The regulator will appoint and oversee a 'steering group' of consumers and industry representatives, who will work to develop a contingent reimbursement model under which some victims of APP scams will be reimbursed. This model will be set out in an industry code of practice, which the Financial Ombudsman Service (FOS) will be able to take into account from September when dealing with consumer complaints about APP scams and reimbursement.
A consultation exercise, conducted by the regulator, found "broad agreement" for the need to better protect people against APP scams, not only from consumer groups and individuals but also from the payments industry. While some banks and payment providers are willing to reimburse consumers that fall victim to these scams, their willingness to do so often depends on the individual policies of each provider.
Alan Sheeley and Jennifer Craven, civil fraud and asset recovery experts at Pinsent Masons, the law firm behind Out-Law.com, responded to last year's consultation by the PSR on APP scams.
"We are seeing increased numbers of APP scams and other financial cyber crimes, and submitted a response to the consultation in view of our experiences in this area - being the only law firm to publicly do so," said Sheeley. "We are therefore very interested to see the proposals for a contingent reimbursement model which the PSR will now carry forward."
"It is positive that the PSR has expressly recognised, by making it a core principle of the industry code, the scope for commercial development of other innovations to provide customers with additional protection. In our consultation response, we suggested one such innovation which might be explored by the industry: the development of an insurance-based solution whereby additional protection for payments could be purchased by consumers, akin to the Royal Mail's tiered model of postage options, which provide different levels of compensation for lost items. We are interested to see whether there will be any take-up of this or other additional measures," he said.
APP scams occur when individuals are tricked into sending money to an account that they believe is owned by a legitimate payee, but which is in fact controlled by a fraudster. Unlike in other cases of payment fraud, such as credit card fraud, the bank authorises the payment in response to an instruction from its customer. APP scams are becoming a growing problem, with 19,000 victims in the first six months of 2017 who were scammed out of over £100 million in aggregate, according to UK Finance.
Tackling the growth of these frauds is "an important development if trust is to be maintained in the retail banking market", particularly given the recent launch of the 'Open Banking' initiative to facilitate access to bank account information, according to banking law expert Tony Anderson of Pinsent Masons.
The contingent reimbursement model which will be developed by the PSR and its steering group will set out the circumstances in which consumers who have acted appropriately should expect to be reimbursed after an APP scam. It is intended that the model will be developed in such a way as to minimise the number of scams in the future by encouraging consumers to remain vigilant, while also protecting victims, the PSR said
The group will start work later this month, and produce an interim code for adoption by the industry and public consultation by September 2018. This code will then be refined, and the regulator expects that it will continue to evolve to ensure that any preventative measures contained in it remain up to date as technology develops.
Civil fraud expert Jennifer Craven said that even once the code was in place, civil recovery methods would "remain vital for many victims of fraud if they are to have any prospect of recovering the monies they have lost".
"This is particularly the case for businesses which, other than micro-enterprises, are excluded from the scope of the contingent reimbursement model, but which may nonetheless fall prey to APP and similar fraudulent scams," she said.