A British treasury official has reportedly criticized proposed fraud reimbursement measures for banks and FinTechs.
The plan would require those companies to repay fraud victims as much as 415,000 pounds ($520,760). However, Bim Afolami, City minister for London and economic secretary to the Treasury, told the Financial Times Monday (May 20) that there were “significant problems” with the proposed rules.
His comments came days after he received a letter from the U.K.’s Payments Association warning that the new rules — proposed by the country’s Payments Systems Regulator (PSR) — would harm smaller banks and payment companies.
The changes, set to go into effect in October, are designed to combat a surge in authorized push payment (APP) fraud.
This fraud involves a customer instructing their bank to move money to another account, often for what they think is a legitimate purpose like paying bills. But that payment is part of a scam, with the person on the other end of the transaction a criminal.
That doesn’t matter. Once the transaction is authorized, it’s final, leaving the victim empty-handed and the scammer escaping with the money.
According to the FT report, critics of the proposed rules include UK Finance, which represents the banking sector and argues that the regulations “may encourage more complicit fraud,” or even lead scammers to pose as victims to recoup even more money.
“I was not in favor of what they did, but I did not have any legal ability to stop it,” Afolami said of the regulator. “It was entirely a PSR decision.”
“They agreed that they would review the evidence this year to see whether mine and the industry’s fears had been realized. I do think there are significant problems with this,” he added.
The report includes a comment from the PSR: “By introducing our new reimbursement requirements, we’re significantly increasing protections for people. Our approach incentivizes all payment firms to prevent APP fraud from happening in the first place.”
PYMNTS explored the proposal in March, arguing that the policy “put banks and payment firms in a tough spot.”
“The new liability placed on them incentivizes them to take measures to minimize the occurrence of such fraud, and to protect themselves from potential losses, banks might opt to revoke or restrict the option for consumers to make authorized push payments — inconveniencing their customers and restricting their ability to make payments at the same speed as their peers in other countries,” that report said.