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Banks to gain new powers to freeze large payments for fraud checks

September 7, 2024

Banks in the UK will soon be granted new powers to freeze large payments for up to four days as part of updated fraud prevention measures set to take effect this autumn.

The changes are being introduced ahead of a new fraud regime starting on 7 October, which will require banks to reimburse nearly all victims of “Authorised Push Payment” (APP) fraud—a type of scam that cost consumers £460 million last year.

Currently, banks can only hold authorised payments, those approved by the customer, for up to 24 hours while conducting investigations. However, the new legislation will extend this period by an additional 72 hours, but only where there are reasonable grounds to suspect fraud or unusual activity inconsistent with a customer’s normal financial behaviour.

The legislation, originally proposed by the Conservative government and supported by Labour earlier this year, will be pushed through Parliament this autumn. A Treasury source confirmed the new rules, describing them as an additional tool to combat fraud. Bim Afolami, then city minister, noted the measure as “another weapon in our arsenal to tackle fraud.”

However, some legal experts warn that the added bureaucracy could cause significant disruptions, particularly for home movers. Gareth Richards of the Society of Licensed Conveyancers commented, “We believe that there are already sufficient steps in place for banks to identify unusual or suspicious activity on the accounts under their control.”

The introduction of these powers comes as the financial sector prepares for controversial new rules requiring banks to reimburse all victims of APP fraud from October. APP fraud includes scams such as romance fraud, fake purchase schemes, and investment scams.

Under the new guidelines from the Payment Systems Regulator (PSR), victims will be eligible for refunds unless they ignored warning messages from their bank, delayed notifying the bank of the fraud, refused to share details of the fraud with their bank or the police, or acted with gross negligence. Vulnerable customers will have additional protections, making it even more challenging for banks to deny refunds. The maximum liability for banks under the new regime will be capped at £415,000 per case.

More than 480 businesses have already registered with Pay.UK, the operator overseeing the scheme, which will be funded in its first year by a levy on transactions made through the Faster Payments system. Banks and payment providers were required to register by 20 August, with the PSR sending reminders to firms that have yet to comply.

Previously, banks could voluntarily adhere to the Contingent Reimbursement Model (CRM) agreement to reimburse victims of APP fraud. In 2018, before the voluntary scheme, reimbursement rates were around 19%, but this rose to 62% by 2022.

The Treasury declined to comment on the new measures.