UK to Allow Banks to Pause Payments if Fraud is Suspected

Proposed legislation will allow banks to pause payments for up to 72 hours while they contact customers and relevant third parties like the police.

The UK government has introduced new legislation that will give banks the power to pause payments for up to 72 hours if they have reasonable grounds to suspect fraud or dishonesty.

The proposed legislation is intended to give banks extra time to investigate their suspicions, and to contact customers and relevant third parties such as the police if they suspect payments could be fraudulent.

APP fraud

The draft legislation aims to protect customers from Authorised Push Payment (APP) fraud, which caused around GBP 485 million (USD 620 million) in losses in the UK in 2022.

New protections against APP fraud are already due to come into force later this year on 7 October, the Payments Systems Regulator (PSR) announced in June last year and confirmed in a December policy statement.

Under the new regime, it will become mandatory for banks, building societies and payment firms to reimburse customers for APP fraud within five working days after the incident is reported.

The maximum compensation payable is set at GBP 415,000, with a claim excess of no more than GBP 100 to be set by banks. Where a customer is vulnerable, no excess may be applied.

Entirely sensible

Speaking on the new draft legislation, Kingsley Napley civil fraud partner Will Christopher said it seems “entirely sensible” to give banks more time to process potentially fraudulent transactions, especially since they will be required to reimburse victims starting in October.

Ben Donaldson, managing director of economic crime at UK Finance, said his organisation, which represents banks, has “long called for firms to be allowed to delay payments in high-risk cases where fraud is suspected”.

“This could allow payment service providers time to get in touch with customers and give them the advice and support they need to avoid being coerced by the criminals who want to steal their money.”