Taking action against financial crime is a key priority in the FCA’s 3-year strategy, and this month saw the continuation of this theme with more developments in APP Fraud Reimbursement.
The FCA issued a “Dear CEO” letter on the 7th of October 2024 to payment and e-money firms, highlighting critical expectations around Authorised Push Payment (APP) fraud reimbursement. This letter serves as a strong reminder for firms to strengthen consumer protections, particularly in light of rising APP fraud cases.
Below, we outline the main takeaways from the FCA’s letter and suggest steps firms can take to align with these expectations.
Key Takaways
Enhanced Anti-Fraud Systems and Controls
The FCA’s letter calls on firms to enhance their anti-fraud systems and controls.
This involves a comprehensive approach across several operational areas, including:
- Onboarding new customers — Firms are expected to implement strong due diligence measures when onboarding new customers to identify any potential fraud risks early and take action.
- Monitoring transactions — Effective ongoing monitoring is essential to identify suspicious activities. The FCA advises firms to review and update their transaction monitoring systems regularly to adapt to emerging fraud patterns, and to embrace the latest technology to do so.
- Arranging adequate governance — The letter emphasises the importance of strong governance over fraud prevention, with clear accountability and periodic review of fraud measures.
By strengthening these systems, firms can improve their detection and prevention of APP fraud, reducing the potential for consumer harm and meeting obligations under the Consumer Duty.
Consumer Duty Compliance
In line with outcomes under the Consumer Duty, the FCA emphasises that firms must avoid causing foreseeable harm to consumers, including harm that may arise from insufficient fraud protections.
If APP fraud does occur, the FCA expects firms to:
- Act promptly and in good faith to address the issue.
- Consider suitable redress measures if a failure in their systems has led to consumer harm.
Information Provision
The FCA reinforces the requirement that firms provide customers with clear information on dispute resolution options, particularly in cases of APP fraud.
Firms are expected to inform eligible customers about Alternative Dispute Resolution Procedures and The Financial Ombudsman Service (FOS).
Capital and Liquidity Management
The FCA’s letter reminds firms to account for the financial implications of potential APP fraud reimbursement liabilities within their capital and liquidity management frameworks.
Firms are expected to:
- Assess the financial impact of their reimbursement obligations for APP fraud.
- Factor these considerations into their liquidity planning to ensure they are adequately prepared to meet potential liabilities.
In light of these requirements, firms may need to reassess their capital and liquidity positions to ensure they can sustain these obligations without compromising financial stability.
Next Steps
The FCA’s letter aims to improve consumer protection and ensure that payment and e-money firms are equipped to manage their APP fraud reimbursement and Consumer Duty responsibilities.
Firms are encouraged to assess their compliance with these expectations and to take proactive steps to align their policies and procedures with the FCA’s guidance.
If your firm requires support in understanding or implementing these requirements, API Compliance Ltd. is here to help. Contact us through the form below for more information.
