Departments’ Use of Banking-Style Anti-Fraud Checks Set for Review

Why It Matters

Standardising payee validation could reduce fraud losses and improve confidence in public‑sector payments, while aligning government practices with banking regulations.

Key Takeaways

• Treasury to review departmental confirmation of payee usage.
• CoP mandatory for banks, not uniformly applied in government.
• BACS processes 85% of government external payments.
• Recent £3.7m fine highlights compliance risks for banks.
• Potential guidance may standardize payee validation across departments.

Pulse Analysis

The confirmation of payee (CoP) system, first rolled out in the banking sector in 2020, cross‑checks a proposed payment’s account details against a central register to ensure funds reach the intended recipient. While banks must apply CoP for Faster Payments and CHAPS, government departments have been free to choose their own anti‑fraud controls, resulting in a patchwork of practices. This divergence raises concerns about consistency, especially as public‑sector payments increasingly move online and cyber‑fraud techniques evolve.

HM Treasury’s decision to commission a stock‑take reflects growing pressure from Parliament and regulators to tighten controls. BACS, which handles over 85 % of the value of external government payments, remains the preferred method due to its cost‑effectiveness and liquidity benefits, but it lacks the built‑in payee verification that CoP provides. The recent £3.7 million penalty imposed on Bank of Ireland UK for missing the CoP deadline underscores the financial and reputational risks of non‑compliance, prompting officials to consider whether similar enforcement could be extended to public bodies.

If the review leads to new guidance, departments may be required to adopt CoP or equivalent validation tools across a broader range of payment types. Such a shift could lower fraud incidence, streamline audit trails, and bring public‑sector payment processes into line with private‑sector standards. For finance officers, the likely outcome is an increased focus on data‑driven verification, investment in compatible payment platforms, and tighter coordination with the Public Sector Fraud Authority to ensure consistent, secure disbursements.