The Payment Systems Regulator to be abolished

How will payments businesses be impacted?

Alex Speedie

March 17, 2025

The UK government has announced plans to abolish the Payment Systems Regulator (PSR) as part of a broader effort to streamline financial regulation, reduce business burdens, and eliminate regulatory overlaps. Under this proposal, the PSR will be integrated into the Financial Conduct Authority (FCA).

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This reform is a key component of the government’s Plan for Change, which aims to accelerate economic growth by reducing unnecessary regulatory constraints. It also aligns with a wider restructuring of UK regulatory bodies, including the Competition and Markets Authority (CMA) and the Financial Ombudsman Service (FOS).

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The PSR, which has been fully operational since 1 April 2015, was originally established to:

Ensure that payment systems operate in a way that serves both businesses and consumers.
Promote effective competition among payment system operators, payment service providers (PSPs), and infrastructure providers.
Encourage innovation and the development of payment system infrastructure.

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A consultation on the proposal is planned for summer 2025, with legislation to follow as soon as possible. However, full implementation is unlikely before the end of 2025. During this transition, the FCA will assume the PSR’s functions, though the regulator’s remit and ongoing projects will remain unchanged until the necessary legislation is passed. The PSR and FCA will work closely to ensure a smooth handover, building on existing efforts to align their regulatory responsibilities.

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The PSR has faced criticism over several of its regulatory decisions, particularly regarding the framework for authorised push payment (APP) fraud refunds. Initially, the regulator set a maximum refund threshold of £415,000, but following strong opposition from fintech firms and government ministers, this was lowered to £85,000.

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Smaller fintech companies had warned that the higher limit could threaten their financial viability and deter early-stage investment. Additionally, concerns were raised about the refund process itself, specifically that requiring firms to prove gross negligence before denying claims would, in practice, result in near-automatic reimbursements. This, in turn, risked increasing fraud cases due to the guaranteed nature of refunds.

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Another area of concern has been the slow adoption of a key PSR initiative, the reimbursement platform managed by Pay.UK. Designed to streamline claims for APP fraud victims, the platform has seen limited uptake among banks and payment providers. As of February 2025, just 558 firms had onboarded, well below the PSR’s stated target of 1,500 and a small fraction of the 2,000+ payments firms operating in the UK. Since its launch in October 2024, the platform has processed only 10 claims.

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Despite concerns over APP fraud regulation, there is growing support for integrating the PSR into the FCA, as this may provide a more effective regulatory framework. The FCA is already set to become the primary regulator for open banking, a technology that facilitates direct bank-to-bank payments. Consolidating regulatory oversight under a single body is expected to improve coordination and communication between businesses and regulators.

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However, this transition raises important questions. The PSR was created with a specific mandate to protect consumers in the payments ecosystem. Absorbing it into the FCA, a regulator with a much broader financial services remit, risks diluting the specialised focus that payment systems have received. This shift comes at a critical time, with APP fraud at record levels and consumers increasingly targeted by sophisticated scams.

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In the short term, the transition could lead to regulatory slowdowns, as teams responsible for overseeing the sector focus on managing the structural changes. There is also concern that payments may not receive the same level of attention under the FCA as they did under the PSR, which leads to a slowdown in further innovation.

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In summary, at a time when Governments globally are investing in fintech ecosystems, the UK has positioned itself as a leader in payments. It is therefore crucial that this regulatory change enhances, rather than hinders, the sector’s ability to compete and grow.

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The Payment Systems Regulator to be abolished

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