Draft UK Legislation on Revised Payment Service Contract Termination Rules Expected Before 2024

HM Treasury has published a further policy statement on payment service contract termination rule changes, setting out its approach to implementation, timing and next steps. This latest policy statement follows the government's July policy statement in which it confirmed that it would bring forward legislation to enhance the requirements governing payment account terminations. This issue has become topical in light of the "de-banking" of higher risk or less profitable clients by several institutions and recent scandals in the U.K. involving account terminations of some politicians. The main changes being brought forward are:

• A requirement for payment account providers to provide clear and tailored explanatory reasons to an account user for the termination. The requirement would not apply where it would be unlawful to provide such information, for example, under U.K. financial crime and anti-money laundering legislation.
• A 90-day notice period before a payment account is terminated by a provider, subject to situations where there is a serious and uncorrected breach by the payment user of the terms applying to the account. It would also be clarified that reasons such as brand protection would not be sufficient justification for a shorter notice period.

In its latest policy statement, HM Treasury states that these changes will be implemented through secondary legislation, a draft of which will be published before the end of 2023. The amended requirements would apply to providers of payment services (i.e., including banks but also other kinds of firms regulated under the Payment Services Regulations 2017 such as payment institutions, e-money institutions and registered account information service providers). It is anticipated that the revisions would only apply to framework contracts concluded on or after the date that the changes take effect. In addition, the government states that existing carve-outs would continue to apply, in particular those applying to regulated consumer credit agreements and corporate users' framework contracts.

HM Treasury provides some insight as to how it expects the industry to implement the requirements, including clarifying that the reasons provided to a customer must lead the customer to clearly understand why the account is terminated and the information must be "adequately specific" to their circumstances.

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