The End of the PSR: What Now for UK Payments?

On 11 March 2025, the UK Government announced that the Payment Systems Regulator (PSR) will be formally abolished, with its functions to be absorbed into the Financial Conduct Authority (FCA) and the Bank of England. Positioned as part of the broader Future Regulatory Framework (FRF) Review, the move is intended to streamline financial regulation, reduce duplication and enhance oversight efficiency. Whilst the government presents this as a rational evolution of the UK’s supervisory model, the payments industry now faces a fundamental shift in how it is regulated.

This article explores the reasoning behind the decision, its implications for regulatory coherence, and the considerable risks it presents to competition, innovation and consumer protection within the UK’s payments ecosystem.

A Strategic Shift Towards Centralised Oversight

The government’s decision to abolish the PSR stems from long-standing concerns around regulatory complexity. The UK’s financial system has been regulated through a patchwork of bodies including the FCA, Prudential Regulation Authority (PRA), Bank of England and Competition and Markets Authority (CMA), alongside the PSR. This layered approach was designed to allow specialist regulators to focus on niche areas such as payment systems. Yet critics argued that it led to inefficiencies, inconsistent enforcement, and a lack of joined-up thinking on systemic risks.

In its March 2025 announcement, the Treasury emphasised the need for a "coherent, streamlined and future-ready" regulatory environment capable of responding to increasingly integrated financial technologies. Payments no longer sit in isolation—they are embedded in everything from open banking to embedded finance and decentralised networks. A single regulator, it argues, is better placed to navigate these interdependencies and oversee both systemic resilience and consumer outcomes.

Going forward, the Bank of England will assume responsibility for the resilience and infrastructure stability of payment systems, while the FCA will absorb the PSR’s competition and conduct functions. The transition is expected to complete by late 2026.

A Blow to Competition & Market Access?

Whilst regulatory consolidation may offer strategic benefits, the payments industry has reacted with concern. Since its establishment in 2015, the PSR has played a unique role as a targeted advocate for competition and innovation within the payments landscape. Its abolition risks diminishing the attention given to sector-specific challenges, particularly for fintechs and non-bank payment service providers (PSPs) seeking to disrupt entrenched market structures.

Under the PSR’s stewardship, reforms such as the opening of interbank payments access, scrutiny of card scheme fees, and initiatives to lower the cost of merchant acquiring services have improved market entry conditions and broken down long-standing monopolies. The regulator’s efforts to enforce transparency and fair access in schemes like Faster Payments and Bacs were pivotal in allowing challenger banks and e-money institutions to flourish.

These market-level interventions require a level of focus and technical familiarity that could be lost in a generalist regulator. While the FCA has stated its commitment to maintaining competition in payments, the sector is concerned that it will become a lower priority amid the Authority’s broader portfolio which spans investment services, cryptoassets, banking conduct, and more.

Consumer Protection: A Reversal of Momentum?

One of the PSR’s most impactful areas of recent work has been the introduction of mandatory reimbursement for Authorised Push Payment (APP) fraud. With APP scams costing UK consumers £460 million in 2022 alone (UK Finance), the PSR’s push for a “polluter pays” model that holds sending and receiving institutions jointly liable, has helped reshape the market's approach to fraud prevention and redress.

In the government’s new model, responsibility for enforcement of APP reimbursement rules will transfer to the FCA. While the FCA has the institutional scale to enforce such measures, it does not have a proven track record of pursuing aggressive action on payment-specific harms. Consumer advocacy groups have voiced fears that the drive for strong consumer protection in payment fraud cases may lose visibility and momentum in the transition.

Similarly, the PSR’s involvement in overseeing the development of the New Payments Architecture (NPA), a next-generation clearing system intended to replace Bacs and Faster Payments, has been essential in safeguarding competition and open access in its design. There is now a risk that these technical, governance-oriented protections may be weakened or delayed under the new structure.

The Knowledge Gap: Payments Specialisation at Risk

The PSR’s strength lay not just in its mandate, but in its expertise. Its teams brought deep operational knowledge of payment rails, scheme governance, interchange fee models, and market power dynamics. Transferring its functions without retaining its personnel or institutional memory risks a dilution of that expertise at a time when the payments sector is rapidly evolving, and financial crime threats are becoming more sophisticated.

The Treasury has committed to a “smooth transition” and a “retention of specialist capability,” but much will depend on how the handover is executed in practice. Without a dedicated regulator pushing reform from within, there is a danger that innovation-supporting initiatives such as the expansion of variable recurring payments or the rollout of API-based retail payment models could stall or be deprioritised.

A Precedent & A Warning

Internationally, few major financial centres operate without some form of payments-specific regulator or unit. The Monetary Authority of Singapore (MAS), the European Central Bank, and the Dutch National Bank all maintain dedicated resources and teams to regulate payment infrastructure and promote innovation. The UK’s abolition of its only dedicated payments regulator may therefore be perceived as a step backwards particularly in light of global competition for fintech leadership.

Critically, this move comes at a time when digital wallets, embedded payments, and real-time settlement mechanisms are reshaping financial flows. A lack of focused oversight could expose gaps in regulation just as criminal typologies, fraud risk, and systemic vulnerabilities are evolving.

Conclusion: Regulatory Streamlining, Strategic Uncertainty

The abolition of the Payment Systems Regulator marks a significant moment in the evolution of UK financial oversight. From a regulatory architecture perspective, the move may reduce complexity, align systemic oversight, and enable a more joined-up response to emerging risks. However, for the payments industry, it represents a serious loss of focus, advocacy, and targeted expertise.

If the UK is to remain a global fintech hub, the functions of the PSR must not only be preserved but actively championed within the new regulatory structure. The FCA and Bank of England must commit to resourcing these roles with the same urgency and technical depth the PSR offered. Without that, the UK risks stifling the very innovation and competition that has made it a leader in payments to date.

The next 18 months will be a litmus test. Whether the UK can deliver on its promise of smarter, streamlined regulation without sacrificing sectoral effectiveness will depend not on structures alone, but on leadership, execution and an unwavering commitment to shaping a future-fit payments regime.