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As part of our sector-focused series, we have spoken with our esteemed colleague and financial regulation solicitor, Rory Copeland. Below, he gives us his thoughts on the key legal trends to watch in payments for 2020.
This article focuses on: instant payment fraud, Customer Authentication (SCA), open banking and the privatisation of currency.
Look out for similar 'Legal Trends to Watch' articles from the series, focusing on different industry sectors and practice areas, and read more of Rory's pieces here.
Regulators, industry bodies and government departments all
realised in 2019 that ubiquitous instant payments provides a huge market for
payment fraud. Specifically, new 'authorised push payment' (APP) services allow
a payer (often through the medium of their phone or computer) to send money
directly from their bank account to another bank account. These payments don't
engage card networks or credit clearing (which occurs when a cheque is sent),
so are instant for the most part.
Whilst APP is good news for many businesses and consumers, it
also creates a huge market for fraud. APP fraud is a growing phenomenon in the
UK and is well-documented. As online and mobile banking has become more widely
used, regulatory responses to APP fraud have begun to crystallise and may be
implemented in 2020.
Firstly, Confirmation of Payee (CoP) is a mechanism developed by
Pay.UK. Every bank account has a unique sort code, account number and account
name, but only the former two are needed by payment systems to execute a
transfer. Fraudsters can 'intercept' a payment by impersonating the intended
payee and providing different account details. CoP will ask a payer to confirm,
before a payment is executed, whether the account number to which their payment
is directed matches the account name which is in fact tied to that account.
Secondly, 2019 saw the establishment of the APP Voluntary Code,
which sets out the protections that banks and other payment service providers
(PSP) will put in place for their customers. An important and innovative component of the code is a 'no blame pot' to compensate victims when neither
their PSP nor the payee's PSP was at fault in a fraud. PSPs failed to reach a
consensus on how to fund the pot in November 2019, but the pressure will be on
major financial institutions to ensure the Code is system is implemented in
Thirdly, a UK treasury report in November 2019 recommended that a
24-hour delay on all first-time payments by consumers to new accounts. The
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Rory is a solicitor in the Financial Regulation team at Pinsent Masons LLP, with personal academic interests in private, public and international law approaches to emerging financial technologies.
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