As we highlighted in our April newsletter, 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). A key element of ISO 200022 is the introduction of a common payments language, specifically the implementation of Purpose Codes for certain transactions, including property transactions.
Implementation date for mandatory use of Purpose Codes moved to 1 May 2025
The Bank of England has taken the decision to postpone the date when they will mandate the use of Purpose Codes for property transactions until 1 May 2025 (as we advised in the April newsletter, the date was previously November 2024). For more information, please see the Bank’s Policy Statement.
The Bank of England is nevertheless encouraging businesses to consider early adoption. For more detail please 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.
We have been asked whether Purpose Codes will be mandated for payments made using the Faster Payments System (FPS). The Bank of England has advised that ISO 20022 has not been implemented yet in FPS though they are working closely with Pay.UK, the operators of FPS, to ensure they are as aligned as possible. We will update you when further detail is available.
To ensure seamless integration of the Purpose Codes into your payments systems, we are encouraging practices to review their payments procedures and ensure systems are ready for implementation of implement Purpose Codes in advance of 1 May 2025, and that staff who are responsible for making payments have received training and are able to assign the correct Purpose Codes for relevant payments.
The Bank of England’s Synchronisation Project
At a recent Conveyancing Association event, the Bank of England provided an overview of their synchronisation work. In the simplest terms, synchronisation ensures that the transfer of assets or funds between parties happens conditionally and irrevocably, meaning they either happen entirely, or not at all.
In practice, the Bank’s Real Time Gross Settlement system will be synchronised with other asset ledgers, for example, HM Land Registry, enabling all parts of a property transaction to be linked together.
In their presentation, the Bank stressed that as they cannot mandate synchronisation, it is for industry to push this forward. To this end, the Bank has set up a property industry co-working group bringing together stakeholders from the broad property sector as well as stakeholder from relevant, related sectors to consider, amongst other things, the practical operation of synchronisation and the interoperability of asset ledgers and systems that will be required to make synchronisation a reality.
The earliest the Bank envisages launching synchronisation is 2026/2027.
The operation of client accounts presents significant risk for consumers and practices. Therefore, although the implementation of synchronisation is a way off, we support the use of systems and technology that enhance consumer protection and mitigate the risks arising with client accounts.
It is important to stress that the CLC is an outcomes based regulator, meaning that we would ordinarily not mandate the use of any particular tool or approach. Rather, our preferred position is for the sector to determine what is most appropriate and offers the best safeguards for clients.
However, we will not rule out mandating the use of technology such as synchronisation platforms in time if this is clearly in the consumer interest, but we would not do so immediately and nor without extensive consultation with the sector.
April 2024: 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 May 2025
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 1 May 2025), 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 between now and May 2025.
