Key takeaways

What should firms be thinking about and how can Hogan Lovells help?

HMT sets its consultation on the consolidation of the PSR within the FCA in the broader context of the government’s 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.

There is a pledge that the new regulatory framework 'will be shaped with the full diversity of the sector in mind, from established payment operators to emerging FinTech firms, and from service providers to the merchants and consumers who use payment systems and services every day‘.

The core aim of the current proposals is to remove the specific regulator for payment systems whilst maintaining key elements of the current approach to regulating payment systems. The government is proposing to:

• Keep the scope of the FCA’s payment systems regulatory regime the same as the PSR’s current regime in the Financial Services (Banking Reform) Act 2013 (FSBRA 2013), meaning that it would continue to capture payment systems and the participants in those systems – payment system operators, infrastructure providers and payment service providers.
• Keep an HMT designation regime for persons currently subject to the FSBRA 2013 regime, rather than moving to FSMA-style conduct and prudential regulation based on an authorisations process.
• Provide the FCA with powers that are broadly equivalent in scope and substance to the PSR’s current regulatory and competition, enforcement, and information and investigation powers under FSBRA 2013.
• Simplify the current framework for governing access to payment systems by ensuring there is a single access regime that applies in all relevant circumstances, based on the provisions currently under Part 5 of FSBRA 2013.

However, firms should note that while the government is not currently planning to alter the FCA’s existing wider role as a conduct and prudential regulator, including its existing functions in relation to payment services and e-money legislation, or expand or reduce the FCA’s remit in relation to these functions, there is a suggestion that further change might be on the horizon. There is reference to further changes being considered as part of plans to modernise and future-proof payments assimilated law, as set out in the July 2025 Financial Services Growth and Competitiveness Strategy.

If you would like to discuss how we can help you in relation to HMT’s proposals, please reach out to any of the people listed in this article or your usual Hogan Lovells contact.

What are the key proposals in HMT's consultation?

The government’s overarching aim is to move to a more streamlined regulatory framework for payment systems, with a reduced number of regulators, in order to reduce both the regulatory burden on participants (who can find themselves regulated by more than one regulator for different purposes and activities) and overlap/duplication in the work of the regulators.

The current consultation does not cover all of the issues associated with the new consolidated regulatory framework. The focus is on the proposed approach to the following core design decisions where the government believes it would be most useful to receive stakeholder feedback:

Transfer of PSR’s responsibility for regulation of UK payment systems to FCA

• The FCA will take on the PSR’s responsibilities as economic regulator for UK payment systems via legislation that integrates the PSR’s functions within the FCA’s current framework in FSMA 2000. Where use of the current FCA framework is not practicable, the relevant functions would be set out in a new part of FSMA 2000.
• The FCA’s payment systems regulatory regime would apply to the same categories of persons as the PSR’s current regime in the FSBRA 2013, namely payment systems and the participants in those systems – payment system operators, infrastructure providers and payment service providers.
• Rather than moving to FSMA-style conduct and prudential regulation based on an authorisations process, an HMT designation regime will be retained for persons currently subject to the FSBRA 2013 regime – thereby supporting proportionality and helping to minimise regulatory burdens on the sector by facilitating more targeted regulation. So, for example, a pure operator of a designated payment system, who does not carry out any FSMA 2000 regulated activity, would not need to obtain Part 4A permission, or authorisation and registration under the Payment Services Regulations 2017 (PSRs 2017) and the Electronic Money Regulations 2011.
• At this stage, the government is not seeking to alter the FCA’s existing wider role as a conduct and prudential regulator, including its existing functions in relation to payment services and e-money legislation, or expand or reduce the FCA’s remit in relation to these functions. HMT states that any changes to this legislation will be considered as part of plans to modernise and future-proof payments assimilated law, as set out in the government’s July 2025 Financial Services Growth and Competitiveness Strategy.
• There will be no changes to the roles and responsibilities of the Bank of England and the PRA in relation to payments. They will both have a power to require the FCA not to exercise its payment system regulation functions where certain criteria are met, reflecting the substance of their existing veto powers over the PSR in Part 5 of FSBRA 2013.

