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.
Initially, banks could only hold payments for 24 hours but, starting from 7 October, this period will be extended when there are reasonable grounds to suspect fraud or suspicious activity.
Introduction of New Powers
Banks in the UK will soon have new powers to freeze large payments suspected of fraud. This change comes into effect on 7 October, part of updated fraud prevention measures.
The updated rules will allow banks to freeze suspicious transactions for up to four days. This extension from the previous 24-hour limit aims to provide banks with more time for thorough investigations.
Reasonable Grounds for Suspension
Under the new legislation, banks can extend the freeze period only if there are reasonable grounds to suspect fraud. This also includes unusual activity that does not match a customer’s normal financial behaviour.
Proposed by the Conservative government and supported by Labour, the legislation is described as an essential tool for combating fraud. A Treasury source confirmed its implementation this autumn.
Expert Opinions and Concerns
Bim Afolami, the then-city minister, referred to the new rules as “another weapon in our arsenal to tackle fraud.”
However, some legal experts suggest that these new measures may cause significant disruptions. Gareth Richards of the Society of Licensed Conveyancers commented that sufficient steps already exist within banks to identify suspicious activity.
New APP Fraud Reimbursement Rules
From October, banks will need to reimburse victims of Authorised Push Payment (APP) fraud. This includes scams like romance fraud, fake purchase schemes, and investment scams.
Victims will receive refunds unless they ignored bank warnings, delayed reporting the fraud, refused to share details, or acted with gross negligence. Vulnerable customers will have additional protections.
Funding and Compliance
The first year of the scheme will be funded by a levy on Faster Payments transactions. Pay.UK will oversee the programme, with over 480 businesses already registered.
Banks and payment providers had a registration deadline of 20 August. The Payment Systems Regulator (PSR) sent reminders to firms that had yet to comply.
Previously, reimbursement under the Contingent Reimbursement Model (CRM) agreement was voluntary. Rates of reimbursement increased from 19% in 2018 to 62% by 2022.
Caps on Bank Liability
The maximum liability for banks under the new regime will be capped at £415,000 per case.
The Treasury has declined to comment on these new measures.
Conclusion and Implications
The introduction of these powers signifies a significant step in fraud prevention. Extending the freeze period to four days will provide banks with more time to conduct in-depth investigations.
While some concerns have been raised about potential disruptions, the measures aim to enhance the protective framework for consumers, especially in the face of rising APP fraud cases.
This move by the UK government underlines a robust approach to tackling fraud. By extending the freeze period for large transactions, banks are better positioned to protect consumers.
Although it has sparked some debate, this measure is a key development in the broader strategy to fight financial crime and support fraud victims.
