Financial Services and Markets Bill 2026: PSR absorbed into the FCA
In short: The Financial Services and Markets Bill 2026 provides for the abolition of the Payment Systems Regulator and the transfer of its functions to the FCA. The Bill is the legal mechanism; the substantive consolidation happens on commencement. For UK payment institutions and e-money institutions, the supervisor changes; the substance of payments regulation does not. The Bill had its First Reading in the House of Lords on 19 May 2026.
The Government has introduced a Bill in the House of Lords that provides for the abolition of the Payment Systems Regulator. The Bill sets out the legal mechanism by which the FCA will absorb the PSR’s functions. On commencement, the PSR rule-book will travel with those functions. For most UK payment institutions, e-money institutions and card schemes, the supervisor will change; the substance of payments regulation will not.
The Financial Services and Markets Bill had its first reading in the Lords on 19 May 2026. Rachel Blake MP, Economic Secretary to the Treasury, and the Chancellor Rachel Reeves MP introduced it. The HM Treasury press release dated 20 May 2026 also flags Senior Managers and Certification Regime cuts, ring-fencing changes, Financial Ombudsman Service reform, credit union expansion and a power on face-to-face banking. Most of those bind banks and consumer credit firms rather than payment institutions or e-money institutions. The Bill has one substantive payments clause: the consolidation. The consolidation has been on the table since HM Treasury’s Streamlined Approach consultation closed in October 2025. The Bill puts it on the parliamentary timetable.
The regulatory architecture the Bill changes
Part 5 of the Financial Services (Banking Reform) Act 2013 (FSBRA 2013) set up the PSR. Section 40 establishes it as a body corporate; section 41 makes it a subsidiary of the FCA that exercises its functions independently. Its three statutory objectives in sections 50 to 52 are competition, innovation and the service-user interest. HM Treasury has designated eight payment systems under section 43: Bacs, CHAPS, Cheque and Credit Clearing, Faster Payments, LINK, Mastercard, Visa and the Sterling Fnality Payment System. The PSR’s reach extends to the operators, infrastructure providers and payment service providers within each designated system.
The Bill’s design is architectural. On commencement, the PSR will cease to exist as a separate body and the FCA will acquire the Part 5 functions: the section 54 general direction power that the Administrative Court upheld in Mastercard v PSR [2026] EWHC 64 (Admin); the section 56 to 59 specific directions; the section 62 competition duty; the sections 68 to 73 concurrent Competition Act 1998 powers; and the section 103A mandatory APP fraud reimbursement power that section 72 of the Financial Services and Markets Act 2023 inserted into FSBRA 2013 and that the PSR has been exercising under PS24/1 since October 2024.
HM Treasury’s stated policy is to integrate those functions into the FCA’s existing framework under FSMA 2000 where practicable, with a new part of FSMA 2000 carrying the payments-specific functions that do not fit the existing architecture; the precise legislative structure will become clear from the Bill text as it goes through Parliament. The categories of person regulated do not change: on commencement, the regime will continue to apply to designated payment system operators, infrastructure providers and payment service providers, as Part 5 of FSBRA 2013 does today.
The conduct regulator will change; the toolkit will not. The Payment Services Regulations 2017 will continue to apply, the FCA Approach Document for payment services and electronic money will continue to govern safeguarding and the FCA’s authorisation gateway under PSRs 2017 reg 5 sits untouched.
The table below sets out the position today against what the Bill provides for on commencement.
