On 21 July 2023, HM Treasury published a Policy Statement setting out the Government’s findings from the call for evidence on the Payment Services Regulations 2017, specifically in relation to the issue of account termination and freedom of expression. It also sets out the Government’s proposed reforms to enhance requirements relating to contract termination for payment accounts.

In the Policy Statement the Government states that it intends to make changes to existing regulations with the objective of:

  • Improving transparency for users in receiving a clear understanding why their payment account contract has been terminated, by stating in regulation that a clear and tailored explanatory reason must be given, unless to do so would be unlawful.
  • Requiring that payment account providers must provide at least 90 days’ notice when choosing to terminate a contract, unless for a serious and uncorrected breach (such as non-payment) or other serious occurrence and clarifying that clauses in user agreements purporting to allow termination for other matters (such as brand protection) cannot be used to circumvent this. The Government notes that lesser termination periods would exceptionally continue to be allowed, for example where a provider is obliged to terminate the contract to comply with the law. Parties would also be allowed to terminate a contract without notice in line with existing general principles of contract law (such as where the contract was found to have been made with someone without capacity).

The Government is considering the scope of application of the above measures, but it anticipates that they would apply to contracts concluded from the date the changes are brought into effect.

The Government intends to enact the changes to relevant regulations via secondary legislation through the powers granted in the Financial Services and Markets Act 2023, as part of the Government’s programme in building a Smarter Regulatory Framework for UK financial services.

The Government states that it is aware of concerns that the regulations relating to Politically Exposed Persons (PEPs) are being applied in a disproportionate manner by some financial institutions. The Government is clear that these regulations relate to money laundering and anti-corruption and do not provide grounds for account closure because of political views. The Government is also clear that a consumer being a domestic PEP should not be the basis for firms refusing to provide banking services in the absence of other risk factors. The reforms in the Policy Statement are intended to apply in relation to all customers’ payment accounts. Furthermore, the Government is committed to clarifying in law the distinction between domestic and non-domestic PEPs, to make clear that, in the absence of other risk factors, firms must apply a lower level of enhanced due diligence to domestic PEPs. The FCA is undertaking a review of its guidance on PEPs and financial institutions’ adherence to this guidance and will act during the review where it identifies serious non-compliance.