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New compliance burdens are being imposed on payment and banking institutions operating in the UK under legislation designed to prevent unfair debanking of individuals and small businesses.
Banks and other payment service providers will soon be required to give customers at least 90 days’ notice and a written explanation before closing accounts, under new legislation announced by Labour's City minister Emma Reynolds.
“Delivering economic security for working people is at the heart of our Plan for Change and strengthening protections against debanking will protect people’s and businesses’ access to banking services,” said Reynolds.
“Under the new rules, customers will receive more notice of account closures, be entitled to an explanation as to why their account has been closed and have more opportunity to challenge such decisions.”
The rules will apply to new payment service contracts entered into from April 28, 2026, subject to parliamentary approval.
Key requirements
For payment firms, the move introduces significant new compliance requirements. Under the proposed framework, providers must:
- Give 90 days’ written notice before terminating a payment service contract or closing a payment account, which is an increase from the current two-month minimum.
- Provide a clear and specific explanation for the decision, and allow customers to challenge it through mechanisms such as the Financial Ombudsman Service.
- Guarantee that basic account access continues for vulnerable customers, particularly those who may not qualify for standard banking products.
The rules will apply to the termination of all indefinite-term payment service contracts, including basic bank accounts, with limited exceptions such as where closures are required to meet anti-financial crime obligations.
The changes are likely to require operational adjustments across the payments sector, and compliance teams will need to review account closure processes and documentation protocols, and ensure that reasons for termination are clearly recorded and communicated.
Further details on enforcement mechanisms and regulatory oversight are expected to follow as the legislation progresses through parliament.
A global challenge
The announcement follows growing concerns from small and medium-sized enterprises (SMEs) and consumer rights advocates about abrupt account closures, often with little or no justification.
Businesses affected have warned such practices can cause severe operational disruption and leave them unable to process payments or access credit facilities.
The issue is also thought to be one for politicians, with prominent parliamentarians such as former Chancellor Jeremy Hunt having said he was turned down for a Monzo account.
Moreover, it reflects a global push to better protect consumer access to financial services.
For example, the EU’s Payment Services Regulation (PSR) proposal sets out that banks can deny banking services to payment institutions only in limited situations.
It extends this right to entities in the process of applying for authorisation as a payment institution, and to agents and/or distributors of payment institutions in a significant adjunction to the outgoing revised Payment Services Directive (PSD2) regime.
In the US, the Consumer Financial Protection Bureau (CFPB) has also unveiled similar rules relating to the denial of banking services to consumers and small businesses.
As covered by Vixio, the US regulator proposed a new rule in January intended to prevent companies using contract clauses to erode fundamental freedoms and bypass legal protections.