| Theme | Today (under FSBRA 2013 Part 5) | What the Bill provides for (on commencement) |
|---|---|---|
| Establishing statute | Financial Services (Banking Reform) Act 2013, Part 5 (ss.40 to 110), establishing the PSR as a body corporate and conferring its regulatory functions | Amendments to FSMA 2000 to receive the payment systems functions; HM Treasury has stated its intention to add a new part of FSMA 2000 for the payments-specific functions that do not fit existing FSMA architecture (precise structure to be confirmed in the Bill text) |
| Regulator | PSR, a subsidiary of the FCA exercising its functions independently (FSBRA s.41) | Abolition of the PSR as a separate body; the FCA becomes the single payments regulator |
| Persons regulated | Operators, infrastructure providers and payment service providers within HM Treasury-designated payment systems (FSBRA ss.42 and 43) | Same categories; the Bill does not bring new persons into scope |
| Statutory objectives | Competition, innovation and the service-user interest (FSBRA ss.50 to 52) | Transfer of the PSR’s objectives to the FCA, which also retains its FSMA s.1B to 1E objectives of consumer protection, market integrity and competition |
| General direction power | PSR section 54 FSBRA, vires confirmed in Mastercard v PSR [2026] EWHC 64 (Admin) | Equivalent power exercisable by the FCA, with the same legal architecture migrated under FSMA 2000 |
| Concurrent competition powers | PSR concurrent CA98 and EA02 jurisdiction in markets for payment systems (FSBRA ss.68 to 73) | Transfer of the concurrent payments jurisdiction to the FCA. The FCA’s CA98 investigation into Mastercard, Visa and PayPal opened on 6 May 2026 already shows the FCA exercising payments-competition powers in parallel with the PSR |
| Appeal route | Competition Appeal Tribunal (FSBRA s.79) | Open question. FCA decisions sit with the Upper Tribunal under FSMA Part 9. The Bill needs to address the route for legacy PSR appeals and for post-consolidation FCA payments decisions |
What changes for payment firms
The commencement-day operational impact for most payment institutions and e-money institutions will be small. Authorisation will remain an FCA function. Conduct supervision will remain an FCA function. Safeguarding will continue to sit inside the FCA’s existing Approach Document. The SMCR 50 per cent cut the press release trails is a bank and dual-regulated story; it does not bind pure authorised payment institutions or e-money institutions in any event because SMCR attaches to FSMA Part 4A authorised persons. The 2026 reforms do not change that scope question.
For firms that have managed two regulatory relationships in parallel, the consolidation will simplify the interface. Authorisation projects, supervisory correspondence and rule-making consultations will land at one regulator rather than two. The FCA and PSR have already integrated operationally on open banking work. The joint Open Banking and Open Finance policy team, led by Andrew Self, contains both PSR and FCA personnel and delivers single-regulator outputs. The Bill formalises in statute a position that has already moved a long way in practice.
The architectural concerns sit at three points. First, in-flight Competition Act 1998 investigations. The PSR has a current docket of concurrent competition work. The Bill must address transfer of live investigations, evidential continuity and the section 31A commitment route under the Competition Act. Second, the PSR’s Specific Directions. SD-14 and SD-15 on card-acquiring remedies, SD-20 and SD-21 on APP fraud reimbursement, and General Direction 3 on open banking access need a clear transfer mechanism in the Bill or in commencement and saving regulations made under it. Third, the appeal route. PSR decisions go to the Competition Appeal Tribunal under section 79 FSBRA 2013; FCA decisions sit with the Upper Tribunal under FSMA 2000 Part 9. The Bill needs to be explicit on which forum hears legacy PSR matters and which hears post-commencement FCA payments decisions.
What else is in the Bill
The Bill is broader than the payments consolidation. HM Treasury presents it as a consumer-protection-and-growth package, and five other clauses sit alongside the PSR transfer.
On the Senior Managers and Certification Regime, the Bill provides for a 50 per cent cut in compliance burden. The cut will bind FSMA Part 4A authorised persons (banks, dual-regulated insurers, large investment firms), not pure payment institutions or e-money institutions, as the firm’s prior post on SM&CR reform and payment firms sets out. On ring-fencing, the legislation amends the statutory framework to support lending and investment by the major UK banks designated under FSMA Part 9B; ring-fencing remains a banks-only regime and does not extend to payment institutions or e-money institutions. On the Financial Ombudsman Service, the package provides for reforms aimed at faster and more certain dispute resolution; FOS reform will reach any firm with a retail FOS-eligible customer base, which can include some e-money issuers and payment firms with consumer-facing products. On credit unions, the measure widens membership rules to support the Government’s mutual and co-operative sector ambitions. On face-to-face banking, the legislation confers a power on the Government, subject to an independent review, to protect access in communities that rely on it.
None of those clauses changes the regulatory perimeter for payment institutions or e-money institutions. They appear here because they round out the Government’s angle on the legislation, not because they bind payment firms directly.
The parallel cVRP track: a Smart Data SI under DUAA, not this Bill
One point worth surfacing because it is easy to assume the consolidation Bill carries it. The enabling power for commercial Variable Recurring Payments is not in this Bill. The cVRP framework will come via a Smart Data statutory instrument made under Part 1 of the Data (Use and Access) Act 2025 (DUAA 2025). Section 2 of DUAA gives the Secretary of State and the Treasury power to require data holders to share customer data with authorised third-party recipients; section 4 covers business data. The FCA and HM Treasury have flagged the Smart Data SI for open banking for laying in Parliament during 2026, with the FCA to acquire oversight of the open banking ecosystem under separate statutory instruments per the Payments Forward Plan of 26 February 2026. The two routes run in parallel and reinforce each other. The consolidation legislation provides the legal mechanism to merge the regulators; the Smart Data SI will build the cVRP framework. The same FCA ends up holding both, by way of different statutes.
