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HM Treasury (HMT) has vowed to strengthen customer protections for payment account closures before the year-end, following controversial high-profile account closures involving former politician Nigel Farage.
On Monday (October 2), HMTpublished a policy statement laying out the government’s plans to reform rules relating to payment account terminations and clarify certain aspects.
The statement is part of a wider government plan to update the existing regulatory framework via secondary legislation and strengthen requirements placed on payment services providers (PSPs) when they close a payment account.
According to an accompanying HMT news story, the government will propose changes that ensure the freedom of speech is protected and that banks do not discriminate based on their customers’ political views.
“Nobody should have their bank account closed because somebody else decides they’re not politically correct,” said Jeremy Hunt, Chancellor of the Exchequer, at the Conservative Party's annual conference in Manchester on Friday (September 29).
“We’ll tighten the law to stop people being debanked for the wrong political views,” Hunt added.
Stricter rules on account closures
The new policy statement reaffirms the government’s plans to extend the notice period for an account closure from two months to 90 days and to mandate that PSPs clearly communicate the reason behind ending a relationship.
As per the document, payment firms must give “clear and tailored explanatory reasons” when they choose to terminate the contract for “primarily commercial reasons”, such as due to a policy decision not to take on the cost or reputational risk of certain categories of customers.
“The government does not intend to prescribe on the face of legislation the specific information that should be provided to a customer,” the document said, adding that “what matters is the outcome of the communication: that the customer clearly understands why the contract is terminated” and the information is “adequately specific to their circumstances”.
At the same time, the statement emphasised that these requirements do not apply when legal or regulatory requirements oblige or allow PSPs to terminate the contract earlier and where there is a documented and reasonable risk of serious harm to a party.
The government expects financial institutions to strike the right balance between different obligations related to account closures, acknowledging that the industry “is already experienced” in this process.
Financial institutions are expected to consider the existing set of regulatory guidance, including those related to financial crime, money laundering and fraud.
“In these instances, firms are likely to need to carefully balance on a case-by-case basis the circumstances whereby alerting a customer to their behaviour may elicit new risks of harm to their staff or others,” the document added.
The policy statement also gives corporate customers, those excluding consumers, micro-enterprises and charities, the option to agree with the PSP to waive these requirements.
Debanking controversies
The intervention comes after Farage, the former UKIP leader, publicly disclosed in June that his Coutts bank account had been closed earlier this year.
Coutts initially told Farage that the decision to close his account was a commercial one but an internal Coutts dossier, subsequently obtained by Farage’s lawyers, showed that his political views were also a factor.
The controversial account closure sent shockwaves across the UK government with several officials weighing in on the question.
Although the Farage scandal has accelerated the government’s efforts to strengthen customer protections in account terminations, HMT first looked at the issue in December 2022 after PayPal had suspended a number of payment accounts, including those of the right-wing organisation Free Speech Union, over alleged misinformation about COVID-19 vaccines.
Next steps for the regulators
In September, the Financial Conduct Authority (FCA) launched a review into the treatment of politically exposed persons (PEPs) after Treasury minister Andrew Griffith wrote to the City regulator in early July.
HMT is now working on the reforms in parallel with the FCA and has said it will launch a public consultation “shortly” to consider how the rule changes are best delivered.
The government said it is planning to publish a “draft statutory instrument” before the end of the year and will make it a “priority” to implement the changes via secondary legislation in 2024.
