Fraud has become an endemic problem affecting both customers and businesses across British society to the tune of millions of pounds. Various agencies have a role in prevention and reimbursement, the government is no exception.
Elected two weeks ago with one of the biggest majorities in British political history, the Labour Party is sitting on an already extensive mandate.
Whilst maybe not the most visible or widely discussed in comparison to areas like foreign policy, house building and general economic growth, financial services is an important area for the government to monitor. A central talking point over recent years in Britain’s financial services circles has been fraud, particularly Authorised Push Payment (APP) fraud.
“APP fraud remains a pressing issue demanding decisive action,” says Dan McLoughlin, Fraud and Security Specialist at Lynx, an AI-driven software company.
“Britons fell victim to a staggering £459.7m in losses due to APP fraud in 2023, with over 116,000 confirmed cases reported in the first half alone – a 22% increase from the same period in 2022.”
Overseeing the financial services remit politically is the newly appointed Economic Secretary to the Treasury and City Minister Tulip Siddiq, who reports to the Chief Secretary to the Treasury and Chancellor of the Exchequer. These three roles are the ones which will have the most political relevance to APP fraud.
Fraud has caught regulatory attention prior to the UK’s change of government this month. The Payments Systems Regulator (PSR) has the chief regulatory remit over fraud and is introducing new reimbursement rules on 7 October.
These requirements have not been entirely well received by Britain’s payments industry, however. The aforementioned Payments Association has notably criticised the fact that responsibility has been placed only on payments firms – split 50/50 between the paying and receiving company, with reimbursement up to a loss of £415,000.
Stakeholders are concerned that this could significantly increase the burden faced by Britain’s payments firms, part of the country’s extensive – and growth-driving – financial services sector.
Before the election, TPA wrote a letter to the incoming Chancellor urging a rethink of these rules. One of its biggest calls for action was on fraud, arguing that the reimbursement rate should be capped at £30,000 a significant reduction from the initial rate of £415,000.
Not everyone feels that this would be necessary, however, as McLoughlin continues: “While financial institutions have grappled with the challenge of preventing such fraudulent activities, changes to the pending APPF regulation are unnecessary. The logic behind the high-value cap on reimbursement – £415,000 – is clear.
“By setting a substantial reimbursement limit, regulators are effectively saying to banks: “prevent fraud or be prepared to pay.” This financial motivation should drive increased investment in robust fraud detection and prevention systems, ultimately safeguarding consumers.
“It could be argued that reducing the reimbursement rate would further reduce trust in the financial system, reduce innovation in combating fraud yet still force smaller players out of the UK.
“It would also induce greater levels of criminal money in the UK financial system and leave vulnerable and underbanked consumers at a greater risk of suffering from fraudulent attacks.”
Labour’s intentions around the APP fraud reimbursement cap are not entirely clear, but TPA and other payments stakeholders have gained some clarity in one area – that being who should have responsibility.
A policy document seen by the Financial Times suggests that the party wants to shoulder some responsibility onto Big Tech and social media firms, something which may be welcomed by various banks and financial businesses like Reovlut, Barclays and TSB.
Tulip Siddiq is less than one week into her tenure as City Minister and Economic Secretary and has an extensive agenda to handle. How she approaches fraud and fraud reimbursement could significantly define her relationship with the payments sector moving forward, as Labour returns to government after a 14-year absence.