The Financial Services and Markets Bill 2026 in the Lords
The Bill starts in the Lords, where First Reading is formal and Second Reading is the first substantive debate. As a financial services reform with cross-party support on the central architectural change, Second Reading should run without major resistance. Lords Committee will test the detail. Two areas to watch: the constitutional treatment of in-flight regulatory action under the PSR’s powers, and the consequences for the FCA’s statutory objectives under FSMA 2000 sections 1B to 1E once payments competition becomes an in-house function rather than a subsidiary mandate. The legislation is the architectural side of the consolidation. The FCA’s own organisational design will follow: the team structure that absorbs the PSR’s payments competition mandate, the rule-book that consolidates PSR General Directions and Specific Directions into the FCA Handbook, and the supervisory model for payment systems within a larger conduct regulator. The FCA work programme 2026 sets out the operational planning the FCA is undertaking in parallel. On the practical timetable, the working consensus across industry commentators today is that firms are unlikely to feel the impact of consolidation until 2028 at the earliest. The intervening period will run through Lords Committee, Commons stages, Royal Assent, the commencement statutory instrument and a sequence of FCA consultations on the integrated payments rule-book.
Initial industry reception to the Bill has been broadly supportive of consolidation while flagging the predictable risk that the PSR’s specialist payments focus dilutes inside a larger FCA. The substantive answer to that concern is unlikely to come from the Bill itself. It will come from the FCA’s organisational design and from the FCA Board’s allocation of senior attention to payments competition over the next eighteen months.
Viewpoint
The Bill is a regulator-architecture reform, not a regulatory-substance reform. The Bill is the legal mechanism by which the PSR’s powers and rule-book will move to the FCA; the analytical framework the Administrative Court endorsed in Mastercard v PSR on the section 54 general direction power will travel with the function. The most useful question for a payments GC is not what the Bill itself changes today but what the FCA will do with a unified payments mandate over the next eighteen months. The early signal is the FCA’s Competition Act 1998 investigation into Mastercard, Visa and PayPal opened on 6 May 2026: an FCA-led concurrent competition exercise on payments that the PSR would historically have led. The FCA is already operating to a payments-competition mandate before the Bill completes its parliamentary passage. The post-commencement FCA will be a different regulator from the pre-commencement FCA on payment systems, and it will be different because it will have absorbed a specialist regulator with a decade of focused payments-competition experience.
Frequently asked questions
Does the Financial Services and Markets Bill 2026 change my firm’s authorisation?
No. Authorisation of payment institutions and e-money institutions under the Payment Services Regulations 2017 and the Electronic Money Regulations 2011 is and will remain an FCA function. The Bill does not amend the authorisation gateway, the conditions of authorisation, or the regulatory permissions a firm holds. Existing authorisations will continue unchanged on commencement.
What happens to the PSR’s Specific Directions?
The PSR’s Specific Directions, including SD-14 and SD-15 on card-acquiring, SD-20 and SD-21 on APP fraud reimbursement, and General Direction 3 on open banking access, will move to the FCA on commencement. The Bill needs to set out the transfer mechanism, the legal continuity of in-flight enforcement, and how the FCA will integrate the existing PSR rule-set into the FCA Handbook. Watch the Lords Committee stage for the detail.
Does the SMCR 50 per cent cut affect my payment institution?
For most pure payment institutions and e-money institutions, no. SMCR attaches to FSMA Part 4A authorised persons, not to authorised payment institutions or authorised electronic money institutions in their own right. The firm’s prior post on SM&CR reform and payment firms sets the scope question out in detail.
Does the Bill enable commercial Variable Recurring Payments?
No. The cVRP enabling framework is a separate Smart Data statutory instrument made under Part 1 of the Data (Use and Access) Act 2025. The two are complementary parts of the 2026 payments policy package. The Bill provides the legal mechanism to consolidate the regulator; the Smart Data SI builds the cVRP framework.
Where does the appeal route go after consolidation?
PSR decisions currently go to the Competition Appeal Tribunal. FCA decisions sit with the Upper Tribunal. The Bill needs to set out which forum hears post-consolidation FCA payments decisions and the route for legacy PSR appeals during transition. This is an area to track in Lords Committee.
For advice on the Financial Services and Markets Bill 2026 and what its passage means for your authorisations, supervisory engagement, or open banking and payments work, contact Rob Bratby at Bratby Law. The firm’s payments product, safeguarding and scheme governance page sets out where we add value to UK payment institutions, e-money institutions and card schemes through the consolidation transition.
