On 14 March 2024, HM Treasury published a near-final version of the Payment Services and Payment Accounts (Contract Terminations) (Amendment) Regulations 2024, together with a policy note. 

In July 2023, following its review of the PSRs earlier that year, the government committed to bringing forward legislative reforms to toughen requirements in the PSRs concerning framework contract terminations. PSPs will be required to provide 90 days' notice of their intention to end an agreement instead of 2 months' notice and must give payment service users clear reasons for that action. Whilst this initiative has followed several high-profile instances of alleged ‘de-banking’, the policy rationale underpinning the legislation is wider than this as the requirements will apply to framework contracts for all types of payment services, not just the provision of payment account.

As set out in the government’s July 2023 statement, the new requirements will apply to providers of payment services within the scope of regulation 51 of the PSRs, which contains the existing rules governing provider-initiated framework contract terminations. Framework contracts concluded on or after the date that the changes are brought into effect will be subject to the new requirements. However, our expectation is many providers will introduce the new rules for all existing contracts to ensure consistent and fair treatment of all customers. 

HMT has confirmed that in specific circumstances PSPs may terminate agreements on less notice, without detailed reasons, for example, where there are concerns of fraud or money laundering. However, there is an uneasy tension to navigate between the use of these exemptions and other legal obligations not to "tip-off" potential criminals.

Addleshaw Goddard has been working closely with industry, through UK Finance, to discuss the drafting of the legislation with HMT to help convey implementation concerns.

HM Treasury intends to lay this instrument before Parliament in summer 2024, subject to Parliamentary timing, and for it to commence as soon as practicable thereafter. 

So what?

Under the new rules: 

• The notice period for provider-initiated terminations of framework contracts concluded for an indefinite period is increased from the current two months to 90 days. 
• Providers will be required to give affected users a sufficiently detailed and specific explanation so the customer can understand why their particular contract is being terminated. The government will not prescribe in the legislation the specific information that should be provided to a customer, but importantly the information must contain details that the customer clearly understands why the contract was terminated and must be specific to their circumstances. 
• PSPs will also be required to set out how a complaint against the termination may be made, and state a user’s right to refer any complaint to the FOS, where available.
• It will also be prohibited to insert clauses in contracts which avoid the new termination requirements by providing for discharge of the contract by agreement. However, the PSR corporate opt-out will remain. 

PSPs now need to make changes to their provider-initiated termination processes and update relevant policies. They need to consider the new information requirements introduced by this and what it means to provide specific explanation for termination to the customer and whether their current processes would be sufficient to meet this requirement. They also need to assess how the exceptions to this requirement will be monitored and applied correctly to avoid the risks of non-compliance. We recommend firms also consider whether they need to make changes to their terms and conditions to reflect the more limited circumstances when reduced notice of termination can be given.