Statutory objectives for FCA when it acts in relation to payment systems

• The FCA would have objectives for when it acts in relation to payment systems that are equivalent in scope and substance to the PSR’s current competition, innovation and service-user objectives in FSBRA 2013. This would be achieved by integrating the substance of the PSR’s FSBRA objectives within the FCA’s current framework in FSMA 2000 to the extent that this is practicable. The government is considering the best approach to achieve this outcome, including reviewing the appropriateness of the FCA’s current operational objectives in relation to payment systems.
• The government also proposes to apply the FCA’s strategic objective and its competitiveness and growth secondary objective to payment systems, with any necessary modifications.
• In addition, there is a proposal that the “have regard” requirements for the FCA in the new framework will be equivalent in scope and substance to what the PSR currently has in FSBRA 2013, i.e. when acting in relation to payment systems the FCA would be required to have regard to:
  • the importance of maintaining the stability of, and confidence in, the UK financial system;
  • the importance of payment systems in relation to the performance of functions by the Bank of England in its capacity as a monetary authority; and
  • regulatory principles that reflect those in section 53 of FSBRA 2013.
• There is also mention of the government separately consulting on wider changes to the regulatory principles of the FCA and PRA, including a proposal to change regulatory principles from “day to day” principles to something that each regulator must consider at a strategic level. HMT flags that if this proposal goes ahead, the FCA would consider any regulatory principles when it acts in relation to payment systems ‘as part of this wider strategy’.

Regulatory powers of FCA when it acts in relation to payment systems

• In the new framework, the FCA would have powers for when it acts in relation to payment systems that are broadly equivalent in scope and substance to the PSR’s current regulatory and competition, enforcement, and information and investigation powers under FSBRA 2013. Again, the proposal is to do this by integrating the substance of the PSR’s FSBRA powers within the FCA’s current FSMA 2000 framework to the extent this is practicable. Where this approach is not practicable, the relevant provisions would be set out in a new part of FSMA 2000.
• Given that many of the PSR’s powers - especially those relating to enforcement, information and investigation - are similar to powers that the FCA already has, the government expects to enable the FCA to use its existing powers (with any necessary modifications) where appropriate.
• In cases where the FCA does not already have comparable powers (e.g. a power to require the granting of access, a power to require the disposal of an interest or a power to require participants to vary certain agreements), the aim will be to ensure that it has recourse to powers that are equivalent in substance when acting in relation to payment systems.
• The government is still considering whether it would be preferable for the FCA to act in relation to payment systems on the basis of something similar to the PSR’s current direction-making and requirement-making powers, or the FCA’s current rulemaking and requirements-based powers in other areas of financial services regulation, or both sets of powers.
• The government is also considering making some targeted amendments to the toolkit of regulatory powers that would be available to the FCA. In particular, it is considering simplifying the current framework for governing access to payment systems by ensuring there is a single access regime that applies in all relevant circumstances. To achieve this, it proposes removing the regime under Part 8 of the PSRs 2017 and basing the new single regime on the provisions currently under Part 5 of FSBRA 2013. According to the government, a single regime would be ‘easier to enforce, navigate, reduce duplication and ambiguity, and deliver more consistent outcomes’.
• In addition, the government is considering the PSR’s powers alongside the FCA’s powers and whether there are further opportunities for making improvements in other areas of the PSR’s current powers, for example the routes for appealing decisions and the enforcement powers for breaching notices requiring the provision of information or documents.

Definitions of key terms

• The government proposes to retain the substance of the definitions of certain key terms in Part 5 of FSBRA 2013:
  • “payment system”;
  • “digital settlement asset”;
  • “participants” in a payment system; and
  • “direct access” to a payment system.
• It also proposes to retain the substance of HMT’s power by order, under FSBRA 2013, to amend the definition of “digital settlement asset” and to add descriptions of systems or arrangements that are not to be regarded as payment systems, or vary or remove any such description.

Oversight and accountability

• The government is proposing to apply oversight and accountability provisions to the FCA that are broadly equivalent in scope and substance to those currently applicable to the PSR under Part 5 of FSBRA 2013. As above in relation to regulatory powers, this would be achieved, wherever practicable, by integration of the substance within the FCA’s current FSMA 2000 framework (and, if not, in a new part of FSMA 2000).
• The government states that, where the FSMA regime includes additional provisions, it will consider the appropriateness of their application to payment systems. It gives as an example the ability for HMT to direct the FCA not to take any action if it appears to be incompatible with the UK’s international obligations, as set out in section 410 of FSMA 2000, which it expects would be applied to the FCA’s new functions in relation to payment systems (with any necessary modifications).

What's next?

The consultation closes on 20 October 2025. Following consideration of stakeholder feedback, legislation will be brought forward to implement the government’s final policy when Parliamentary time allows.

By the end of this year, the government and regulators, via the PVDC, plan to publish a Payments Forward Plan, which will provide a sequenced plan of future initiatives across the payments ecosystem, including initiatives in both retail and wholesale payments, and the role of digital assets.

Authored by Virginia Montgomery and Roger Tym