Draft Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025
(2 days, 18 hours ago)
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The Economic Secretary to the Treasury (Emma Reynolds)
I beg to move,
That the Committee has considered the draft Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025.
As ever, it is a pleasure to serve under your chairmanship, Mr Mundell. I am grateful for the Committee’s time this afternoon. Financial services fulfil a vital role for people and businesses across the UK. The Government are committed to ensuring high standards of both consumer protection and financial inclusion. The regulations form part of that commitment by strengthening protections for customers, including individual consumers, businesses and charities, when their bank accounts or other payment services are terminated by their provider.
While terminations of services are generally considered commercial decisions, customers must be treated fairly. Concerns have been raised in that area over recent years, including concerns about services being terminated on the basis of customers’ lawful beliefs and political opinions. The Government are unequivocal that customers should not see payment services terminated on grounds relating to their lawful freedom of expression.
There are clear protections in law that already prohibit providers from discriminating against UK consumers based on protected characteristics and their lawful beliefs and political opinions. However, in other areas, existing legislation does not always provide appropriate protection and is not sufficiently clear. Currently, payments legislation contains no obligation on providers to explain why they are terminating services, and the existing two-month notice period is not always long enough, meaning that customers do not have the information and time they need to understand providers’ decisions, rectify issues or make a complaint.
The statutory instrument before us today addresses those issues. It would increase the amount of notice that providers must give to at least 90 days and introduce a new requirement that customers be given an explanation that is sufficiently detailed and specific for them to understand why the contract for their payment service is being terminated. Providers would also be required to advise customers on how they can make a complaint to their provider and on any right they may have to take their complaint to the Financial Ombudsman Service.
The SI clarifies ambiguities in existing legislation to ensure that the new rules are applied consistently. There are some exceptions to the new requirements in the SI, as Members will see, mainly so that providers can continue to meet their other legal requirements. The strengthened rules would take effect from 28 April 2026 and apply to the termination of payment services contracts that are concluded for an indefinite period and entered into on or after that date.
The regulations would make crucial changes that would ensure that customers are treated fairly while respecting providers’ rights to make commercial decisions. The reforms will increase transparency, ensuring that customers understand providers’ decisions and have the time and information they need to bring a complaint or find an alternative provider. I thank the Committee for its attention and welcome any questions from the shadow Minister or other Members.
Mark Garnier (Wyre Forest) (Con)
It is a pleasure to serve under you, Mr Mundell. Congratulations on your tennis match this morning; I am glad it went well. Lawn tennis—you can’t beat it.
This SI started its life in the previous Government and has come through more or less untouched. It is almost as if the general election never happened—it is extraordinary; we seem to have swapped sides somehow. On the basis that the SI was started in the previous Government, the Opposition will support the new rules.
It is absolutely right that people and businesses have access to bank accounts. While the Farage-NatWest scandal brought the issue of debanking into the national spotlight, the statistics show that the scale of the problem is far wider. Nearly 400,000 bank accounts were closed last year, according to figures obtained by The Daily Telegraph via a freedom of information request. Many of those closures will of course have been for legitimate reasons such as financial crime, fraud or dormant accounts. For people and businesses that are impacted, often unfairly, the new rules will be very helpful. These are sensible steps that will improve transparency and give customers more time to find alternatives if their accounts are closed.
However, the deal does not include a statutory review clause, which is possibly a mistake, and there has rightly been feedback. David Hamilton, a partner at Howard Kennedy, warns:
“If customer exits are more onerous in terms of disclosures and potential FOS challenges, it may give banks pause to consider whether they want to onboard certain types of customers at all.”
In other words, there is a real risk that the banks will simply become more cautious at the account opening stage, and they could make it harder for those perceived as higher risk, such as politically exposed persons—everybody in this room—or certain business sectors, to access basic banking services at all, which brings me on to my next point.
