In response to the PSRs implementation of reimbursement requirements for APP fraud carried out through the Faster Payments System (FPS) and CHAPS; the FCA outlines its expectations for Payment Service Providers (PSPs) concerning the Consumer Duty and what firms can anticipate from the FCA through a data-driven approach to tracking progress. The FCA mandates that firms establish adequate oversight, systems, and controls to meet these requirements.
- PSPs must be aware of the financial and operational risks associated with PSR APP fraud reimbursement, recognising that increased liability could strain capital and liquidity, leading to regulatory concerns.
- Banks and Building Societies must take proactive steps to prevent scams and protect customers. Inadequate systems can lead to consumer harm. Firms must rectify situations promptly and support customers throughout the product lifecycle.
- Broader implication for Financial Institutions: Failure to effectively prevent fraud results in a multi-layered impact, including reputational damage, erosion of customer trust, and increased operational costs. These factors collectively threaten the long-term sustainability and market position of financial institutions.
With key APP Requirements in place as of 7 October, PSPs must have effective systems and controls, as the FCA has outlined expectations for preventing consumer harm and informing consumers of their rights.
Key highlights within both letters include:
- Institutions offering reduced protection for intra-firm payments must contact the FCA and explain the steps taken to meet Consumer Duty obligations.
- Effective systems and controls during onboarding and ongoing transaction monitoring are crucial in helping PSPs detect potential fraud and minimise liability.
- PSPs are expected to review and adjust their business models and transactions to mitigate the prudential risks posed by potential APP fraud reimbursement liabilities.
- PSPs must inform customers about alternative dispute resolution options and the availability of the Financial Ombudsman Service.
- The FCA and PSR will collaborate to monitor firms' compliance, using data to track prudential issues, conduct breaches, and inadequate systems and controls, ensuring they effectively protect consumers from APP fraud.
The FCA highlights in both letters that “PSPs should be working to reduce APP fraud by improving their anti-fraud systems and controls”
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