On 28 May 2019, the Voluntary Code on Authorised Push Payment (APP) scams came into force. It is intended to provide greater protection for consumers and clarify the circumstances in which their banks should reimburse them for their losses arising from an APP scam. In an APP scam, the account holder is tricked into authorising a payment to be made to another account. Fraud continues to be a huge problem in the UK, with the most recent figures from UK Finance confirming that £1.2 billion was stolen by criminals through fraud and scams in 2018. UK Finance members also reported 84,624 incidents of APP scams with gross losses of £354.3 million.
The Code clarifies the standards expected of banks for detecting, preventing and responding to an APP scam. The Code also details the circumstances under which a customer should be reimbursed if they fall victim to an APP scam, and confirms that a decision needs to be made on reimbursement without undue delay, and in any event no later than 15 business days after the customer reported the scam. The Code does allow a bank to delay this period in exceptional circumstances to up to 35 business days after the APP scam was reported. The Code does not apply to any APP scams before 28 May 2019.
Mehmet Karagoz, Managing Associate in Fraud Defence says:
"Whilst the Code sets out a useful framework for reimbursing victims of APP scams, it is clear that there are also several exceptions which need to be carefully considered. The exceptions enable a bank to refuse to reimburse a customer and include instances where a customer has been grossly negligent. The Code doesn't define what constitutes gross negligence, which leaves open the possibility that banks will interpret gross negligence in different ways, resulting in certain customers being reimbursed and others being left out to dry. The Code also provides an exception where the customer is a micro enterprise (employing fewer than 10 people with annual turnover/balance sheet not exceeding €2 million) or a charity (with annual income less than £1 million), and where the micro enterprise or charity failed to follow its own internal procedures for approval of payments and those procedures would have been effective in preventing the APP scam. It is therefore extremely important for micro enterprises and charities to review their internal procedures and ensure their finance staff are up to speed on best practice. If these organisations do not have internal procedures, they should implement appropriate checks and controls without delay. It will be interesting to see how the banks actually apply the Code in practice, and how easy or difficult it will be for customers to be reimbursed for what is undoubtedly a growing area of fraud in the UK."
Kathryn Garbett, Partner in Fraud Defence added:
"The Code is an important step in the fight against APP fraud but this is a voluntary code and delivers a commitment only from those who sign up to it. The Code also includes an exception where a customer fails to take appropriate action following a clear negative Confirmation of Payee result. Confirmation of Payee is a name checking service which seeks to ensure that names of payment recipients are checked before payments are sent. An alert will notify the payer when there has not been a match, meaning corrections can be made before the payment is made. Unfortunately, the Confirmation of Payee systems has still not come into force, and the latest indications from the Payment Systems Regulator is that it is unlikely to come into force until March 2020 at the earliest. It is hoped that the Confirmation of Payee system will greatly assist in the reduction of APP scams but until such time, customers will need to rely on the Code or take civil action to recover their losses themselves. If an individual or organisation falls victim to a fraud, they should always inform their bank immediately to try and freeze and reverse the transaction, if possible. If the bank is unable to help, liaising with a specialist fraud solicitor as soon as possible to obtain disclosure orders and freezing orders on the recipient's bank account could make a huge difference in being able to recover the funds. Speed is always of the essence when faced with fraud."