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The UK government will scrap the Payment Systems Regulator (PSR) under the Prime Minister’s "Plan for Change" to cut red tape and simplify financial regulation.
The PSR, which oversees payment systems such as Faster Payments and Mastercard, will be largely consolidated into the Financial Conduct Authority (FCA).
The government argues that this will simplify compliance for firms, particularly smaller businesses that struggle with the costs of dealing with multiple regulators.
“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 follows concerns from financial players that the UK’s regulatory framework is overly complex, requiring payment system firms to engage with three different regulators.
By reducing this duplication, the centre-left government is hoping to boost economic growth and encourage more investment into the UK.
Announcing the changes, the Prime Minister emphasised that only through economic growth can living standards improve, promising that regulatory reform will help put more money in consumers' pockets.
Managing the transition
In the short term, the PSR will continue its existing work, retaining statutory powers until legislation is passed to formalise the transition.
During this period, it will work closely with the FCA to ensure a smooth handover and maintain market competitiveness.
The abolition of the PSR is part of a broader government push to reshape the regulatory landscape.
Recent efforts have included a call for regulators to propose at least five reforms to boost growth and a direct intervention from the Chancellor earlier this year to scrutinise these proposals.
“The regulatory system has become burdensome to the point of choking off innovation, investment and growth,” commented Rachel Reeves, the UK’s Chancellor. “We will free businesses from that stranglehold.”
In a statement shared with the media, the PSR said that the government's announcement “is a pragmatic next step in simplifying and clarifying payments regulation”.
“We welcome the government’s commitment to maintaining effective regulation of payment systems, which was a gap before the PSR was set up.”
The statement continues that, since its inception, the payments sector has dramatically changed, particularly over recent years.
“The PSR has played a central role, supporting open banking and innovation, opening up access to payment systems, promoting competition, and introducing world leading protections for victims of fraud. Colleagues should rightly be proud of all they have achieved.”
“We’re committed to working with the government, the FCA and the Bank of England as decisions are taken on the transfer of regulatory responsibilities and, when they are, help ensure the process is smooth,” the PSR said.
Nikhil Rathi, the CEO of the FCA, said in a media statement that “PSR colleagues have made payment systems safer, more competitive and increasingly innovative. They should be proud of the huge amount achieved.”
However, he acknowledged that with a changed payments landscape, now is the right time to put in place a more streamlined regulatory framework. “Doing so is a natural next step following recent work to improve co-ordination and clarity on regulatory responsibilities”, he said.
“We will drive forward with change, including welcoming the deep expertise of PSR colleagues within the FCA.”
What now?
It has been hinted at for weeks that the PSR may be due to be folded into the FCA, and the announcement came the night before the leadership of the PSR is due to appear at a hearing with the Treasury Select Committee.
The likelihood that the regulator would be closed down began to become apparent last year, not only when the jobs of PSR managing director and payments chief at the FCA were merged into one, but also when the Treasury relinquished the PSR of its responsibilities over open banking changes, handing them over to the FCA.
In recent years, the PSR has also faced scrutiny over some of its regulatory choices, including its authorised push payment (APP) fraud reimbursement rules.
Many felt the rules were too interventionist and had the potential to bankrupt financial institutions forced to reimburse consumers who had fallen victim to APP fraud.
Sources have also suggested that the PSR has faced pressure from the market and government over challenging card schemes’ fee transparency.
Last week, the PSR concluded that the cards market is not performing well in the UK, and is causing a negative impact on merchants and consumers.
