The financial and fraud sectors are closely monitoring the impact of new regulations set to take effect at the end of October 2024. These rules will enable UK banks to delay suspicious payments for up to four days, a move designed to combat rising fraud but one that has sparked debate across industries.
New Legislation Targets Fraud Prevention
The upcoming regulations will allow banks to hold payments they suspect of being fraudulent for as long as 96 hours, a significant shift from the current system, which mandates that payments be processed or rejected by the following business day.
The change is seen as a response to the increasing threat of fraud in the UK, particularly authorised push payment (APP) fraud, which has been one of the most prevalent types of fraud in the country. Financial institutions have been lobbying for extended time to scrutinize suspicious transactions, and this legislation marks the culmination of those efforts.
Protecting Consumers from Fraud
Paul Wainwright, a member of the fraud sector focus team at the Forum of Insurance Lawyers, welcomed the new measures. “The counter-fraud community is likely to support this move,” Wainwright said. “APP fraud was the most common form of fraud last year, and anything that can give banks more time to investigate could be a game changer.”
Fraud now accounts for nearly one-third of all crime in England and Wales, making the need for robust protective measures more urgent than ever. The four-day hold is intended to give banks the time necessary to scrutinize irregular spending patterns and conduct deeper investigations before releasing funds.
Concerns Over Transaction Delays
While the extended hold period aims to reduce fraudulent transactions, some industry experts have raised concerns about the unintended consequences of delayed payments, particularly in cases of time-sensitive transactions.
Wainwright expressed worries about the potential impact on urgent financial matters, such as mortgage completions, business acquisitions, or other significant transactions where immediate payment is essential. “Delays in processing payments could cause serious complications,” he said. “For instance, in the property market, homebuyers may find themselves unable to quickly transfer large sums for deposits, creating potential barriers in the process.”
The Society of Licensed Conveyancers has echoed these concerns, describing the four-day freeze as a potential obstacle for homebuyers, who often need to act swiftly in transferring funds for property purchases.
Financial Risks for Banks and PSPs
In addition to concerns over delayed transactions, banks and Payment Service Providers (PSPs) may also face new financial risks. They could be held liable for fees, interest, and other costs resulting from payment delays. Wainwright warned that PSPs might find themselves exposed to further liability, especially in cases where suspicion of fraud turns out to be unfounded.
“These provisions may not cover the full costs associated with delays, leaving PSPs vulnerable to contractual breaches,” Wainwright explained. “This could be particularly problematic where time-sensitive agreements are in place, and suspicions of fraud are later proven to be unreasonable.”
The Road Ahead
As the new regulations come into force, the financial industry will be watching closely to see whether the extended hold period strikes the right balance between protecting consumers and avoiding disruptions to legitimate transactions. While the measures aim to bolster fraud prevention, questions remain about how they will affect everyday banking operations and critical financial transactions in the UK.
Only time will tell if this new approach to combating fraud delivers the expected benefits, or if the drawbacks, particularly in terms of delayed payments, outweigh the gains.
Related Topic:
Impact Finance Belgium Outlines Key Steps to Boost Impact Investing
BNP Paribas Enhances Triparty Collateral Services with Pirum Integration
