The UK Treasury’s consultation outlines specific legislative mechanisms for folding the Payment Systems Regulator into the FCA, including a surprising “veto” power and the end of a dual regulatory regime.
The UK Treasury has launched a consultation on its plan to abolish the Payment Systems Regulator (PSR) and consolidate its responsibilities within the Financial Conduct Authority (FCA).
While the broad intention of the merger was announced earlier this year, the consultation document, “A Streamlined Approach to Payment Systems Regulation,” provides the first look at the detailed legislative ‘nitty gritty’ of how the government intends to execute the plan.
The central thesis of the proposal is to transfer the PSR’s core functions (promoting competition, innovation, and user interests) to the FCA while largely maintaining the substance of the existing regime. The document clarifies that this will not introduce a new regulated activity or bring new categories of firms into the FCA’s scope. Instead, the government will retain its power to designate systems for regulation, ensuring the framework remains targeted at the most significant payment systems.
One of the more unexpected details in the consultation is the formalisation of the relationship between the FCA and the UK’s other financial watchdogs. The document proposes to apply the existing veto-style powers of the Bank of England and the Prudential Regulation Authority (PRA) over the PSR to the FCA’s new payments functions. This ensures the Bank of England’s financial stability objective and the PRA’s prudential oversight can, when necessary, supersede the FCA’s economic regulation of payments.
The consultation also reveals a plan to resolve a long-standing point of friction for the industry by creating a single access regime for payment systems. The document highlights the UK currently operates two different and overlapping access regimes under the FSBRA 2013 and the Payment Services Regulations 2017.
By removing the latter’s provisions, the government aims to create a unified and less ambiguous framework for firms seeking to connect to the country’s payment infrastructure.
Furthermore, the FCA will be tasked with applying its strategic objective of ensuring “markets function well” and its secondary objective of facilitating “competitiveness and growth” to the newly acquired payments remit. This is a crucial detail, as it provides a clear mandate for the regulator to balance its consumer protection and market integrity duties with the broader economic agenda. The consultation seeks feedback on whether the FCA should use its typical rulemaking powers, the PSR’s direction-making powers, or a combination of both.
The consultation is a step towards codifying the government’s National Payments Vision. With the document now open for stakeholder feedback until October 20, the payments industry and its regulators will be scrutinising these proposals to ensure that the technical transfer of powers is as seamless as the government intends it to be.
