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HM Treasury’s consultation on plans to consolidate the Payment Systems Regulator (PSR) within the Financial Conduct Authority (FCA) is the next step in a process that began with the March 2025 announcement that the PSR would be wound down.

The proposals in the document outline the government’s intended approach to transferring the PSR’s functions into the FCA, with which it currently shares offices.

Under the new framework, which is being consulted on until October 20, the FCA’s regime would apply to payment systems and participants such as system operators, infrastructure providers and payment service providers (PSPs).

Conduct and economic regulation would sit with the FCA, with prudential regulation shared between the Prudential Regulation Authority (PRA) and the FCA. The Bank of England would retain responsibility for financial stability.

The government stresses that it does not intend to alter the FCA’s existing conduct and prudential regulatory functions, or to expand its remit as a result of integrating the PSR. 

Nor does it plan to introduce prudential regulation through an authorisation process for payment systems or participants currently outside the FCA’s scope. 

Instead, a designation regime would focus regulation on the UK’s largest and most significant payment systems, while allowing smaller systems to operate without additional requirements.

In addition, the government has proposed that the Bank of England and PRA should have powers to direct the FCA not to exercise its payment systems functions in certain circumstances. This is a continuation of their existing veto powers over the PSR.

The bigger picture

The Labour government made its intentions clear earlier this year, with leaks to the press in the run-up to the announcement and then a defiant late-night  directly from Number 10.

“For too long, the previous Government hid behind regulators, deferring decisions and allowing regulations to bloat and block meaningful growth in this country, and it has been working people who pay the price of this stagnation,” said Keir Starmer, the Prime Minister.

According to Starmer, whose Labour government swept to power last year, this is the latest step in efforts to kickstart economic growth, “which is the only way we can fundamentally drive-up living standards and get more money in people’s pockets”.

“That’s why it is the priority in the Plan for Change, and it’s why I’m not letting anything get in its way.”

The decision appeared to have been taken quite swiftly. In a Treasury Select Committee meeting the day after the announcement, the PSR’s chief, David Geale, and its chair, Aidene Walsh, confirmed to members of parliament that they found out on the same day as the industry. 

The work of the PSR had attracted increasing scrutiny in recent years, in particular due to its new rules on authorised push payment (APP) fraud reimbursement. These were introduced in October 2024, and prompted criticism from both payment firms and retail banks. 

It was also accused by some in the industry of moving too slowly on initiatives such as open banking and on its remedies for card schemes and acquirers. 

The regulator’s winding down will leave firms wondering whether the FCA will retain all of the PSR’s initiatives, or whether some could be quietly dropped. 

At a time when the government is keen to appear pro-business and to spur economic growth, the FCA may face pressure not to be too interventionist on some issues that were in the PSR’s remit, such as action that challenges Visa and Mastercard. 

As for next steps, the government says in the consultation document that it “will seek to bring forward legislation to implement its final policy when Parliamentary time allows.”

This provides some flexibility as to when to begin legislative proceedings, but the government is likely to begin this work sooner rather than later, considering the push for growth and simplification.

Why should you care?

Components of the payments ecosystem, including acquirers, issuers, fintechs and infrastructure providers, will now come under a single conduct and economic regime run by the FCA. 

This should remove any duplication between the FCA and the PSR, simplifying oversight and providing greater regulatory clarity.

Reporting and supervision may also be streamlined as the FCA consolidates functions previously split between two regulators. 

However, firms will need to adjust to the new framework and potentially different supervisory approaches than those they are used to. 

Given the government’s objective of cutting red tape, smaller PSPs and niche operators are less likely to face heavy regulatory requirements unless designated as systemically important. However, larger players can expect increased scrutiny, particularly around competition and fair access.

A single regulatory touchpoint for firms should reduce overlaps and confusion, and aligning conduct and economic regulation within the FCA could deliver clearer and more predictable rules for the payments sector. 

The proposed designation regime means smaller firms can avoid unnecessary burdens, with oversight targeted at the most systemically important operators. The FCA’s existing competition powers may also sharpen scrutiny of large schemes and operators.

However, the change in oversight will not be without its challenges – both for the regulatory overseers and firms. 

The FCA’s expanded remit could stretch its resources, raising concerns about whether payments regulation will receive sufficient focus. 

In addition, integration may cause short-term delays in decision-making or enforcement as responsibilities shift from the PSR to the FCA.

One factor that may ease the transition is that Geale, the PSR’s chief, also leads the FCA’s payments and digital assets department. 

In the coming weeks, it is important that firms:

• Review, and respond to HM Treasury’s proposals in detail, especially on key issues such as designation criteria, competition oversight and reporting requirements.
• Map out regulatory relationships, assessing how interactions with the FCA may change and whether their firm could be designated as “significant” under the new framework.
• Prepare internally and externally, coordinating with legal, compliance and industry bodies to shape responses. Trade associations such as UK Finance and The Payments Association will likely be submitting their thoughts on the proposals.
• Monitor political signals, tracking government messaging on “cutting red tape” and growth, which may influence how firmly the FCA applies its expanded remit.
• Assess resource needs, identifying whether compliance, legal or operational teams will need extra support during the transition, particularly if the FCA’s supervisory approaches differ from the PSR’s.
• Stress-test existing initiatives, reviewing how ongoing work in areas such as APP fraud, open banking and card scheme remedies could be affected if priorities shift under FCA oversight.

Firms that take a proactive approach to these changes will be better placed not only to manage compliance, but also to influence the shape of the UK’s new payments regulatory landscape.