Of particular interest to: Banks and other payment service providers participating directly or indirectly in CHAPS.
What’s been published?
Following a consultation in May 2024, the PSR has published its policy statement and Specific Direction 21 (SD21), which directs banks and other payment service providers participating in CHAPS to reimburse customers who have been victims of APP scams.
The CHAPS Compliance Data Reporting Standard (CCDRS) has also been published, with details of some minor amendments from the previous version set out in Table 2 in the policy statement.
SD21 is designed to underpin the Bank of England’s new CHAPS reimbursement rules, which were consulted on by the Bank alongside the PSR’s consultation on Specific Direction 21. For more on the consultation, take a look at our previous Engage article.
The current draft of the CHAPS reimbursement rules (dated August 2024) is available on the Bank’s CHAPS webpage. A final version is due to be published shortly, now that the PSR has published its SD21 for CHAPS. The Bank will maintain and evolve the rules over time and – as far as possible - aim to keep them aligned to the FPS reimbursement rules, including in respect of the excess and the maximum level of reimbursement. For example, the Bank has already indicated that it will adjust the CHAPS maximum level of reimbursement to the FSCS limit of £85,000 if – following the PSR’s related consultation – it is adopted for the FPS policy (see our separate Engage article). It is expected that this limit will still cover the majority of claims based on data received to date on APP scams using CHAPS. The average value of an APP scam sent over CHAPS in 2023 was around £51,000.
What key points on the CHAPS reimbursement requirement have been confirmed?
The policy statement sets out the final details of the CHAPS reimbursement requirement policy, and confirms:
CHAPS reimbursement policy start date
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The policy start date will be 7 October 2024, aligned with the date that the Bank’s CHAPS reimbursement rules will come into effect, and the Faster Payments reimbursement policy start date.
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The PSR states that this approach will ensure delivery of consistent protections for consumers of CHAPS to be delivered as soon as possible, and reduce the risk of fraud migrating from Faster Payments to CHAPS.
Requirement to register
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All in-scope PSPs must register in line with the requirements set out in the CHAPS reimbursement rules as soon as practicable and no later than 7 October 2024, by providing the information set out in the CHAPS reimbursement rules.
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This requirement only applies to PSPs who are not already required to register - or who are not already registered - with Pay.UK as required by SD20 which applies to directed PSPs in relation to Faster Payments (who were required to register by 20 August 2024). This is to ensure that in-scope PSPs are only required to register once.
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New entrants to the market who begin to participate in CHAPS and provide relevant accounts after SD21 enters into force will be required to register before they send or receive live transactions over CHAPS.
Alignment of reporting standards in CHAPS with Faster Payments
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The compliance and monitoring metrics that PSPs will need to report to the Bank on a monthly basis using the method specified by the Bank in its rules (which is via email) are aligned with the confirmed metrics for Faster Payments, ie incorporating relevant changes made for Faster Payments. For example, the PSR has confirmed the fact that, as for Faster Payments, reporting standard A will be in place from 7 October 2024 and that it may, in future and subject to a further consultation, bring reporting standard B into effect for CHAPS.
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However, a key difference is that PSPs are not required to submit nil returns to the Bank, where they have not received any APP scam claims in the relevant reporting period. This is to account for the fact that there are a lower volume of CHAPS APP scams than for Faster Payments – ensuring a ‘reasonable and proportionate’ approach for CHAPS.
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The first report is due on 6 January 2025 – again, aligned with Faster Payments - and must cover the period 7 October – 30 November 2024.
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The required information may also be shared with the PSR so that it can monitor compliance with SD21.
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There was a request from some respondents for forbearance until all PSPs can use a system for automated data reporting. However, the PSR is proceeding as planned with manual data reporting on core compliance metrics as it considered that the request did not constitute ‘substantial or material feedback’ on this proposal.
