HM Treasury consults on consolidating UK Payment Systems Regulator into FCA

On 8 September 2025, HM Treasury (HMT) launched a consultation paper on its plans to abolish the Payment Systems Regulator (PSR) and consolidate its functions within the Financial Conduct Authority (FCA).

Open until 20 October, with legislation to follow when Parliamentary time allows, the consultation follows the UK government's March 2025 regulatory action plan to reduce the complexity of the UK's regulatory environment.

Headline proposals

The Treasury proposes to transfer all of the PSR's functions to the FCA, embedding them within the existing Financial Services and Markets Act 2000 (FSMA) framework where practicable.

The FCA will take over the PSR's current role as economic regulator of payment systems designated by HMT and their participants (operators, infrastructure providers and payment service providers). The current designation regime will remain the same and all systems designated today would transfer to FCA oversight. Economic regulation seeks, where possible, to develop and protect competitive markets and help create market conditions for innovation to thrive and for service-users’ interests to be protected.

The FCA will be given the statutory objectives that are equivalent to the PSR’s (competition, innovation and promoting the interests of service‑users), alongside its existing strategic objective to ensure relevant markets function well, and its competitiveness and growth objective.

Powers over payment systems that are broadly equivalent to the PSR’s will be granted to the FCA, using existing FCA tools with modifications where possible (in terms of being able to issue directions/requirements, having rights of access to regulated payment systems, being able to vary agreements, enforcement against its directions/requirements, and information gathering/investigation powers).

HMT will create a single framework for governing access to payment systems by removing the overlapping Payment Services Regulations 2017 access provisions, and by simplifying direct and indirect access requirements to payment systems.

The roles of the Bank of England (BoE) and Prudential Regulation Authority (PRA) will be unchanged; they would retain powers to require the FCA not to exercise payment system functions in certain circumstances, mirroring current veto arrangements.

Key concepts and definitions (for example, of "payment system", "digital settlement asset", "participants", and "direct access") will be maintained.

Oversight/accountability mechanisms will be retained in substance and integrated into FSMA where practicable.

In preparation for these proposed changes, the PSR and FCA have already been coordinating (creating a joint leadership role, updating the Memorandum of Understanding between the PSR, FCA, BoE and PRA, carrying out joint work on Open Banking variable recurring payments, horizon scanning, and working together on the Payments Vision Delivery Committee).

What can firms expect?

In the short term, there is unlikely to be any real change. However, by creating one principal regulator for payment services as a whole, the longer-term aim is to reduce overlap for firms that currently engage with both the PSR and FCA, with the complexities that dealing with two regulators can sometimes bring. Accordingly, there ought to be a more streamlined experience for firms in interacting with the FCA not only for their day-to-day supervision, but also for payment system-related matters.

Over time, firms should expect the FCA's style of payment system supervision to feel more akin to its usual supervisory style. There may also be potential changes in process as compared to the PSR (for example, the balance between direction‑making and rulemaking, appeals routes and information powers).

The single access regime aims to create clearer, more consistent obligations for payment system operators and rights for direct/indirect participants of those systems. This is likely to entail updates to access policies, agreements and onboarding documentation.

What happens next?

The consultation will close on 20 October 2025, with the government to consider feedback before it issues its final decisions, and legislation to follow.

Osborne Clarke comment

If delivered as intended, the proposed plans would simplify the payments regulatory landscape in the UK. However, the envisaged efficiencies can realistically only be achieved through real collaboration between the regulatory bodies and timely legislation. While the government works towards its stated outcomes, businesses will need to work with regulators in a state of flux.

Short-term action: Affected firms may wish to prepare evidence‑based responses on key design choices (designation, tools, access, oversight) by the 20 October consultation deadline. This is also a great opportunity for firms to set out any practical issues that have arisen with the supervisory style and processes of the PSR, so that they can be avoided under the FCA's regime.

Longer-term action: Firms may also wish to:

• map their status as designated systems or participants and current touchpoints with the PSR/FCA;
• review direct and indirect access frameworks in anticipation of a single regime; and
• consider how FCA objectives may influence rules, fees, access and interoperability.

If you would like help navigating the incoming changes and their impact on your business, please contact our experts.