The UK Treasury and the Financial Conduct Authority (FCA) have raised concerns over a looming fraud refund scheme that could bring significant challenges to the financial sector, CityA.M reported.

The Payment Systems Regulator (PSR)'s new rules, set to take effect on October 7th, would require banks and fintech firms to fully reimburse victims of authorized push payment (APP) fraud up to a cap of £415,000, splitting the cost between the sending and receiving firms.

Concerns about Industry Impact

However, concerns are mounting that the scheme could inflict long-lasting damage on the industry, particularly on smaller players. APP fraud, which cost Britons nearly £460 million last year, has prompted regulatory action to protect consumers. However, the aggressive timeline for implementing the PSR's reimbursement rules has sparked anxiety across the financial sector.

Sources familiar with the matter revealed that Labour City Minister Tulip Siddiq and Chancellor Rachel Reeves have both expressed apprehensions about the October deadline. Siddiq is particularly worried that the timeline might be too tight for effective implementation.

The new rules mandate that all firms involved in the payment chain, including roughly 1,500 payment firms, must adhere to a stringent five-day reimbursement window.

This requirement has raised alarms that many firms may struggle to utilize the claims management system designed for the regime, potentially forcing them to resort to manual reporting, a move that could complicate communication between companies and delay payments to fraud victims.

Skepticism in the Industry

Pay.UK, the organization tasked with building the system, insists that it will be fully operational by the deadline, but the industry remains skeptical. The fear is that smaller players could find the scheme unaffordable, leading to a chilling effect on investment in the UK's fintech sector.

As the October 7th deadline looms, the financial sector braces for the potential fallout from the PSR's new rules. The Treasury's concerns, combined with the industry's warnings, suggest that the scheme could face significant challenges in its early stages.

Commenting about the new scheme, Silvija Krupena, Director of the Financial Intelligence Unit at RedCompass Labs, said: “Reports that the regulator could delay or change the threshold for the new reimbursement scheme shows these new rules don't stand up to scrutiny, and it is now vital that the industry's concerns will be listened to.”

“These new rules have the potential to inflict long-lasting damage on the banking industry,” Krupena explained. “While helping scam victims, solely reimbursing losses does nothing to solve the crime problem.” According to her, the government and regulator should now take a holistic approach that considers tech and social media companies.

Last month, the FCA published new rules to establish a simplified listings regime with a single category and enhanced eligibility for companies planning to list their shares in the UK. The latest listing rules aim to better align the UK’s regime with international market standards.