UK Treasury questions timetable for controversial fraud compensation plan

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Rachel Reeves is pushing UK regulators to show they “take seriously” their duty to protect the City’s competitiveness, as the Treasury raised concerns about the autumn launch of a new anti-fraud regime.

Reeves told the Financial Times that he had pressed City watchdogs to show what they were doing in practice to meet their “secondary objective” of promoting growth and competitiveness, in addition to protecting consumers.

An early flashpoint looms over the independent payments regulator’s decision to force banks to repay fraud victims for claims of up to £415,000 from 7 October.

The move has caused alarm in the banking and fintech sectors. Treasury insiders told the FT that officials had spoken to the regulator about the timing of the measures. “We ask: Is this a reasonable deadline?” said one.

PSR did not immediately comment.

Reeves, speaking on the sidelines of a trip to New York last week, said: “We are pushing regulators to demonstrate that they are serious about the competitiveness of our financial services sector.

“One of the commitments is to go through the regulation and destroy the rules that are unnecessary or that are duplicative, and we are determined to do that,” she added.

The previous Conservative government introduced a “secondary” obligation for regulators to promote growth in financial services legislation from 2023.

Both Reeves and Jeremy Hunt, the former Tory chancellor, agreed that some decisions made by the City’s regulators appeared to neglect this duty.

A target of both Labor and Tory concerns has been the PSR’s compensation rules for authorized push payment (APP) fraud, where victims are tricked into sending money to fraudsters from their bank accounts.

Consumer groups have argued that greater protection for victims is urgently needed. Britons lost £460 million to APP fraud last year, according to trade body UK Finance.

In a bid to tackle the problem, the PSR ruled last year that banks and payment companies must cover fraud losses of up to £415,000 from October.

The city fears the measure will encourage fraudsters to pose as victims to illegally recover damages and that the costs will disproportionately hurt smaller digital players.

Former Tory City minister Bim Afolami told the FT in May that there were “significant problems” with the rules. PSR chief Chris Hemsley resigned from the watchdog the following week.

Although Treasury officials are discussing with the PSR whether the October 7 deadline is viable, banking figures fear the watchdog is committing to that date.

One said the sector was now focused on lowering the £415,000 repayment threshold and bringing forward a review of the impact of the rules six months after they were implemented, down from a year.

Labor also wants tech companies to share some of the burden of repaying victims of online fraud, the FT reported in June.

Other regulators, such as the Financial Conduct Authority and competition and accounting watchdogs, have also come under pressure to do more to promote the UK as an attractive place to do business.

The Treasury’s concerns about the FCA’s approach came to a head earlier this year – when Hunt was still chancellor – over the authority’s plans to “name and shame” companies that were investigated before any wrongdoing was even found.

At a hearing of parliament’s treasury committee in May, FCA chief executive Nikhil Rathi said the regulator would “take our time to make sure we get it right” following the backlash over the proposal.

An FCA spokesman pointed to a document published last month that sets out how the watchdog plans to achieve its competitiveness goal. Rathi said the FCA was “firmly committed” to its new goal.

Reeves is expected to address the issue in her Mansion House speech to city councilors in the autumn, where she will focus on the need for financial services to be key drivers of the Labor government’s growth agenda.

“I think our financial services sector is the jewel in the crown of the UK economy, but we have to remain competitive in a very competitive landscape,” Reeves said.

“We risk losing business, whether it’s listing companies in New York or migrating American banks to other European capitals.”