Justin Jacobs, Chief Policy and Engagement Officer at Pay.UK
Context
In March 2025, the Government announced its intention to abolish the Payment Systems Regulator (PSR). We support this important decision because – while the PSR has laudable objectives to support competition, innovation and the interests of service users – we agree with the Government that that the regulatory environment is too complex; with payment system firms having to engage with three different regulators, costing them time, money and resource. A move to a more streamlined regulatory environment will help to support growth, better manage burdens on businesses, and minimise overlaps between regulators’ responsibilities.
Over the summer, the Government has been consulting on how to implement this decision by consolidating the PSR into the Financial Conduct Authority (FCA). In short, the Government is largely proposing to transfer the objectives and powers of the PSR into the FCA. Given the importance of the PSR’s objectives, Pay.UK agrees that it makes sense to largely replicate them in the FCA’s objectives. That begs the question, though – how will this deliver real change? How does simply transferring the objectives of one regulator to another regulator lead to better regulatory outcomes, support economic growth and enable the market to flourish and innovate and put end-users first?
Maximising the benefits
Payment systems are key enablers of the health and future success of the UK economy, both in terms of their availability and the functionality that they provide. At Pay.UK, we operate the key payment systems that underpin the UK economy – the Bacs system through which salaries, payments, pensions and benefits are paid, as well as many household bills; the FPS system that underpins many of our day-to-day payments through internet banking; and the cheque system. Together, our systems enable many of our daily payment activities across the country, totalling an average of £37bn each day.
Given the importance of payments to the economy and users, we understand why payments is a heavily regulated sector and we support the Government’s proposals to transfer the responsibilities of the PSR to the FCA. But, if the changes are to achieve their objectives of a streamlined regulatory environment – and if the underpinning regulatory objectives and powers are not changing significantly – how will this achieve strong outcomes for consumers, firms and the whole market in an efficient and effective way? In our view, the key to success lies in ensuring that good regulatory principles are fully embedded into the new regulatory structure.
Building blocks for success
In particular, the key tests for the new FCA regulatory regime are to ensure that future regulation is:
- Outcomes based. Regulators should ensure that requirements placed on regulated firms are expressed in terms of the outcomes that need to be delivered. They should minimise prescriptiveness in how those outcomes are achieved and provide flexibility to enable innovation and industry-led solutions. An outcomes-based approach also allows for the clearer articulation of what success looks like. Similarly, while we recognise that regulators may want to probe deeply, we do not consider it appropriate for regulators to expect to be part of discussions as firms determine how best to meet regulatory requirements.
- Proportionate and prioritised. Regulators should ensure the most pressing issues are addressed first and in a proportionate manner, both in terms of the policy decisions made and the monitoring of the implementation of those policies. Furthermore, in a sector like payments where there will continue to be multiple regulators, the different regulators should coordinate themselves to prioritise their requirements on the sector. This means not just making sure that their initiatives do not contradict each other but actively ensuring that their combined requirements are sequenced effectively to avoid regulatory overload. Consideration of timing includes both implementation deadlines as well as the timing of consultations and substantive announcements. Coordination should not just be concerned with the new but should also consider existing industry change programmes and existing regulatory initiatives.
- Transparent and accountable. Regulators should communicate openly and transparently with the market as a whole and provide clarity on expectations (outcomes) for all parties. By transparently directing new requirements to all those affected, regulators will make implementation simpler. For payment systems in particular, the regulators should articulate their expectations for all participants in relevant systems, rather than just the operator, to ensure all relevant parties understand what is needed and can work towards a common, clear goal. Parties should also be able to hold the regulator to account in making reasonable decisions and taking appropriate actions.
- Future-proof. Regulation should allow for ongoing market and technological change, and not stifle change, innovation or competition. Any legal requirements that are put in place should be made as clear and simple as possible. Future-proofed regulation should not assume a particular market structure and should be technology-neutral.
From principles to practice
Overall, we consider that the principles we have set out for ‘good’ regulation are themselves the primary factors that can ensure that the new regulatory regime will indeed drive positive economic outcomes for consumers, industry and the wider economy.
These principles are aligned with the Government’s stated aims for the consultation, most notably that the regulatory regime should be targeted and proportionate, transparent and predictable, and adapt to keep pace with innovation. It is the practical application of the regulatory toolkit that is provided to the regulators, and the ability to hold them accountable to the principles, that will be critical in delivering the benefits of this regulatory reform. We therefore call on the Government to introduce a requirement for the FCA to publish its regulatory approach to payment system, to set out how it will ensure that these principles are embedded into its regulation of payment systems, and then to report on its outcomes annually.
Please find our full response here.
