Understanding APP Fraud and the New Regulations: What Businesses Need to Know
Authorised Push Payment (APP) fraud has become a growing threat, targeting both individuals and businesses. Scammers trick victims into authorising payments to accounts under their control. As these payments are willingly made, victims often struggle to recover their money. However, new regulations are coming into effect on the 7th of October 2024 that aim to change that.
What is APP Fraud?
APP fraud occurs when a fraudster deceives you into transferring money to their account. They might pose as a supplier, a trusted contact, or a legitimate business. Once the payment is made, recovering the funds can be challenging.
The New Regulations: What’s Changing?
Starting on the 7th of October 2024, UK Payment Service Providers will be required to reimburse victims of APP fraud, unless the victim is proven to be grossly negligent. Under these new rules, customers must meet a ‘standard of consumer caution’ by paying attention to bank warnings, promptly reporting fraud, sharing information, and consenting to report the fraud to the police. If a customer fails to meet these requirements, their claim could be denied, but the burden of proof lies with the bank. Vulnerable customers are exempt from these strict standards.
The maximum reimbursement level will be set at £415,000, aligning with the Financial Ombudsman Service (FOS) compensation limit. Reimbursement costs will be shared between the customer’s bank and the fraudster’s bank, with both institutions expected to take more proactive measures to prevent fraud. The CRM Code will also play a role, requiring banks to consider a broader range of factors before refusing a claim.
What will be the Impact on Insurance and Businesses?
Increased Business Liability
Even though banks and payment service providers are now sharing the liability for APP fraud, businesses must continue to be vigilant. If a company falls victim to fraud, and the payment is authorised, the business might face difficulties in recovering the funds without proper safeguards in place.
Insurance Considerations
Businesses should review their insurance policies to ensure they are covered for losses related to APP fraud. While the new regulations provide some protection through bank reimbursement, insurance can offer an additional safety net, especially for businesses that handle large transactions or deal with high-risk payments.
Cyber Insurance
Many cyber insurance policies include coverage for financial losses due to fraud. However, not all policies are the same. Businesses should consult with their insurance broker to understand the extent of their coverage and whether additional protection is necessary.
How to prepare your business:
Strengthen Internal Controls
Implementing strong payment verification processes can reduce the risk of falling victim to APP fraud. Educate employees about the dangers of APP fraud and establish clear procedures for verifying payment requests, especially those involving large sums or new suppliers.
Review Your Insurance Policies
Work with your insurance broker to review and update your cover. Ensure your business is protected against the financial impact of APP fraud, both through your bank and your insurance policy.
Monitor Transactions
Regularly monitor your business accounts for unusual activity. Early detection of fraudulent transactions can increase the chances of recovery and limit potential losses.
The new APP fraud regulations set to take effect on October 7th 2024, mark a significant step forward in protecting businesses and consumers from this growing threat. However, the responsibility doesn’t end with the banks. Businesses must take proactive measures to protect themselves and ensure they have the right insurance coverage to mitigate the risks. Working closely with an insurance broker can provide peace of mind and financial security in an increasingly complex financial landscape.
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