What debanking reforms mean for payment service providers

Debanking reforms will soon require payment service providers to give customers clear notice and justification before account closures.

On 28 April 2025, HM Treasury confirmed that new legislation will be introduced to give greater protection to individuals and small businesses whose bank accounts or payment services are closed without notice or clear justification. The move comes amid long-running concerns over “debanking”, where providers cut off access to banking services without telling customers why.

The new rules, expected to take effect from 28 April 2026, will amend the Payment Services Regulations 2017 and related legislation. They will apply to new payment service contracts entered into on or after that date, including everyday current accounts and other ongoing banking or payment services.

What’s changing?

As a bank, e-money institution, merchant acquirer, or other payment services provider (PSP), you will need to prepare for the regulatory, contractual, and operational changes these reforms will bring.

From 28 April 2026, for any new payment service contracts you enter into, you must:

• Provide a minimum of 90 days’ notice before unilaterally closing a customer’s account or terminating ongoing services.
• Clearly explain the reason for the closure using plain and specific language. This explanation must provide the customer with a fair opportunity to understand and, where appropriate, challenge the decision, either directly or through avenues such as the Financial Ombudsman Service.

These changes are designed to enhance transparency, safeguard customer trust, and mitigate the risks of arbitrary or unexplained terminations.

What debanking reforms means for you

Although the rules apply only to contracts entered into on or after 28 April 2026, you should begin your implementation efforts now. In particular, you should:

• Update your contract templates to reflect the new termination notice period and disclosure requirements.
• Review your internal account closure procedures to ensure decisions are well-documented and can be clearly justified to customers.
• Train your teams, especially those handling high-risk accounts, compliance, and customer service, on the new requirements and how to communicate closures effectively.
• Establish safeguards to ensure any reliance on legal exemptions (e.g. financial crime or anti-money laundering exceptions) is properly assessed and recorded.

Key areas to watch

You may be subject to greater scrutiny if you:

• Offer services to politically exposed persons (PEPs);
• Manage accounts for small businesses that abrupt closures could significantly impact;
• Operate in sectors with higher reputational or regulatory risk.

In these cases, clarity, consistency, and documentation will be crucial – not just for compliance but to mitigate reputational fallout.

What’s next?

The legislation is expected to be implemented without material changes and will become mandatory for all new ongoing payment service arrangements from 28 April 2026.

Our financial services solicitors are working with firms like yours to get ahead of the changes – revising termination clauses, designing compliant communications, and aligning internal governance with the new rules. If you’d like support in getting your business ready for the new rules, we're here to help.