Fraud prevention has become a top priority for the financial industries of various countries around the world, and the UK has been positioning itself as a leader in the space.
In recent months, the country has given new fraud prevention powers to banks, placed a heavy focus on fighting fraud in its newly published National Payments Vision (NPV), and introduced new reimbursement rules around authorised push payment (APP) fraud.
Though the latter of these changes met somewhat of a backlash, the Payment Systems Regulator (PSR), which introduced the reimbursement rule, remains confident in the requirement’s positive impact two months after launch.
All eyes on the UK…
“It’s very, very early days, but there are encouraging signs in which the industry has responded and is working together to make sure the system is working effectively,” said Oliver Hanmer, Head of Compliance at the PSR, at the FC360 industry conference.
“We’ve not seen an increase in claims, but it’s too early to say,” he added, addressing a concern repeatedly raised by some payments stakeholders that the reimbursement requirement could lead to false reimbursement claims, effectively inspiring a new form of fraud aimed at banks.
So far, the data available suggests that there has been no increase in claims. Appearing at the same conference, Pay.UK, operator of the UK’s interbank payments network, stated that the number of claims since introduction stood at around 10,000
Aside from the APP reimbursement rule, the UK has moved to prioritise fraud prevention as part of the aforementioned NPV. This will see the Financial Conduct Authority (FCA) take on additional responsibilities for fraud prevention alongside the PSR, having been requested to do so by the Labour government.
Prior to the NPV announcement, HM Treasury’s new powers for banks saw an extension of the maximum delay for suspicion payments from one day to 72 hours. A more recent development saw HMRC commit £300m to fraud prevention and detection efforts.
The PSR reimbursement rule has caught the most attention though, and observers believe that the UK is being closely watched by other countries. If the reimbursement works out well, the country will stand out as a leader in fraud prevention and consumer protection. If not it will stand out as an example of what not to do.
“From a regulatory perspective, we’re seeing regulators around the world watch and see what happens,” Roseanne Spagnuolo, Chief Content Officer at VIXIO, a regulatory intelligence company, shared at the same conference.
“They’ll be looking over the next 12 months at whether the rule will play out well, which parts do they want to leave on the table?
“I think from a customer perspective we’ve not seen anything similar in other jurisdictions, but fraud is real, it’s something that does require attention and we’re already seeing organisations ramp up investments, whether it be in technology or analytics, and looking to maximise and get a lot out of the data.”
The PSR too is confident that ‘the rest of the world is looking in on what the UK has done’, and are interested in how the UK’s approach is going to work in practice. Not everyone is convinced, however.
…but is it all good news?
Shortly after the PSR’s Hammer left the stage at FC360, a very different and less optimistic viewpoint was expressed by Dr Nicola Harding, CEO of We Fight Fraud, a financial crime prevention company.
Dr Harding presented a much more damning view of the UK’s approach to fraud, one which believes the country has been putting too much confidence in the strength of its, admittedly historically formidable, financial institutions and wider industry.
Australia has been watching what the UK is doing and is ‘doing the opposite’, she said. Australia still views the UK as a leader in fraud prevention but also as a ‘target for fraud’, with well over one third of Australian fraud attempts targeting the UK.
Meanwhile, it is also true that not many other countries have adopted a similar policy of mandatory fraud reimbursement, apart from one – Russia, a country the UK government would likely not want to associate itself with at the best of times, and certainly not in today’s tense geopolitical environment.
“We need to not hold the arrogance that we’ve potentially had about our strength as the kind of financial institutions across the world, because they’re looking at us differently, and I think they’re watching,” Dr Harding remarked.
Unsurprisingly, the PSR is confident that the rule it spent a significant amount of time crafting, implementing and persuading the industry to go along with will have a positive impact.
The regulator’s main argument is that banks will do more to prevent fraud now they have more of a financial incentive to do so. Though this may have been difficult for some banks to acknowledge, many of them did so at FC360.
“There is still more that can be done to address issues of fraud,” Hammer summarised. “The shifting of liability, the split between sending and receiving firms, creates a new set of incentives that wasn’t there before.”
Though the PSR, Vixio and Pay.UK have not experienced any surge in claims or fraud attempts, others like We Fight Fraud’s Dr Harding project that the industry will see fraudsters making claims in an attempt to illicitly claim reimbursement.
The consultancy’s CEO raised one more point, one which regulators and the industry should always keep in mind. As a side note, it is important to note that they are keeping this in mind, as many have informed Payment Expert, but the significance of fraudsters’ technological capabilities and criminal skills can never be ruled out.
“We should not underestimate our adversary in this, they know our systems better than we do,” Dr Harding warned.
Regulators and the industry need to be at the top of their game to fight fraud, especially in today’s digitally driven age and with access to tools like AI deepfakes.
The sector and regulators need to find common ground, and move past the disagreements over reimbursement – but the fact it is still early days on this policy and its full impact has yet to be seen means the debate will not have abated until well into 2025.
