Reshaping UK payments regulation: HM Treasury consults on consolidating the PSR within the FCA

The UK's payments landscape is on the cusp of significant regulatory change. In March 2025, the UK government announced that it would abolish the Payment Systems Regulator (PSR) and consolidate its functions within the Financial Conduct Authority (FCA). HM Treasury launched a consultation on 8 September 2025 regarding the details of how that consolidation would be achieved. 

A shift towards regulatory consolidation

The PSR was established in 2015 as the UK’s economic regulator for payment systems, with a statutory mandate to promote competition, innovation and the interests of service-users. Since then, it has played a key role in opening up access to payment systems, advancing Open Banking and introducing protections against fraud. However, with responsibility for regulating the payments sector shared between the PSR, the FCA, the Bank of England and the Prudential Regulation Authority (PRA), firms often find themselves regulated by multiple authorities for different activities. This state of affairs can create overlapping mandates and unnecessary complexity.

Recognising these challenges, the government announced its intention earlier this year to streamline the framework. The proposed consolidation would see the FCA assume the PSR’s functions, including its role in regulating designated payment systems and participants such as operators, infrastructure providers and payment services providers. The government intends to integrate these functions into the FCA’s existing framework under the Financial Services and Markets Act 2000 (FSMA), where practicable. Where this is not feasible, a new part of FSMA would be introduced.

Regulatory approach

Importantly, the government is not proposing to expand the scope of existing regulation or bring new categories of firms into scope. It does not consider it appropriate to apply FSMA-style conduct and prudential regulation to payment systems (or participants in those systems) that are not already in scope of that type of regulation. Similarly, there will be no new regulated activity created in connection with payment systems. Instead, the government intends to retain the existing designation regime under the Financial Services (Banking Reform) Act 2013 (FSBRA), whereby HM Treasury designates payment systems based on criteria such as the number and value of transactions and also systemic importance. This approach is favoured by the FCA because it facilitates targeted regulation of the UK’s most significant payment systems, while continuing to allow smaller systems to operate without unnecessarily burdensome regulatory obligations.

The consultation also confirms that the FCA will continue to perform its current roles, including its functions in relation to payment services and e-money legislation. As a result, there will be no changes for banks, payment institutions and e-money institutions that are already regulated by the FCA under payment services and e-money legislation.

Objectives 

The FCA would be given statutory objectives equivalent in scope and substance to those currently held by the PSR. These include promoting effective competition, fostering innovation and ensuring that payment systems operate in the interests of users. The FCA would also be required to have regard to a range of regulatory principles, including proportionality, transparency and the importance of maintaining financial stability. 

The government is proposing to apply the FCA’s existing strategic objective (to ensure that the relevant markets function well) and its secondary objective (to facilitate the international competitiveness of the UK economy and its growth) to its new role in relation to payment systems. In addition, the FCA would also be required to introduce "have regard" requirements in the new framework which would be equivalent in scope and substance to those currently applied to the PSR under FSBRA. Consequently, when acting in relation to payment systems the FCA would be required to have regard to: (i) the importance of maintaining the stability of, and confidence in, the UK financial system; (ii) the importance of payment systems in relation to the performance of functions by the Bank of England in its capacity as a monetary authority; and (iii) regulatory principles that reflect those found in section 53 of FSBRA. 

Powers and enforcement

The FCA would inherit the PSR’s existing regulatory toolkit under FSBRA, which broadly falls into three categories: (i) regulatory and competition; (ii) enforcement and information; and (iii) investigation. These powers would be integrated into the FCA’s framework under FSMA where possible, with new provisions introduced as needed to ensure continuity.

One notable aspect the government is still considering is whether the FCA should act in relation to payment systems on the basis of direction-making and requirement-making powers – which is similar to the PSR’s approach – or if the FCA should instead act on the basis of rulemaking and requirements-based powers i.e. similarly to how it already acts in other areas of financial services regulation. 

Institutional coordination and oversight

While the FCA would take on the PSR’s functions, the roles of the Bank of England and PRA would remain unchanged. They would continue to perform their current functions and would retain veto powers over the FCA similar to those they currently hold over the PSR. Effective collaboration between the FCA, Bank of England and PRA will remain crucial for the success of the new framework.

Oversight and accountability mechanisms currently applicable to the PSR would also be replicated within the FCA’s framework. This includes duties to consult, publish policy statements and respond to directions from HM Treasury.

Next steps

The consultation closes on 20 October 2025. Subject to the outcome of the consultation, legislation will be brought forward when Parliamentary time allows.

On the face of it, a reduction in the number of regulators is to be welcomed. However, it seems that little will change in practice as the government has adopted a “lift and shift” approach and has not taken the opportunity to streamline the regime. In particular, those payment systems operators who are also designated by HM Treasury under the Banking Act 2009 would remain subject to dual regulation and oversight by different regulators under different regimes.