On 11 March 2025, the Government announced that the Payment Systems Regulator (PSR) will be abolished as part of a wider plan to reduce regulatory burden on businesses and drive economic growth in the UK.
Practical changes and implementation
In due course, the plan is for the PSR to be mainly consolidated into the Financial Conduct Authority (FCA), however, for the time-being the PSR will continue to operate as it is, with no changes to its remit or ongoing work until changes are enacted in legislation.
The PSR has acknowledged the Government's announcement as a pragmatic step in simplifying and clarifying payments regulation. It has noted that, whilst legislation will take time to come into effect, it will work with the FCA and Bank of England to ensure the process is smooth and that they need not wait for legislation to start realising the benefits of a more streamlined regulatory approach.
The rationale for removing the PSR
These changes are made following the Government's call for regulators to regulate for growth and drive innovation in the UK. Chancellor Rachel Reeves noted that "The regulatory system has become burdensome to the point of choking off innovation, investment and growth".
The basis for abolishing the PSR is to make it easier for firms to deal with the FCA as a singular point of contact and follows complaints that the regulatory environment was too complex and inefficient for payment systems firms that had to engage with multiple regulators. This had a large impact on smaller businesses who were faced with disproportionate costs. It is hoped that this change will help enable fintech companies to establish themselves and scale up under a friendly regulatory environment.
The PSR's final strategy
Prior to the Government's announcement, the PSR published its strategy update on 16 January 2025, marking its progress as it completed the third year of its five-year strategy, which now looks likely to be its last.
For the remaining two years of the strategy, or at least until it is consolidated into the FCA, the PSR will focus on three core commitments:
- completing in-progress work to protect users and promote competition and innovation;
- progressing work to upgrade faster payments and reform Pay.UK; and
- increasing focus on competition and innovation.
In-progress work to protect users and promote competition and innovation
One of key focus areas for the PSR to date has been the implementation of APP fraud rules, including the mandatory reimbursement rule that came into effect on 7 October 2024. See our article for more details of the mandatory reimbursement requirement.
Ensuring that the APP fraud rules are embedded is a priority for the remainder of the strategy. This will include monitoring the impact of the rules and commissioning an independently led review after the rules have been in place for 12 months. The outcome of any such review will be particularly interesting given how vocal the industry has been on the need for Big Tech to be held accountable for providing platforms on which APP fraud has proliferated.
Another core focus of the PSR is completing phase 1 of plans to extend the scope of non-sweeping variable recurring payments (VRPs) for lower-risk use cases (local Government, utilities, regulated financial services).
Pay.UK reform and upgrading the faster payments system
In Q2 2025, the PSR expects to set out its approach to:
- supporting the development of the UK's faster payments system infrastructure. The PSR will work alongside the Bank of England and the Payments Vision Delivery Committee to clarify the short-term requirements and consider future requirements for retail payments infrastructure; and
- working with the Bank of England to review Pay.UK's governance and funding arrangements and make proposals for Pay.UK's reform.
Increasing focus on innovation, competition and growth
As part of the PSR's focus on innovation, competition and growth, the PSR will build out its innovation capability by facilitating a PSR "innovation pathway" to provide advice and clarity on the interaction of proposed business models and the PSR's regulations.
The PSR is also aiming to engage with industry innovators to further understand how payment system infrastructure, rules and operation may be blocking innovation, and how this can be addressed. This will include engaging with industry players that are developing potential new competitive payment systems. The PSR has also released a joint update with the FCA on big tech and digital wallets.
Comment
Abolishing the PSR is intended to lead to improved cost and time efficiency for payment businesses and reduce financial barriers to innovation and growth for start-ups and fintech companies.
It does, however, raise questions about whether the PSR's focus areas will change after consolidation with the FCA, particularly given the FCA's recent announcement that it is looking to progress fewer "large scale changes" in its next five-year strategy, or if their alignment with the Government's wider call to regulate for growth will mean that the work will continue, albeit under the auspices of the FCA.