In its second amendment of the week to the Payment Services Regulations, the UK government has put forward changes to rules on provider-initiated terminations of payment service contracts.
The UK government has announced changes to strengthen the requirements applicable to banks, payment institutions and e-money institutions when they intend to terminate a contract for payment services, such as a current account.
Key changes outlined by the government include requiring payment service providers (PSPs) to give a 90-day notice for the termination of framework contracts, extending the timeframe for customers to either seek new services or address their provider’s concerns.
Further, PSPs will need to provide customers with a “sufficiently detailed” explanation for contract terminations, enabling the payment service user to understand why their particular contract is being terminated.
Firms will also need to advise their customers of how a complaint against the termination may be made to the PSP, and the right to refer the complaint to the Financial Ombudsman Service if the payment service user has the right to do so.
Exemptions have, however, been made for certain legal obligations. This includes money laundering offences, links to serious crime or if the PSP “reasonably believes” that the payment service user has committed an offence in connection with the user’s provision of goods or services to a third party.
The draft regulations will be laid before the Houses of Parliament this summer, with HM Treasury consulting on the legislation until April 14, 2024.
UK’s de-banking policies
The UK government’s changes have been touted since the Payment Services Regulations were put up for consultation in 2023.
Within this, there was a section related to the closing down of payment accounts, considering the high-profile cases of PayPal accounts being terminated, such as the Free Speech Union in the UK.
“The government believes that free speech within the law, and the legitimate expression of differing views, is an important British liberty,” HM Treasury said in its call for evidence. “The government does not support 'cancel culture’ — the censorship of views due to an intolerance of dissenting opinion.”
The UK government now says that these policy amendments are designed to better protect consumers and other users of payment services, and they come after the de-banking debate triggered last year after television presenter and former politician Nigel Farage accused NatWest bank of terminating his bank account due to his political views.
However, the issue is more widespread. For example, frontline politicians past and present, including the current Chancellor of the Exchequer Jeremy Hunt and former Cabinet minister Nadine Dorries, both admitted to trouble opening payment accounts in the past due to the fact that they are regarded as politically exposed persons under anti-money laundering laws.
The same issue elsewhere
Moreover, businesses such as crypto firms, refugees and non-governmental organisations have struggled to get access to bank accounts in the UK and further afield in the EU, triggering interventions from regulators such as the Bank of Lithuania and trade associations as well.
For example, banks in the Netherlands struck a deal last year for sex workers, a legal industry, to get easier access to payment accounts.
Also in the Netherlands, a ruling by the District Court of Amsterdam last month found that ABN AMRO bank had wrongly closed the account of a crypto service provider, Bylelex Data Solutions (BDS).
The bank in question had stated that the account needed to be terminated because customer due diligence could not be completed.
According to the bank, cash exchanges made by BDS between 2020 and 2022 qualified as money transfers and therefore as a payment service for which BDS was not licensed.
Further, BDS was accused of being non-compliant due to a lack of control mechanisms in place about the monitoring of crypto-asset transactions from the non-hosted wallets.
However, the court concluded that with the cash activities, BDS had given full disclosure and ceased these activities as a precaution.
As these activities did not occur again after January 2022, the bank should have had no reason to fear a recurrence. Therefore, based on the current situation, there is only a slight interest on the part of the bank in maintaining the termination in this respect.
Meanwhile, with regard to money laundering compliance, the court stated that the bank had insufficiently substantiated where BDS' policy fell short, saying that certain risks associated with cash and crypto-assets can never be completely excluded, nor is the legislator required to do so, meaning that the fact that BDS operates in two risk-sensitive areas, cash and crypto-assets, does not justify the termination.
The EU's Payment Services Regulation (PSR) meanwhile has enhanced requirements for banks to provide fintechs with access to payment accounts.
Once implemented, banks will only be able to refuse access to or terminate a relationship with a payments or e-money institution in limited circumstances.
EU PSR also extends the benefit of such access rights to entities in the process of applying for authorisation as a payment institution, and to agents or distributors of payment institutions.
Further, if a credit institution refuses to open or shutters a payment account, it will need to notify the relevant entity and outline the basis of its decision. Further, fintechs will have the right to appeal such decisions with their national competent authority.