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HM Treasury’s consultation sets out a streamlined model that promises efficiency, but firms will need to assess whether it truly reduces regulatory friction while supporting innovation.
The consultation paper sets out how the government intends to implement its plan, announced in March 2025, to integrate the functions of the Payment Systems Regulator (PSR) into the Financial Conduct Authority (FCA).
The PSR’s responsibility for regulating UK payment systems will be transferred to the FCA by folding its functions into the FCA’s framework.
However, under the government’s proposed approach, the transfer of the PSR’s functions to the FCA will not bring new categories of entities into the scope of payment systems regulation.
In the consultation paper, HM Treasury said it plans to retain the current designation framework for payment systems because it facilitates more targeted regulation.
“Through a designation regime the government can ensure that regulation is targeted at the UK’s largest and most significant payment systems, while allowing smaller systems to operate without being subject to additional requirements.”
The proposals state that the new regulatory framework means the FCA’s objectives in relation to payment systems will be equivalent in scope and substance to those currently in place for the PSR.
The government wants to retain the existing definitions of the key regulatory terms “payment system”, “digital settlement asset”, “participants” in a payment system and “direct access”.
The consultation closes on October 20, 2025.
Preparations underway
Ahead of transitioning to the new, streamlined framework, the two regulators have started integrating their functions. For example, they have already created a role that sits across both organisations, combining responsibility for payments and digital finance at the FCA with the position of managing director of the PSR.
They are also establishing a joint steering group on open banking and variable recurring payments.
In addition, a revised Memorandum of Understanding between the PSR, the FCA, the Bank of England and the Prudential Regulation Authority (PRA) was announced in June 2025, with the aim of strengthening coordination.
Other initiatives include creating joint project teams in areas of mutual interest, undertaking joint stakeholder engagement and forging closer working on horizon scanning.
The two regulators are also working together with the Bank of England and HM Treasury through the Payments Vision Delivery Committee to drive delivery of the government’s National Payments Vision (NPV).
David Geale, holder of the joint FCA/PSR role mentioned above, believes the consultation is an important next step in simplifying and clarifying payments regulation.
“The consolidation will ensure there is a clear, predictable and proportionate regulatory framework that supports the UK’s dynamic and fast-evolving payments landscape,” he said.
“We've already developed a more streamlined and joined up approach to payments regulation and removed some of the regulatory burden on firms, for example on our joint approach to open banking and our close partnership on delivering the NPV.”
A streamlined regulatory regime
The UK government is keen to create a more streamlined payments regulatory environment. It believes this will support growth, ease the compliance burden on businesses and prevent duplication of regulatory responsibilities.
It is rethinking existing regulatory structures for payment systems so that firms can focus more of their resources on services and innovations that support the government’s economic growth agenda.
The government acknowledges that providing a functional separation between regulatory roles and responsibilities is a strength of the current regulatory framework, allowing each authority to specialise.
However, it notes that in practice, participants in payment systems can often be regulated by more than one authority for different purposes, resulting in additional regulatory burdens.
Payments modernisation
The consultation marks a key step in modernising payments regulation in the UK.
By the end of the year, the Payments Vision Delivery Committee will publish its Payments Forward Plan, setting out a sequenced programme of future initiatives in both retail and wholesale payments, and the role of digital assets.
Last month, the FCA shared its feedback on the creation of a new standard-setting body for open banking, known as the “Future Entity”.
This organisation is expected to become the primary body responsible for setting and maintaining open banking standards in the UK, including for application programming interfaces (APIs).
Its standards are intended to underpin commercial open banking schemes and support innovation in the sector.
The FCA has affirmed its commitment to supporting the government’s growth agenda, and in taking on the responsibilities of the PSR it will aim to balance rigorous oversight with fostering innovation.
The consultation paper indicates that much of the current payments regulatory framework will be retained, but with operations streamlined to simplify compliance and reduce complexity.
Over the coming weeks, regulated firms have the opportunity to contribute their views to help ensure a smooth transition.
