HM Treasury published policy statement proposing contract termination reforms

HM Treasury has published the explanatory memorandum to the Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025, which amend regulation 51 of the Payment Services Regulations 2017 to strengthen protections when payment service providers (PSPs) terminate contracts with payment service users¹. The enhancements apply to framework contracts for payment services concluded for an indefinite period and entered into on or after 28th April 2026¹.

The current rules allow a PSP to terminate an indefinite-period framework contract, such as a bank account, by giving at least two months' notice if the contract provides for it¹. HM Treasury said the existing regulations are deficient at providing appropriate protections for payment service users, following its review of findings from the Call for Evidence concluded in April 2023 and engagement with the financial services sector¹. It said notice periods are often inconsistent, with some users receiving two months and others less depending on their provider, and that even two months is insufficient for users to manage the impacts of a termination¹.

Under the new requirements, a termination notice must be given at least 90 days before the termination takes effect, an increase on the previous two months¹. The notice must include an explanation of the reasons for termination which is sufficiently detailed and specific to enable the payment service user to understand why the framework contract is being terminated, and must inform users of any right they may have to complain to the Financial Ombudsman Service¹.

The instrument sets out exceptions. No termination notice, and therefore no minimum notice period, is needed where the PSP is required to apply customer due diligence measures under regulation 27 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and is unable to apply them as required by regulation 28¹. An additional exception was added to the draft instrument for certain public order and harassment offences, and a further exception applies where a payment service user provided incorrect information before or when entering into the framework contract and, had the correct information been provided, the PSP would not have entered into the contract¹. The threshold firms must meet to depart from the requirements in cases of serious crime, as defined by reference to the Serious Crime Act 2007, has been amended to "reasonable grounds to suspect"¹.

Source: explanatory memorandum¹

The changes do not affect PSP-initiated termination of indefinite-period contracts entered into before 28th April 2026; those requirements will be restated in new regulation 51A¹. Under regulation 40(7) of the PSRs, where the payment service user is not a consumer, a micro-enterprise or a charity, the parties may still agree that provisions of Part 6 of the PSRs, including the new termination requirements, do not apply¹. Changes are also made to regulations 25 and 26 of the Payment Accounts Regulations 2015, mainly to bring the notice period and requirements to give reasons for accounts with basic features into line with the new PSRs requirements¹. The government expects the legislation to cost £76.1m across a ten-year appraisal period and does not anticipate any costs to users of payment services¹. It has not exempted small and micro businesses from the requirements, and the instrument does not include a statutory review clause¹.

Why it matters for households

The rules affect people and businesses holding payment accounts with providers that decide to close or terminate an indefinite-period contract. For contracts entered into on or after 28th April 2026, the minimum notice period rises from two months to 90 days, and the termination notice must explain the reasons in enough detail for the customer to understand the decision. Customers must also be told about any right to complain to the Financial Ombudsman Service. Contracts entered into before that date keep the existing requirements. The government says it does not expect costs to fall on users of payment services, and estimates the cost to firms at £76.1m over ten years.

What happens next

The instrument comes into force on 28th April 2026¹. The FCA will update the guidance relating to contract terminations in its Payment Services and Electronic Money Approach Document to reflect the legislative changes¹. The instrument does not include a statutory review clause¹.