Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Banks will be given more time to investigate potentially fraudulent payments under anti-scam legislation to be published by the UK government on Wednesday.
Banks must currently process payments by the end of the following business day in most cases even if they suspect wrongdoing, which limits their chances of halting transactions involving fraudsters.
The government’s draft legislation, which ministers intend to pass into law by October 7, will allow banks and payment groups to delay processing transactions by a further 72 hours if they have reasonable grounds to suspect fraud or dishonesty.
The extra time would make it easier for banks to contact customers, police and other relevant parties in relation to suspicious payments.
The legislation is designed to crack down on “authorised push payment fraud”, where a customer is tricked into initiating and authorising a transaction.
Often this is done by fraudsters tricking a customer into paying for goods that never arrive, or by scammers impersonating bank staff and persuading a victim to transfer money.
It can also take the form of “romance fraud”, in which a fraudster dupes their victim into developing a romantic attachment to them.
Victims lost an estimated £485mn to authorised push payment fraud in 2022, according to the government.
“Fraudsters spin whole webs of lies and fabricate all sorts of things to convince people to send them money,” said City minister Bim Afolami.
“This legislation will give banks, other payment service providers and law enforcement more time to get in touch with victims and break the fraudster’s spell before money is sent,” he said, adding that the government recognised “the impact of this devastating crime on victims”.
The extended timeline for banks to delay payments will put a fresh focus on financial institutions’ IT systems because technology that erroneously flags legitimate transactions as suspicious could result in days-long delays to customers’ transfers of money.
The Financial Conduct Authority, the City of London regulator, warned last year that some payments groups “freeze a disproportionate number of accounts, for too long, and without adequate explanation”.
The planned legislation was welcomed by banking trade association UK Finance, which said the rules “could allow payment service providers time to get in touch with customers and give them the advice and support they need to avoid being coerced by the criminals who want to steal their money”.
Afolami is due to announce the legislation at a global fraud summit in London hosted by the UK.
