FCA To Absorb PSR In Major UK Payments Regulation Overhaul

The UK government has confirmed its intention to abolish the Payment Systems Regulator (PSR) and consolidate its functions within the Financial Conduct Authority (FCA), marking a significant structural shift in the oversight of payment systems. The consultation outcome, published on 21 April 2026, signals broad industry support for a more unified regulatory framework, but also highlights execution risks that will determine whether the reform delivers meaningful efficiency gains.

At its core, the reform is designed to streamline regulatory architecture by embedding payment systems oversight within the FCA’s existing framework under the Financial Services and Markets Act 2000 FSMA. This move aligns with the government’s wider Regulation Action Plan, which seeks to reduce duplication, improve coordination and support economic growth. Payment systems are systemically important infrastructure, and consolidating regulatory responsibilities is intended to simplify engagement for firms while preserving high standards of consumer protection and fraud prevention.

Industry feedback indicates strong endorsement of the policy direction, particularly the retention of the PSR’s core objectives. These include promoting competition, fostering innovation and protecting service users. Maintaining these objectives within the FCA is viewed as critical to ensuring that the payments sector continues to evolve while remaining competitive. However, respondents emphasised that legislative consolidation alone will not guarantee a more agile regulatory environment. The FCA’s operational approach, supervisory culture and coordination with the Bank of England and Prudential Regulation Authority PRA will be decisive.

A key feature of the new framework is the continuation of the designation regime, which determines which payment systems fall within regulatory scope. This ensures proportionality and avoids imposing inappropriate prudential or conduct requirements on entities outside the traditional regulatory perimeter. The government has also confirmed that existing PSR functions under assimilated law, including the Payment Services Regulations 2017 and Payment Card Interchange Fee Regulations 2015, will transfer to the FCA, providing continuity for market participants.

On regulatory powers, the FCA will inherit capabilities broadly equivalent to those currently exercised by the PSR. This includes the ability to impose price controls and regulate fees where necessary to address competition concerns. The government also intends to simplify the access regime for payment systems and rationalise appeal routes by shifting more decisions to the High Court, reducing procedural complexity for firms.

The consultation also addressed governance and accountability. The FCA will operate under an enhanced oversight framework, combining existing FSMA provisions with additional safeguards. These include Treasury powers to intervene in cases of international obligations and the ability to commission independent reviews of the FCA’s performance. This reflects stakeholder concerns about maintaining transparency and ensuring that expanded responsibilities do not dilute accountability.

From a strategic perspective, the integration of the PSR into the FCA represents a consolidation of economic and conduct regulation within a single authority. While this has the potential to improve policy coherence, it also raises questions about regulatory focus, particularly in relation to innovation. Fintech respondents were notably vocal in calling for a clear innovation mandate to be preserved within the new structure.

The transition will require primary legislation, with timing dependent on parliamentary availability. In the interim, the FCA and PSR are working jointly to ensure operational readiness, including aligning frameworks, guidance and supervisory practices. This preparatory phase will be critical in mitigating disruption and providing clarity to industry stakeholders.

Overall, the reform reflects a deliberate shift towards a more integrated regulatory model for payments in the UK. Its success will depend less on legislative design and more on how effectively the FCA executes its expanded mandate, balances competing objectives and maintains regulatory agility in a rapidly evolving payments landscape.