

“Developing our reimbursement policy has involved a difficult set of decisions, which we’ve taken very carefully,” Chris Hemsley, managing director at the PSR, told journalists. “And we are incredibly mindful that not everyone agrees.”

Compliance with the newly introduced application fraud regulations entails mandatory reimbursement within a five-working-day timeframe, effective from October 7, 2024.

The associated costs will be evenly split 50/50 between the sending and receiving payment service providers (PSPs). 

There is no specified minimum reimbursement amount, but a maximum of £415,000 applies, with an optional excess of £100.

Both Faster Payments and retail CHAPS payments fall within the regulatory scope, and special provisions are outlined to address the needs of vulnerable consumers.

The new rules are daunting for the payments industry, but Hemsley added that the PSR wants to ensure that the best data possible is available so that it understands the impacts. 

“In response to concerns around parameters, for example, let's collect that data,” he said. “We've worked with trade associations, and a range of other stakeholders, to work out what data we should be collecting.

"It’s very important that firms comply with these new rules, but we will of course need to learn and adapt over time,” he said. “Fraudsters will, so we will have to as well. As the policy goes live, it’s natural that some things will delight and surprise us, whereas other areas may need to improve." 

Shutdowns and exits?

During a Q&A session with industry attendees, Hemsley and other officials were faced with a question from Tony Craddock, director of The Payments Association, who warned that the changes are likely to have an impact on the “commercial viability of a whole host of companies in the payments industry providing accounts”. 

“I’ve heard estimates of 20 to 40 percent of companies currently doing that could either fail in the next 18 months or leave the UK,” he said. 

He warned that this could reduce the competitiveness of the more established and larger players, and as a result is likely to affect the quality of investment and likely impact on innovation. 

Kate Fitzgerald, head of policy at the PSR, acknowledged that he had raised a “critical point”. 

“We’ve had a lot of discussions about whether those smaller firms, if they were impacted by a number of scams, would remain viable,” she said. 

But she defended the policy, saying that having good fraud controls is “just a requirement for entry into the sector”. 

“We think that is absolutely critical for everybody, whether you’re a small or big firm,” she said. “It is fair to say that there are some firms with a way to go and have some opportunities to improve those controls to prevent more fraud.” 

CHAPS consultation open until end of month

The regulator is also currently consulting to direct banks and other payment firms participating in CHAPS to reimburse their customers who have been victims of APP scams.  

After the PSR has considered the responses to this , which closes on May 31, it expects to finalise and publish the specific direction in September 2024. 

The PSR is proposing October 7 as the go-live date, which is the same as the FPS reimbursement policy, meaning APP scam victims will get the same protection across both payment systems.