FCA proposes to extend FOS jurisdiction to cover bank transfer fraud

The FCA has published a joint consultation paper with the Financial Ombudsman Service (FOS) which, most notably, proposes to extend the jurisdiction of the FOS to cover complaints by payers who are victims of alleged authorised push payment (APP) fraud against the payee's payment service providers (PSPs) who receive the funds in the relevant transaction. PSPs will need to review their account opening and push payment request procedures to ensure that they are sufficiently robust to reduce the risk of APP fraud, taking into account the new ability of payers to complain to payees' PSPs.

This work is linked to a super-complaint from Which? in 2016, which related to concerns it had around consumer safeguards in the push payments market. Following this, in late 2017 the Payment Systems Regulator (PSR) outlined a new proposal for a "contingent reimbursement model" to protect customers who are tricked into transferring money to fraudsters via an APP. For more information, take a look at our previous FIsion blog posts, 'PSR responds pragmatically to growing problem of bank transfer fraud' and 'PSR announces development of industry code for "contingent reimbursement model" to protect customers'.

Extending the FOS jurisdiction: Victims of alleged APP fraud to complain directly against payee's PSP

The overarching intention behind the consultation is to reduce the harm experienced by victims of APP fraud.

As things currently stand, the FOS can't consider complaints by payers against PSPs who have received funds in a payment transaction (ie the payee's PSP). Its compulsory and voluntary jurisdictions provide only limited circumstances in which it can consider complaints against third parties. This means that victims of APP fraud can't escalate their complaints to the FOS if they don't receive a satisfactory response (or any response) from the PSP.

The FCA's main proposals would:

  • require the payee's PSP to handle complaints concerning alleged APP fraud in line with the DISP sourcebook; and
  • make an exception to the current FOS position on complaints against third parties by enabling victims who are eligible complainants and are unhappy with the outcome reached by, or the lack of response from, the PSP to refer these complaints to the FOS.
The proposed amendments to the DISP sourcebook note that for a complaint to be eligible to be referred to the FOS, it must relate to an alleged APP fraud and not to a PSD complaint. This means the standard 8 week time period for dealing with complaints will apply (and not the shorter 15 business day period applicable to PSD complaints).

There is also a proposal to extend the FOS jurisdiction to cover complaints about a payee’s PSP’s cooperation with the payer’s PSP to recover funds involved in a payment transaction, where incorrect details have been provided.

Definition of APP fraud

The consultation also asks for views on a Glossary definition for APP fraud, so the proposed changes would also see amendments made to the Glossary of the FCA Handbook.

The proposed definition aims to capture some of the more common types of APP fraud, namely:

  • impersonation, where the payer intends to transfer the funds to a particular person or organisation but is instead deceived into transferring funds to a different person or organisation; and
  • purchase, where the payer transfers funds to another person or organisation for what they believe are legitimate purposes, but which are in fact fraudulent.

What's the impact?

The FCA acknowledges that a wider impact of the proposals could be that PSPs increase security measures – for example, carrying out more intense checks - to strengthen their fight against APP fraud. In doing so, the steps required to open an account or request a push payment could become increasingly complex.

Next steps

Responses to the consultation should be submitted by 26 September 2018. The FCA intends to publish finalised rules in November 2018, most of which would apply to any act or omission from 1 January 2019. The exception would be the rules relating to complaints regarding PSPs' obligations to cooperate to recover funds, where incorrect details have been provided. These would take effect as soon as the finalised rules are made and would apply to any act or omission from 13 January 2018.

The FCA also plans to consult later in the year on requiring PSPs to report data on APP fraud complaints.

The FOS is willing to consider suggestions for extending its voluntary jurisdiction to include complaints about other kinds of fraud. It invites stakeholders' views on whether this is something they would want, the form it should take, and what types of complaints it should include. Depending on feedback, this would be subject to separate consultation by the FOS.

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