UK Scales Back Plans to Force Financial Firms to Reimburse Fraud Victims Up to £415,000

The UK’s Payment Systems Regulator (PSR) has announced a significant revision to its earlier plans that would have mandated financial firms to reimburse fraud victims up to £415,000. Instead, the regulator has proposed capping payouts at £85,000, aligning it with the Financial Services Compensation Scheme (FSCS) limit.

The change follows considerable lobbying from businesses and politicians who expressed concerns over the higher potential payouts. In a newly published set of proposals, the PSR explained that the decision was informed by a review conducted in 2023, which analyzed 250,000 instances of scams. Out of all those cases, only 18 involved losses exceeding £415,000.

“After considering the findings and evidence provided, the PSR is consulting on a new cap,” the organization said in its latest statement. “If confirmed, this would bring the cap in line with the Financial Services Compensation Scheme (FSCS) limit which is currently £85,000.”

The initial £415,000 reimbursement limit had been set in accordance with the maximum reimbursement value under the Financial Ombudsman Service. However, the current cap proposal seeks to reduce potential payouts significantly, despite the PSR previously suggesting that lowering the cap could drive victims to appeal to the Financial Ombudsman in hopes of recovering the rest of their losses. “Setting a limit substantially beneath £415,000 would encourage victims whose reimbursement is capped at the limit to refer a complaint to the Financial Ombudsman Service to try to recover the balance of their losses,” the PSR noted. “[This] is likely to lead to uncertainty over outcomes for both [payment companies] and consumers.”

Currently, banks and payment firms refund fraud victims on a voluntary basis, and the rates at which they do so vary widely. The new regime aimed at creating more consistent reimbursement practices is expected to take effect on October 7. Originally, the PSR had set the upper reimbursement limit at £415,000 in December.

However, the proposed cap had raised concerns among fintech companies and political figures. Bim Afolami, the UK’s City Minister until the general election earlier this year, expressed reservations about the earlier £415,000 limit, stating the move had “significant problems.”

Under the new PSR rules, financial institutions will only be exempt from reimbursement obligations if they can prove that the customer acted with “gross negligence.” The responsibility for covering the cost of reimbursement will be shared equally between the firms sending and receiving the fraudulent payment. Any disputes over reimbursement will be handled by the Financial Ombudsman Service.

In the UK, fraud victims are estimated to lose hundreds of millions annually, with approximately half of those losses being refunded by financial institutions. The revised cap is expected to provide clearer guidelines while reducing the financial burden on payment companies.

By fLEXI tEAM