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Get ready for important changes to payments systems that will help tackle fraud 

The UK payments industry is moving to ISO 20022, the global standard for payments messaging (the data that attaches to financial transactions enabling interoperability between banks, financial institutions, and clients).  

ISO 20022 and legislative changes planned for this year will see the implementation of several new and much needed security and anti-fraud measures in the banking sector and these will impact anyone using systems such as CHAPS.  

We urge you to start planning now so that your practice is well prepared for seamless integration, and that you and your clients are able to benefit from the enhanced fraud protection these measures will deliver. 

Purpose Codes for property related CHAPS payments will become mandatory in November 2024 

From November 2024 the Bank of England will mandate the use of Purpose Codes when CHAPS is used to make property payments however, the Bank of England is encouraging businesses to consider early adoption, as we are. For more detail lease see Bank of England Enhanced Data in CHAPS

Purpose Codes provide an enhanced level of data regarding the reason for payments.  Among other benefits, the proper use of the correct Codes will benefit consumers and conveyancers by enabling fraud identification and prevention. 

Purpose Codes fall into two categories; those directly related to property payments (mandatory from November 2024), for example final payments needed to complete the purchase of a property, and those indirectly related to property, for example payments relating to building maintenance (not yet mandatory but the Bank of England will mandate their use in time). 

What should practices be doing to prepare? 

Training: Ensure that conveyancers and accounts colleagues know what the Purpose Codes are, what Codes to use for the various types of property related payments you make and what to do if they are uncertain about how to Code a payment. 

Banking and Systems changes: discuss implementation of the Purpose Codes with your banking provider, including whether your clients should be advised to use Purpose Codes when making payments into your client account and if so, how they can do this. 

Consider the need for systems integration i.e. between your accounts or case management platform and your online banking system, particularly if you do bulk exports of data for CHAPS payments.Engage with systems providers about options that may enable the use of Payment Codes in case management systems prior to initiating CHAPS payments. 

With a November 2024 mandatory implementation date, it is important that implementation is considered at the earliest possible stage to avoid unnecessary delays to transactions.  

The Payment Services (Amendment) Regulations 2024 

Parliamentary time dependant, later this year HM Treasury plans to introduce amendments to the Payment Services Regulations 2017 to help tackle Authorised Push Payment (APP) fraud, one of the biggest risks facing conveyancing practices and their clients.   

Provisions in the draft Regulations will enable Payment Service Providers (PSPs) to delay payment orders for up to four business days where they have reasonable grounds to suspect the payment was initiated by fraud or dishonesty.  The amendments will apply to all intra UK Sterling push payments, including those executed by CHAPS, the most widely used system for property payments.  

The government has indicated that they do not expect widespread delays to payments however, given the prolific use of CHAPS for property payments, it is important that you are aware of developments and have considered the potential implications of these regulations. We will be tracking the progress of these draft regulations and provide further updates in coming months. 

What can practices do in the interim? 

We urge you to consider implementing appropriate anti-fraud practices and systems to protect your clients and your practices.  There are several existing measures you can consider including Payment Codes, systems such as PEXA, Third Party Managed Accounts (TPMA) and use of name checking systems such as Confirmation of Payee (CoP). 

Appropriate use of the ‘upstream’ anti-fraud safeguards available in the wider payments system will mitigate the risk of fraud and, when the proposed amendments come into effect, will also mitigate the risk of your property payments being delayed. 

Legal Entity Identifiers (LEIs) 

LEIs are a 20-character alphanumeric code used in payments messaging and designed to identify businesses consistently and accurately. In addition to mandating the use of Purpose Codes, from late 2024, the Bank of England will mandate the use of LEI for CHAPS payments between financial institutions, and in time, will widen this requirement to all CHAPS users.   

Although not currently mandatory for conveyancers and probate solicitors, the use of LEIs in payment messaging ensures that businesses and other legal entities involved in financial transactions know who they are transacting with and who owns those entities, wherever they are in the world.  

Use of LEIs in payments messaging enhances transparency in financial transactions by enabling accurate identification of parties, thereby helping to mitigate the risk of fraud and money laundering. You can find out more about LEIs and their implementation in the Bank of England’s ISO 20022 Policy Statement.   

We will publish further information and advice ahead of November 2024.