The UK’s Payment Systems Regulator (PSR) is set to reduce the maximum compensation limit for APP fraud victims to £85,000, down from the originally proposed £415,000.
This follows pressure from industry leaders and ministers who feared that the higher cap could incentivise fraudulent activity and strain smaller financial firms.
The decision comes as part of a new regime aimed at reimbursing victims of authorised push payment (APP) fraud, which cost Britons £459.7 million in 2023.
APP fraud typically involves criminals tricking individuals into sending money to fraudulent accounts by posing as legitimate entities.
While banks and payment firms currently handle compensation voluntarily, the new system seeks to standardise this process.
Larger firms such as TSB already offer significant guarantees, reimbursing victims up to £1 million, but many smaller firms struggle to meet such commitments.
Industry Divided
While some industry leaders welcomed the lowered cap, consumer advocates, including Which? have criticised the decision.
They argue that reducing the compensation limit will weaken protections for victims, particularly those affected by high-value scams, and remove incentives for banks and payment companies to implement robust anti-fraud measures.
Critics fear that reducing the reimbursement cap just weeks before its implementation could allow fraudsters to continue exploiting weaknesses in the system.
The PSR will also launch a consultation to assess the extent of fraud affecting transactions over £85,000 and review whether further adjustments are necessary.
As it stands, the reduced cap aligns with the financial services compensation scheme that protects depositors in the event of a bank failure.
However, there remains concern that even the £85,000 cap may still expose financial firms to significant risks. Fraudsters could potentially exploit multiple claims, leading to high aggregate liabilities.
Meanwhile, disparity in refund rates across UK banks also highlights inconsistencies in how different institutions handle fraud claims.
Some banks, like Nationwide and TSB, refund over 95% of lost funds, whereas others, such as Monzo and Danske Bank, offer far less comprehensive protections.
Despite industry concerns, the PSR aims to strike a balance between consumer protection and business sustainability.
However, the debate over fraud prevention, compensation limits, and the need for more stringent anti-fraud measures continues, as both regulators and financial institutions navigate the complexities of tackling fraud in an increasingly digital economy.
The PSR’s final decision will have far-reaching consequences for both consumers and financial institutions as they adapt to a rapidly evolving payments landscape.
Ultimately, while the revised cap may alleviate pressure on fintech firms and smaller financial institutions, ensuring that adequate fraud prevention measures are in place will be crucial for maintaining consumer trust and safeguarding the UK’s financial system.
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