Payments: UK government confirms core design decisions for new 'streamlined' regulatory framework for payment systems

The wider context for reforming the payment systems regulatory framework

The government's work on the regulatory framework for payment systems should be viewed in the wider context of its Financial Services Growth and Competitiveness Strategy, the National Payments Vision's (NPV) aim of ensuring a work-leading payments ecosystem, as well as its Action Plan for regulators aimed at enabling a regulatory system that supports innovation and economic growth.

Most recently this work was included in the package of measures announced by the government during April's UK Fintech Week 2026 and aimed at equipping the UK's payments sector for the future of rapid financial innovation. For more on the government's announcement, take a look at this Our Thinking article.

What are the key points from the government’s consultation response?

Following its September 2025 consultation (see this Our Thinking article), the government has confirmed the following:

• Broadly, the PSR’s functions, objectives and “have regard” requirements, regulatory powers and oversight and accountability framework will be transferred to the FCA by integrating them within the FCA’s pre-existing legal framework under FSMA to the extent practicable. Different options for the design of the legislation to deliver this outcome are currently being considered.
• The PSR’s functions under assimilated payment services law – including the Payment Services Regulations 2017, the Payment Card Interchange Fee Regulations 2015 and the Payment Account Regulations 2015 - will also be maintained and transferred to the FCA in line with the general policy of consolidation. However, these will be reviewed and reformed as part of the government’s planned wider work on reforming assimilated payment services law. A consultation is expected during Q2 this year.
• Pre-existing PSR requirements, technical standards, other legal instruments, and guidance (eg the mandatory reimbursement regime for APP scams) will also be transferred to the FCA, following which the FCA will decide on its approach under the new legislative framework.
• There will continue to be a designation regime to bring payment systems in and out of scope of FCA regulation, reflecting the regime used in the Financial Services (Banking Reform) Act 2013 (FSBRA).
• With reference to the recent High Court decision on the PSR’s ability to cap certain fees relating to payment systems (see the January 2026 edition of our Payments and Digital Assets Newsletter), the ability to impose price controls or regulate fees and charges in appropriate circumstances to address competition issues in the market will be carried over to the FCA.
• The access regime for payment systems will be simplified. Some respondents raised the issue of Single Euro Payment Area (SEPA) equivalence. The government supports the UK’s continued participation in SEPA as a third country. It states that its intended policy direction on this point would not affect the UK’s membership of or participation in SEPA.
• The framework for appealing decisions made by the regulator will be simplified to reduce complexity for industry. Specific directions and requirements, or their equivalents, will be appealable to the High Court rather than the Competition Appeals Tribunal (CAT), reducing the number of appeal routes and streamlining the framework.
• The pre-existing definitions of key terms under FSBRA will be replicated within the new design to the extent that they are suitable. In light of feedback, there will also be a broader power enabling HMT to update definitions in the future to ensure they remain appropriate over time and reflect market developments.
• Given respondents’ support for strengthening accountability and oversight, provisions that already apply to the FCA in its wider role as a regulator of financial services will be extended. This includes providing powers to HMT to:
  • direct the FCA not to take any action if it appears the proposed action would be incompatible with any international obligation of the UK;
  • appoint an independent person to conduct a review of the economic efficiency and effectiveness with which the FCA has used its resources and provide that person with a right of access at any reasonable time to documents the person may reasonably require for the purposes of the review.

Some respondents commented on direction-making and rulemaking powers, for example a small number were concerned about rulemaking powers possibly being extended over payment system participants that are not currently subject to such powers (e.g. payment system operators and infrastructure providers), and queried if the use of rulemaking powers could lead to increased regulatory intervention in the market. The government has acknowledged this feedback and will reflect on it in considering different options for the design of the legislation.

What's next?

We have yet to see the detail of the government's policy decisions in the form of draft legislation, and the timeline for the changes remains uncertain given the dependence on the availability of parliamentary time for approving the final version. There was no indication of timing for the draft legislation in February's Payments Forward Plan either. However, press reports suggest that the changes might be included in a new Financial Services Bill to be announced in the King's Speech on 13 May. It should also be noted that the consultation did not cover all of the issues associated with the new consolidated regulatory framework for payment systems, but instead looked for feedback on certain core design decisions. There may therefore be further points for close review once the draft legislation is published.

In the meantime, the PSR and the FCA are working together to ensure operational readiness and prepare the FCA for its new responsibilities. This includes reviewing PSR and FCA frameworks, guidance and policies, including on how payment systems regulatory objectives are to be advanced (noting FSBRA's current requirements). Payment firms may be heartened to know that the government highlights the PSR and FCA's focus on ‘areas where external stakeholders will be affected by the change and where they can help make the transition process clear and predictable.'

If you would like to discuss how we can help you in relation to HMT's plans for the new regulatory framework for payment systems, please reach out to any of the people listed in this article or your usual Hogan Lovells contact.

Authored by Virginia Montgomery.