Clarifying a consumer’s right to reimbursement
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The same position for CHAPS as the PSR has confirmed for Faster Payments will apply. In summary:
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all directed PSPs capable of being a sending PSP which provide relevant accounts to consumers are required to amend the terms and conditions of their contracts with consumers to include a provision that a PSP will reimburse their consumers in line with the CHAPS reimbursement requirement and rules;
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while the PSR expects PSPs to make these changes as soon as is practical, it has given them until 9 April 2025 to make them;
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PSPs must notify consumers of their rights to be reimbursed in line with the CHAPS reimbursement requirement and rules. This means that when PSPs notify consumers of the reimbursement policy, the PSR expects them to explain that their terms and conditions will be amended by 9 April 2025; and
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PSPs must take steps to notify consumers of their rights, in line with how they would notify them of changes to any other service.
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There is a moderated approach where PSPs must already inform consumers of their rights in relation to Faster Payments (under SD20):
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Where a PSP has not yet informed its consumer of their rights under provision 5.1 of SD20 (July 2024), by the time SD21 comes into force, they must do so for CHAPS at the same time as they do for FPS and can do so in a single communication if they prefer; and
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Where a PSP has already informed its consumers of their rights under provision 5.1 of SD20 (July 2024), they must inform their consumer as soon as practicable, although no later than two months before the date on which they make changes to their consumer contracts as required by provision 6.1 of SD21.
- On 1 August 2024, the PSR published APP scams reimbursement information on consumer communications for PSPs. While that publication focuses on the Faster Payments reimbursement requirement, the information within it is also generally applicable to CHAPS. This includes that PSPs should also have regard to FCA Consumer Duty requirements and any other relevant regulatory obligations. The PSR has therefore decided not to issue any further guidance for CHAPS.
Information management and record-keeping
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All PSPs in scope of the CHAPS reimbursement requirement must:
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retain the data and information that the CCDRS requires them to collate, retain and report to the Bank for a period of at least five years;
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take appropriate and reasonable steps to assure themselves as to the accuracy of the data and information relevant to the CHAPS APP scam claim before providing it to the Bank;
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provide timely, complete and accurate responses to reasonable and proportionate requests for information from the Bank that are appropriately scoped, having regard to the timeframe for the response.
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Again, the final requirements align with the final position for Faster Payments. In particular, the PSR has provided additional flexibility around the time that PSPs must retain data (which is now at least five years) and clarified the record-keeping requirements so that they are clear and able to be complied with.
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The PSR has also amended SD21 to make it clear that PSPs are only required to respond to information requests from the Bank where the Bank has a reasonable belief that there is a potential compliance issue, or reasonable likelihood of future non-compliance, and has been provided with the basis for the request (as for Faster Payments).
Indirect Access Provider List
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The PSR has confirmed the obligation for all Indirect Access Providers (IAPs) to provide it with details of indirect PSPs to whom they provide access to CHAPS on an annual basis starting from 31 March 2025 (again, as for Faster Payments).
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As with the obligation in relation to Faster Payments under SD20, IAPs would also be required to provide the PSR with any changes to the list of their indirect PSPs on a monthly basis.
Hybrid claims
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The PSR highlights that the Bank as the operator of CHAPS, and Pay.UK as the operator of Faster Payments, will need to set out how they will deal with APP scam claims containing both Faster Payments and CHAPS transactions – either in changes to their rules, guidance or by some other means.
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In light of this, the PSR has not made any specific provision for hybrid claims in SD21. It will, however, keep the need to take any regulatory steps or action on these under review.
Next steps
The current draft of the CHAPS reimbursement rules (dated August 2024) is available on the Bank’s CHAPS webpage. A final version is due to be published shortly, now that the PSR has published its SD21 for CHAPS.
The policy start date will be 7 October 2024, aligned with the date that the Bank’s CHAPS reimbursement rules will come into effect, and the Faster Payments reimbursement policy start date.
The PSR and the Bank will be exchanging letters setting out how they will cooperate in respect of CHAPS APP scams, which should be published on the PSR’s website in due course.
If you would like to discuss this latest PSR policy statement and specific direction on APP fraud mandatory reimbursement or any related developments, please get in touch with one of the people listed above or your usual Hogan Lovells contact.
Authored by Julie Patient and Virginia Montgomery.
