New code for reimbursement of push payment fraud

• Number of cases of push payment fraud jumped 93% last year
• New code for claiming reimbursement applies to consumers and micro-enterprises but not larger businesses

A new voluntary code of conduct that will allow victims of Authorised Push Payment (APP) fraud to claim reimbursement comes in today, says Pinsent Masons, the international law firm.

The code sets out a number of measures that banks and payment service providers will take to detect, prevent and respond to APP fraud. Signatories agree to reimburse victims if certain criteria are met.

APP frauds occur where a victim authorises a bank transfer into an account which they believe is controlled by a legitimate payee, but actually belongs to a fraudster. The number of reported cases of APP fraud jumped 93% over the last year alone to 84,600*, up from 43,900 in 2017.

New code: what do businesses need to know?

Pinsent Masons explains that the new code only applies to consumers, micro-enterprises; which are those with fewer than ten employees**, and charities. The code is not intended to cover businesses.

Pinsent Masons says larger businesses will need to pursue the civil route to recover lost funds from fraudsters. With civil recovery, the victim is able to focus on recovering lost funds through issuing ‘disclosure orders’, ‘search and seizure orders’ and ‘freezing orders’ soon after the fraud happens.

Alan Sheeley, Head of Civil Fraud & Asset Recovery at Pinsent Masons, says: “The code is a welcome step towards tackling this fast-growing type of fraud and its often devastating consequences.”

“However, we see larger businesses fall prey to APP fraud who will not be covered by this scheme. It is important that these businesses are aware of the effective methods of recovering lost monies under the civil law.”

“Better awareness of civil recovery methods is critical, particularly because they have to be pursued swiftly if they are to succeed. Any delays can mean the further dissipation of stolen assets.”

Pinsent Masons, which responded to the Payment Service Regulator’s (PSR) consultation on the establishment of a reimbursement model, made the following recommendations to the PSR to make the recovery process easier for larger businesses who are victims of APP fraud:

• There should be a framework for sharing information related to the fraud with the victim as this enables them to bring a civil claim and issue court orders faster. Delays increase the chances of stolen funds being dissipated or put further out of reach
• Larger businesses need to be educated on the benefits of pursuing civil recovery and on the use of court orders to recover funds at the beginning of an investigation

Reimbursement may not be available to victims if certain criteria are not met; for example, this includes:

• If victims ignored warnings about scams when setting up and amending payees, or before making a payment
• If victims did not take care to establish that the person who received money was legitimate
• If victims were ‘grossly negligent’
• If victims acted dishonestly when they reported the scam
• If the victim was a micro-enterprise or charity and did not follow internal procedures for making payments

*UK Finance ‘Fraud: The Facts’ 2019

**Or turnover of less than €2m each year