The new rules on politically exposed persons have not yet been publicised. The Financial Conduct Authority’s consultation on the issue closed in October 2024. Its initial findings asked banks and financial institutions to do more to ensure that UK lawmakers and their families are not treated unfairly. It is essential that the new rules on debanking and PEPs are aligned and implemented at the same time to give both customers and banks clarity and consistency.
Although we support the new rules, I would like the Minister to address the following key questions. First, why has the statutory review clause not been included in this SI, given the risk of unintended consequences for account holders? Secondly, what assessment has been made of the impact on people who may now find it harder to open a bank account in the first place? Thirdly, when will the new rules on politically exposed persons be published? Will the Government commit to aligning their implementation with the debanking reforms? Also, how will the Government monitor the impact of the changes, particularly on small businesses and vulnerable customers, and what steps will be taken if there is evidence that banks are becoming more risk-averse and excluding legitimate customers from the banking system?
As I said, access to bank accounts is a basic necessity in modern Britain. Under the previous—might I say brilliant?—Government, we made it a fundamental right to have access to basic banking services. These rules are a step forward, but it is vital that we remain alert to making sure that they do not become another barrier put in place to stop businesses and consumers accessing banking services. The Minister might not have enough time to get an answer to my questions, but if she could perhaps write me a letter, that would be fantastic. As I said, we will support this measure.
Emma Reynolds
It started so well—I am slightly confused by the hon. Gentleman. On one hand he says it is as though nothing changed, and did we need a general election to get to this point? On the other hand he calls into question the provisions of the SI and what impact they might have. I will come to his questions in turn. First, there has been a big change since the election. I was not here in the last Parliament, so there has been a welcome change from my point of view and on the Labour side of the House, where we have a quite hefty majority, in case he had not noticed.
The reforms were consulted on and thought about in the last Government—the hon. Gentleman was right to make that point. We consider, as did the previous incumbents in my role and the Conservatives in government, that the current notice period of 60 days is simply not adequate for customers who have their accounts closed to either make a complaint or seek an alternative provision, and that is bad for individual customers, but particularly bad for businesses. As he set out, it is crucial that businesses and individual customers have access to bank accounts.
We do not think, although I can write to him with more evidence, that this measure will make banks more reluctant to open bank accounts in the first place. The balance that we are striking in this statutory instrument is on the one hand enhanced consumer protection and on the other hand ensuring that we do not place unnecessary and disproportionate burdens on banks and other providers—it is not just about banks; it is about other payment providers, too. We have not included a statutory review clause, but that does not mean that we cannot review the legislation. We do not judge that this provision will make banks more reluctant to open bank accounts for people in the first place.
The shadow Minister asked more broadly about access to banking services, which is something that we are monitoring. As he said, that is crucial to both the operation of a business and customers. In our financial inclusion strategy, we are looking at access to banking and the relationship between financial exclusion and digital exclusion. We are doing broader work in this area to understand not only the root causes from providers but why individuals have perhaps had their accounts closed and not sought alternative provision.
We are doing broader work on financial provision, as the hon. Gentleman knows, and we will produce a strategy by the end of the year on this vital issue. I know that many of my hon. Friends will welcome that, as well as other Members across the House, because financial inclusion is something that we all care about and this Government are very committed to. I believe that I have answered all the questions.
Emma Reynolds
Sorry; could the hon. Gentleman remind me of the specific question?
Mark Garnier
It was to do with the assessment being done of the impact on politically exposed persons. When can we expect that report to come out?
Emma Reynolds
I thank the shadow Minister for that question. As he will know, changes were brought into force in January 2024 under the previous Government that ensured that domestic PEPs, as they are called, were not deemed to be on the same level of risk as non-domestic PEPs. That SI was introduced under the last Government and FSMA—the Financial Services and Markets Act 2023—committed to bringing forward that legislation.
It also committed the FCA to doing a review of so-called PEPs and debanking. That review concluded that banks were not necessarily taking the wrong approach, but it said that there needs to be more proportionate application of rules. Therefore, the FCA will bring forward updated guidance on this issue, and I am happy to write to the shadow Minister in more detail on the timing of that and what will be included.
Question put and agreed to.