Partner Michael Barnett comments on authorised push payment fraud in Law360



March 27, 2024

With the UK government recently announcing draft legislation to give banks longer to investigate suspected fraud before they process customer payments, Partner Michael Barnett comments on the liabilities this could create and how banks must carefully navigate this regulation.

 

Michael’s comments were published in Law360, 27 March 2024, and can be found here.

“Banks’ potential liability will turn primarily on their being able to demonstrate “reasonable grounds” for delaying payment. The scope of what constitutes “reasonable grounds” is broad, and it is unclear at present what criteria Banks will need to apply when exercising the new delay power.

“Banks are already under anti-money laundering obligations to freeze funds and/or report or seek clearance from the NCA where they reasonably suspect money-laundering, but risk tipping-off offences if they inform the customer. The obligation accompanying this new power will need to be used with great care to avoid falling foul of tipping off.

“While this may be a welcome scenario for banks, it may also expose them to allegations of failing to comply with the opt-out where they choose to freeze funds on suspicion of money-laundering.

“In circumstances where there is a suspected internal accomplice to the APP fraud, the bank may consider whether it has a reasonable suspicion to freeze the accounts under the anti-money laundering regulations. The company may then direct its response to the opt-out, in circumstances where the bank may be unable to provide information in light of the risk of tipping off. It will, therefore, need to navigate carefully through such scenarios.”