The PSR's role and functions will be absorbed by the FCA
The government has now published its response to the consultation on a “streamlined approach to payment systems regulation”, confirming how the role and functions of the Payment Systems Regulator (PSR) will transfer into the Financial Conduct Authority (FCA).
Retailers are among the largest users of payment systems in the UK, and the success of these reforms will ultimately be judged on outcomes.
Our response to the consultation said key priorities' include:
- Ensuring ongoing PSR market reviews are completed in full
- Maintaining a strong focus on competition and cost reduction
- Delivering faster regulatory interventions where harm is clear
- Embedding retailer input and representation within the new framework
What the consultation response says
The government has confirmed it will proceed with consolidating the PSR into the FCA, creating a more unified regulatory framework for payments. This reflects a broader view that the current system is too fragmented and duplicative, and that a single regulator can deliver more coherent oversight.
Key decisions from the response
1. Consolidation of regulatory responsibilities
The FCA will take on the PSR’s functions, including oversight of payment systems, competition, and access. The aim is to enable more integrated regulation across payment systems and services, improving consistency and reducing overlap.
2. Retention of core regulatory tools
The response confirms that key mechanisms—such as the designation regime (which determines which payment systems are regulated)—will remain in place. This ensures continued focus on systemically important payment infrastructure while allowing flexibility for innovation.
3. A stronger focus on growth and innovation
The reforms sit within the government’s wider growth agenda, aiming to create a framework that supports innovation, competition, and the UK’s position as a global fintech hub.
4. Clarification of roles across regulators
Alongside the FCA, the government has emphasised clearer coordination with institutions such as the Bank of England, reducing duplication and ensuring a more coherent end-to-end regulatory approach across the payments ecosystem.
What this means for retailers
1. A more joined-up regulator—but delivery is key
A single regulator should reduce complexity for businesses engaging with the system. In theory, this could lead to:
- More consistent decision-making
- Better alignment between payments regulation and wider financial rules
- A clearer route for engagement and advocacy
However, the success of the model will depend on whether the FCA can maintain a strong focus on competition and end-user outcomes, which has been central to the PSR’s remit.
2. Competition in payments remains a central issue
The government’s response reinforces that competition in payment systems remains a priority. This is particularly important for retailers, given ongoing concerns about:
- Rising scheme and processing fees
- Limited competition in card acquiring
- Barriers to entry for alternative payment methods
The consolidation could support a more holistic, system-wide approach to tackling these issues—provided ongoing market reviews are completed and acted upon.
3. Risk of slower intervention during transition
While the reforms aim to improve effectiveness, there is a near-term risk that:
- Regulatory focus is diverted during the transition
- Ongoing work (e.g. on interchange or scheme fees) is delayed or diluted
- Decision-making slows as responsibilities shift
For retailers, this matters because delays can mean continued cost pressures in the payments market.
4. Opportunity for a more holistic approach
One of the most significant potential benefits is a move away from fragmented interventions.
The FCA is expected to take a broader view across:
- Payment systems (infrastructure)
- Payment services (providers)
- Consumer protection and fraud
This could allow for faster and more effective interventions, addressing root causes rather than isolated symptoms—something that has been a longstanding concern for payment system users.
5. Innovation and new payment methods
The government has linked these reforms to its wider ambition to modernise payments, including:
- Expansion of account-to-account payments and Open Banking
- Development of real-time and next-generation payment infrastructure
- Support for emerging technologies such as tokenisation and digital assets
For retailers, this could:
- Increase choice at checkout
- Reduce reliance on traditional card schemes
- Potentially lower transaction costs over time
But it will also require investment in systems and customer adoption.
Next steps
- Legislation will be introduced to formally transfer the PSR’s powers into the FCA
- The PSR will continue operating in the interim, retaining its statutory powers until the transition is complete
- The FCA will develop how it integrates PSR functions into its existing supervisory and policy framework
- Further detail is expected on governance, timelines, and stakeholder engagement
- Existing PSR workstreams—such as market reviews into fees and competition—are expected to continue.
