Tighter Rules for PSPs and Framework Contracts — A Shift Towards Consumer Fairness?

On 28 April 2026, a new regulatory landscape will take effect for UK payment service providers (PSPs). The Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025 (SI 2025/688) introduce significant changes to the Payment Services Regulations 2017 (PSRs) and the Payment Accounts Regulations 2015 (PARs), fundamentally altering how firms manage the termination of framework contracts.

A Shift in Regulatory Philosophy

The new rules are the result of extensive policy engagement, including HM Treasury’s 2023 Call for Evidence, which highlighted persistent concerns over inconsistent offboarding practices, unclear communication of termination decisions, and the difficulty consumers and SMEs face in responding to unexpected account closures.

At its core, this reform repositions termination as a compliance-controlled process, not merely a contractual right. Termination is now subject to procedural and transparency obligations designed to ensure that customers - whether individuals, businesses, or charities - are treated fairly and are given both time and justification when their contractual relationship with a PSP ends.

Key Requirements Under the New Regulations

For all new framework contracts entered into on or after 28 April 2026, PSPs must:

• Provide a minimum of 90 days’ notice before termination (increased from the current two months)
• Deliver a clear, specific, and detailed explanation for the termination — generic or boilerplate language will no longer suffice
• Inform the user of their right to complain, both internally to the firm and to the Financial Ombudsman Service (FOS)
• Comply regardless of mutual agreement — discharge by agreement cannot be used to avoid these obligations

Exceptions are narrowly defined and include cases such as financial crime risks (e.g., failure to complete CDD under the MLRs), serious misconduct, immigration-related account closures, and behaviour posing a risk to the PSP’s staff. Even in those cases, firms must still follow precise procedural requirements.

Implications for Compliance, Legal, and Operations Teams

For firms, this reform introduces a new layer of complexity and accountability. Termination can no longer be treated as a routine administrative process. It now requires:

• Governance and policy updates to reflect the new notice and disclosure standards
• Robust documentation frameworks to evidence decision-making and risk justifications
• Clear escalation and complaints-handling protocols
• Staff training and systems integration across legal, compliance, operations and customer-facing teams

These are not minor tweaks. They will demand cross-functional alignment and early implementation planning, well in advance of the April 2026 effective date.

A More Predictable Offboarding Environment

While firms will face additional operational and compliance burdens, the regulatory direction is principled. In exchange for increased procedural rigour, the industry gains greater legal clarity, fewer reputational risks from contentious account closures, and a more predictable framework in which to operate.

This is a significant step towards codifying fairness and transparency into account closure decisions, and one that reinforces the broader regulatory theme of treating customers fairly and predictably, even at the end of the relationship.

Looking Ahead

The FCA has indicated it will update its Approach Document guidance to reflect these changes. But forward-looking firms should not wait for formal guidance. The time to act is now.

At Thistle Initiatives, we help firms turn regulatory change into action, translating requirements into practical policies, procedures, and process design. Our focus is on building frameworks that are not just compliant but operationally effective.

If you are preparing for the new contract termination rules, get in touch to see how we can support your implementation.

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