APP Fraud Insurance

The policy provides cover to payment service providers (PSPs), who fall within the scope of the PSR’s APP Fraud Reimbursement Rules which comes into effect on 7 October 2024.

The policy provides balance sheet protection against any unexpected spikes in losses in any given year resulting from reimbursing consumers for APP fraud losses pursuant to the APP Fraud Reimbursement Rules, as well as any amounts awarded by the UK Financial Ombudsman Service (FOS), including any interest on such award and costs which the insured is obligated to pay, as a result of any direction by the FOS.

The Policy will cover APP losses incurred in compliance with the APP Fraud Reimbursement Rules or awarded by the FOS; it will not respond in respect of claims brought in the courts. Claims which exceed the PSR or FOS’ reward thresholds may be recoverable under a Civil Liability policy, subject to terms and conditions and the policy retention.

You may have cover under your Civil Liability or Crime policy, subject to terms and conditions. However, in practice it is very difficult to make a recovery in respect of low value losses because multiple losses would need to be grouped together and treated as a single loss under the policy in order to overcome the policy retention in order to make a recovery. This generally requires proving a causal connection between the scams which is challenging to prove. Therefore APP Fraud Reimbursement Insurance sits alongside, and complements, a Crime or Civil Liability policy for this specific exposure.

The policy will apply to in scope PSPs which are authorised as PSPs in the UK and have UK based accounts which can send or receive faster payments or CHAPS, or within the scope of the FOS’ jurisdiction.

Losses which you are obligated to pay to customers (as sending bank) or customers of other banks (as receiving bank) because of the APP Fraud Reimbursement Rules, or as a result of an ongoing FOS award, will be submitted to insurers for periodic (quarterly) monitoring. Once the accumulated losses exceed the policy excess/retention, insurers will reimburse additional losses up to the policy limit.

The policy operates with an aggregate retention which means that as losses accumulate, the retention will be eroded. This makes it easy to track when the policy is engaged and insurers are obliged to indemnify losses.

Accumulated losses will be monitored on a regular (quarterly) basis and insurers will make payment when the retention is breached.

The policy exclusions are limited to standard key exclusions such as war, nuclear, and retroactive date, ensuring broad applicability for PSPs.

To obtain non-binding terms, you will need to complete a short APP Fraud Reimbursement Insurance proposal form. To complete the form you will need to provide payment values and volumes, FOS referrals, loss data and recoveries and some other information such as details on your fraud prevention controls and processes.

The policy can be purchased on an annual basis.

The limits to purchase will depend on your potential exposure to this risk, your risk appetite and budget. WTW can advise you on this. The excess/retention will be set slightly higher than your annual expected losses.