What’s this about?

HMT intends to reform the Payment Services Regulations (PSRs) and E-Money Regulations (EMRs) as part of its wider Smarter Regulatory Framework Review. It is possible in due course, these regulations will be unified and brought within the FCA Handbook and covered by FSMA regulated activities. However, ahead of any wider reforms, HMT has announced its intention to make several discreet amendments to this legislation that will impact the drafting of bank accounts / payment accounts.

The changes will bring about changes to the rules around terminating accounts, the timing for executing payments and the liability for fraudulent transactions. Although some of these changes are stated not to apply retrospectively, it is likely that firms will apply them to their entire books of accounts. The changes will impact the drafting of agreement as well as underlying processes.

Amanda Hulme, TLT's Head of Financial Services Regulation, comments:

“Some of these changes will be welcomed by industry, who have wanted to the ability to slow down payments where there is suspected fraud. However, the changes will bring with them operational changes too. There is only an indicative timescale for when the legislation may be made and uncertainty on go live dates, which is likely to give rise to implementation challenges.”

1) Amendments which enable payments to be delayed

These are contained in draft “near final” legislation - Payment Services (Amendment ) Regulations 2024, published by HMT in March 2024.

The points not to miss...

Reg 86 sets out the usual requirement for payments to be received by the payee’s PSP in D+1. The amendment adds in a new Reg 86(2B) which enables a PSP to delay crediting the PSP’s payment account. This effectively delays the PSP of the payer from having to execute the payment in order to enable it to check with the payer or other “relevant third parties” whether it should execute the payment order. Relevant third parties are not defined, but the Government Policy statement indicates these would include law enforcement authorities.

A delay is only permitted for authorised payments executed wholly in the UK and in sterling and where it is a push payment (i.e. not executed by or via a payee).

A delay is permitted only where:

  • The payer’s PSP has reasonable grounds to suspect that the payment has been placed subsequent to fraud or dishonesty (not by the payer customer); AND
  • The PSP has these suspicions by the end of the business day after the PSP received the payment order (i.e. by the time it would normally have had to execute the payment).

The payment may be delayed for no longer than is necessary to make checks of the payer or third parties to determine whether the payment should be executed. The maximum delay to executing the payment is D+4 from receipt of the payment order.

If a PSP wants to use new Reg 86(2B) to delay a payment, it needs to provide/make available a notification to the payer (in a form agreed) as soon as possible, but by the latest, the end of the next business day (i.e. by the end of D+1). This notice needs to let the customer know the payment is delayed, why and what it needs from the payer to enable the PSP to decide whether to execute the transaction.

A notification is not needed if it would be unlawful (for example due to financial crime constraints).

The Policy Statement says that this is to enable business customers of all sizes to agree that their payments to suppliers will not face delay. However, there is no ability for Charities or Micro-enterprises to opt out. This may need a change of normal corporate opt out policy as the corporate opt out is normally something that is considered as part of the PSP’s standard terms of business.

If a payer has to pay additional interest or charges as a result of the delay to the payment, the PSP will need to cover those losses – even if it operated lawfully and within the conditions set by Reg 86(2B).

2) Amendments to termination rights in payment accounts and basic bank accounts

Changes for payment accounts are contained in draft “near final” legislation - The Payment Services and Payment Accounts Contract Termination Regulations 2024, published by HMT in March 2024. Similar changes are made to the Payment Account Regulations 2015 for refusals and terminations of basic bank accounts.

The points not to miss...

The amendments to the PSRs create new rules for terminating framework contracts of indeterminate duration that will apply to agreements that are entered into from a certain date (which is yet to be specified). The new rules will impose more stringent requirements for these new accounts.

However, it is more usual for firms to maintain a single set of payment account terms for customers. If firms want to do that going forward, they may need to consider whether to adopt the new requirements for all their account terms already entered into (even though the rules are not technically retrospective).

The new rules will mean:

  • The notice period a PSP must provide to terminate a framework agreement is increased from 2 months to a minimum of 90 days (note this is counted in calendar days).
  • The PSP will need to provide an explanation for terminating which is sufficiently detailed and specific to enable the customer to understand why their particular contract is being terminated.
  • Details of how the customer can complain to the PSP against the termination decision must be provided.
  • The customer must be told about its right to complain to FOS if it has that right (which will mean tailoring the response according to the customer type).

Notice of termination is not needed where these reasons apply:

  • Reg 31(1) of the Money Laundering Regulations 2017 requires business to stop;
  • the account must be closed under s40G of the Immigration Act 2014;
  • the PSP reasonably believes an account is being used in connection with “a serious crime” as defined within the Serious Crimes Act 2007;
  • the FCA or government requires termination; or
  • the PSP reasonably believes the customer has committed an offence in relation to its provision of goods or services to a third party.

This is because Reg 51 itself does not apply to those agreements. These agreements will continue with the existing termination rights.

This means that for certain business customers, a shorter and less restrictive notice period could be used.

3) Amendments to liability provisions

Section 72 Financial Services and Markets Act 2023 makes amendments to the PSRs in relation to the new Mandatory Reimbursement Rules.

The points not to miss...

This change means that the current liability provisions set out in the PSR and which are applicable to circumstances in which a customer has provided incorrect payment information will not affect the liability of a PSP where a payment is executed following fraud or dishonesty. In these cases of fraud and dishonesty, the requirements imposed by Reg 90 are said to be subject to any “relevant requirements” that apply in those circumstances. Relevant requirements would include those made by the Payment Systems Regulator to deal with the Mandatory Reimbursement Model (MRM).

Even if an argument could be made that schedule 4 information is not directly impacted by the change, it is very unlikely that it will be possible to retain existing liability wording in payment accounts without reflecting the new MRM Rules, particularly given Consumer Duty customer understanding outcomes.

In relation to business accounts, the MRM Rules will apply to certain customers. There will need to be consideration given to how this is dealt with operationally.

At a glance

Publication link

1. The Payment Services (Amendment) Regulations 2024

2. The Payment Services (Contract Terminations Amendment) Regulations 2024

Published Date

1. Published March 2024; and 2. Published March 2024.

Who has published it?

His Majesty’s Treasury

Publication type

Policy notes

Any key dates?

Legislation expected to be laid in summer 2024.

What's it relevant to?

Bank Accounts / Payment Accounts/ Termination / Payment Timing / APP Fraud

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2024. Specific advice should be sought for specific cases. For more information see our terms and conditions.

Date published

15 May 2024

Get in touch


View all