Sit up and (give) notice: Draft regulations on payment account closures and notice periods for consumers published by UK Government

On 28 April 2025, a draft version of the Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations (the Termination Regulations) was published, paving the way for new refusal and termination notification requirements and notice periods for payment services to consumers. The Termination Regulations are expected to come into force in April 2026 and will amend the Payment Account Regulations 2015 (Payment Account Regulations) and Payment Services Regulations 2017 (PSRs).

Background

Arising out of the controversy that followed debanking issues in the UK banking sector in June 2023, and a subsequent Financial Conduct Authority (FCA) review into account closure decisions by various UK banks, the Termination Regulations were first proposed in April 2024. 

The September 2023 review found no evidence that customers’ accounts were being closed, primarily as a result of their political views. However, the FCA flagged that there were broader questions to be answered in relation to payment account access and termination more generally, with a focus on finding the balance between providing accounts and combating financial crime.

In September 2024, the FCA followed up on its initial report, and confirmed that it had found no evidence of political views being used as a reason for payment account refusal, suspension or termination. However, it noted that firms that cited ‘reputational risk’ as the reason for account denial or closure used the term in varying ways; some properly considered the risk to their business, but others used the term to refer to other risks, such as staff safety concerns. Firms were (in the FCA’s view) inconsistent as to applying ‘reputational risk’ as a relevant factor in an account access decision.

What are the proposed new rules?

The Termination Regulations will apply to payment service providers and credit institutions in relation to payment accounts and payment services provided to consumers and small businesses in the UK. The application of the amended regime is slightly complex; the rules to be introduced in relation to bank accounts will apply to consumers, whereas the rules in relation to payment service contracts will technically apply to all payment service users unless the relevant payment service provider disapplies these provisions in line with regulation 40 of the PSRs (so payment service providers will need to ensure it complies with these requirements for consumers, businesses which are micro-enterprises and charities).

The Termination Regulations will amend both the PSRs and the Payment Account Regulations. Under the Payment Account Regulations, credit institutions are not permitted to discriminate against UK-resident consumers when making payment account access decisions on the basis of certain characteristics as set out in regulation 18 of these regulations.

At a high level, the proposed rules will require credit institutions and payment service providers to give customers at least 90 days’ notice before terminating their payment account contract or payment services contract. 

In addition, any termination notice will need to be accompanied by a clear and detailed written explanation for the account closure or service contract termination. The previous exceptions to this requirement have (understandably) been maintained, so firms will not be required to provide this rationale where there is suspected financial crime.

Looking at the proposed changes in further detail:

A. Payment Account Regulations

Under the new rules, credit institutions would be required:

1. where they refuse to open a ‘basic’ payment account because it would be unlawful to do so, to provide the consumer (if permitted by law) with a notification of the refusal which contains enough detail for the consumer to understand why their application has been refused, and sets out how the consumer can complain to the firm or to the Financial Ombudsman Service; and
2. where they terminate a consumer's payment account contract (entered into on or after 28 April 2026), to provide the consumer with at least 90 days’ notice before the termination takes effect and, as above, to give an explanation for the account closure and details of how to complain about the termination decision.

B. PSRs

Introducing an equivalent framework for payment service providers, the proposed amendments to the PSRs would apply additional steps to the contract termination process.

Under the new rules, payment service providers would need to provide at least 90 days’ notice of contract termination, and the notice must contain an explanation of the reasons for terminating the contract and advise the consumer of how to make a complaint to the firm or the Financial Ombudsman Service.

However, these amendments contain detailed exceptions to this requirement. Payment service providers would not be required to comply with the notice and information requirements in the following circumstances:

1. where customer due diligence is required by law, but the firm is unable to complete its due diligence measures;
2. if the consumer’s payment account is required to be closed under applicable immigration law;
3. if the firm has reasonable grounds to suspect that the payment service it provides under the contract has been used, is being used, or will be used in connection with a serious crime;
4. if any of the FCA, HM Treasury, or the Secretary of State require the contract to be terminated;
5. if the payment service provider reasonably believes that a payment service provided under the contract has been used in connection with the commission of an offence by the consumer in the course of providing goods or services to a third party; or
6. if the payment service provider considers that the consumer’s conduct towards its personnel amounts to violent threats, harassment, or threatening or abusive behaviour under public order and harassment laws.

Key issues to consider

Although HM Treasury has hailed the Termination Regulations as a step forward for protection against debanking, firms that will be subject to the rules face a sizeable compliance burden in preparing and implementing the new notice and information processes.

A key point which has been built into the Termination Regulations is the start date for the new notice period (it only applies to contracts entered into on or after 28 April 2026). In addition, these new requirements would only apply to consumers and micro-enterprises (provided payment service providers disapply the new regulation under the PSRs for businesses which are not micro-enterprises). This will mean that banks and payment firms will need to assess and monitor which notice periods apply to which customer bases: a two-month notice period for non-consumers/micro-enterprises and those with pre-April 2026 contracts, and a 90-day notice period for consumers/micro-enterprises entering into new contracts next year.

In addition, whilst the proposed rules make clear that firms may only share the reasons for account access refusal or closure where they are permitted to do so by law, the risk of ‘tipping off’ where financial crime is suspected could increase where account access decisions are not fully logged, or customer service personnel misapply the new rules. 

Our Payment Services Regulatory team will be monitoring next steps and will keep you up-to-speed with the latest developments in these areas.