Authorised Push Payment or APP scams occur when fraudsters entice or trick victims into transferring or sending them money. APP scams include anything from unsophisticated fraudsters tricking victims into sending funds to what they believe is a legitimate business, to highly professional operations hacking victims' emails in order to mis-state account details on invoices. Victims range from vulnerable individuals to multi-million pound businesses.
As internet payments have become faster and easier, the frequency and severity of APP fraud has steadily grown. In September 2016, Which? made a so-called super-complaint to the Payment Systems Regulator (PSR), calling on the regulator to conduct an investigation into how this problem could be mitigated. The PSR concluded that more could be done by banks to both identify and prevent APP scams. In February 2018, the PSR established the Authorised Push Payments Scams Steering Group.
On 28 May 2019, the Steering Group launched the Contingent Reimbursement Model Code for Authorised Push Payment Scams (the Code). This is a voluntary code and currently only applies if the APP scam payment is made between GBP-denominated UK-domiciled accounts. The Code sets out expectations for both receiving and sending firms to prevent, detect and respond to APP scams. Crucially, it also creates a mechanism whereby victims can make a claim for compensation. There is a strong presumption that the victim will be compensated by either the receiving firm, sending firm or both. A decision on whether or not to reimburse a customer must be made quickly and in any event no later than 15 business days after the customer reported the scam. If a firm refuses to compensate a victim, the victim can raise a dispute with the Financial Ombudsman Service. Where sending and receiving firms cannot agree how to allocate victim reimbursement, they are invited to use a specified alternative dispute resolution method.
A number of high-profile payment service providers, including banks, have signed up to the Code. It is also likely to become accepted industry practice for UK-based payment service providers more widely in due course.
The desire to fight APP scams and assist victims is no doubt a positive development. The Code is, however, likely to raise a number of complex legal questions and may result in legal challenges.
We have prepared a number of resources in order to assist payment service providers in navigating this novel landscape.