Banks and EMIs face detailed new information and account direct deduction obligations as UK Public Authorities (Fraud, Error and Recovery) Act 2025 receives Royal Assent

What’s ahead for banks and EMIs under the new Act?

When the Act was introduced to Parliament in January this year as the Public Authorities (Fraud, Error and Recovery) Bill we wrote an article setting out key provisions for in-scope firms to be aware of, as well as our thoughts on potential impact. Those provisions have been enacted largely unchanged – meaning that banks and EMIs will be subject to a number of new, onerous requirements with potential for significant operational impact and associated costs.

While detailed requirements and the implementation timeline are still subject to confirmation via secondary legislation, here's a brief reminder of some issues that we think banks and EMIs will need to get to grips with in the coming months:

• Account information notices and general information notices: Banks and EMIs will need to consider the impact on their policies, procedures and controls. This includes assessment of the accuracy and/or complexity of the requirements of the notice and the ability of the bank or EMI to comply within the timeframe prescribed in the notice.
• Direct deduction orders: Here, considerations will include:
  • amendments to account terms and conditions to reflect the restrictions;
  • processes and controls for managing risks arising in respect of these orders, including those relating to applying inhibits immediately on receipt of the order and managing relationships with vulnerable customers; and
  • the effectiveness of complaints handling procedures to manage customer conversations relating to sensitive or severe financial hardship arising from direct deduction orders.
• Eligibility verification notices: While the Act now provides that eligibility verification notices may only be given where the DWP considers that it is ‘necessary and proportionate’ to do so, banks and EMIs will still need to consider how they will be able to comply with the notices’ requirements in practice, and how the information identified through these checks will impact existing financial crime control frameworks. In addition, while the Proceeds of Crime Act 2002 (POCA) is being amended to introduce carve-outs to the offences in sections 330 and 331 (which relate to the failure to disclose knowledge or suspicion of money laundering in the regulated sector) in relation to information obtained solely as a result of complying with an eligibility verification notice, the amendments do not exempt individuals from their ongoing duty to report any other knowledge or suspicions of money laundering that arise independently of the information obtained as a result of an eligibility verification notice.

Some other points to be aware of are:

• Scope: The relevant provisions will apply to authorised deposit takers (banks) and EMIs, but there is also power in the Act to extend the provisions to other types of financial services providers - including products or services/accounts that operate by reference to cryptoassets or any similar product/service or asset - via future secondary legislation.
• Extent: The provisions on the various information notices and direct deduction orders in Part 1 of the Act will apply to England and Wales only. The rest of the Act – including the provisions on eligibility verification notices in Part 2 – will apply to England, Wales and Scotland.
• Penalties: Non-compliance may result in fines, and - under the powers of the Minister relating to information notices and direct deduction orders in Part 1 of the Act –individuals may also be made liable for failure to prevent a bank’s/EMI’s non-compliance with a requirement.
• Commencement: The main provisions of the Act will come into force via regulations on such day or days as the Secretary of State or the Minister for the Cabinet Office may appoint. Regulations making transitional or saving provisions in connection with the coming into force of any provision of the Act may also be made.

In accordance with the relevant provisions, banks and EMIs should expect to see regulations on the detail of various requirements under the Act (eg in relation to direct deduction orders) in the coming months. This previously published government factsheet on the Bill states that the government will begin implementation from 2026.

The government is planning a ‘test and learn’ approach to eligibility verification to ensure the new powers are being used ‘proportionally and effectively’. The DWP and the Cabinet Office will continue to work with industry on implementation, consult stakeholders on codes of practice and publish guidance.

The Act provides for codes of practice on the giving of information notices and on eligibility verification notices. A government press release on the Act states that the consultation for codes of practice will be launched in December.

How can Hogan Lovells’ combined legal and consulting teams help?

We have significant experience in supporting firms on regulatory change projects - from undertaking initial gap analysis work, project managing and supporting the implementation of a rolling program of enhancements and operational changes.

The combination of our legal and consulting teams provides you with a full range of services, and clear guidance on how the solutions can be applied within the business. If you would like to discuss how we can help you, please reach out to any of the people listed in this article or your usual Hogan Lovells contact.

Authored by Virginia Montgomery, Ann Đoàn, and Charles Elliott.