PSR and Scheme Governance
Payment Systems Regulator engagement, scheme rule compliance and governance for operators and participants
The Payment Systems Regulator
The Payment Systems Regulator (PSR) is the economic regulator for payment systems in the United Kingdom, established under Part 5 of the Financial Services (Banking Reform) Act 2013. It regulates the operators, payment service providers, and infrastructure providers that participate in designated payment systems. The PSR’s statutory objectives are to promote competition, innovation, and the interests of service users in payment systems.
The PSR has regulatory jurisdiction over the payment systems designated by HM Treasury under section 43 of the 2013 Act. The currently designated systems include Bacs, CHAPS, Faster Payments, LINK, Mastercard, Visa, and the cheque imaging system. The PSR may give general directions under section 54, impose specific requirements on participants under section 55, and take enforcement action under Part 5 for non-compliance.
Separately, the Financial Conduct Authority (FCA) regulates payment service providers under the Payment Services Regulations 2017 (PSRs 2017). The FCA is responsible for authorisation and registration (Part 2), prudential supervision (Part 3), and conduct of business regulation (Part 7). A firm participating in a designated payment system is therefore subject to dual regulation: the PSR for its participation in the system, and the FCA for its activities as a payment service provider.
Scheme governance and participation
Payment scheme governance refers to the rules, standards, and contractual arrangements that govern how participants interact within a payment system. Each designated payment system operates under a scheme rulebook that sets out the obligations of participants, including technical standards, settlement procedures, liability allocation, and dispute resolution mechanisms.
Participation in a designated payment system typically involves three tiers. Direct participants settle through the Bank of England’s Real-Time Gross Settlement (RTGS) system and must meet the scheme’s financial, operational, and technical requirements. Indirect participants access the system through a direct participant under an agency arrangement. Scheme members operate under the scheme rules but may access clearing and settlement through third-party arrangements.
The PSR’s access requirements, set out in its General Direction 4 (GD4), require operators of designated payment systems to have fair, open, and transparent access criteria. Access must be based on objective, proportionate, and non-discriminatory requirements. The PSR has intervened where it considers that access terms are unduly restrictive or discriminatory. The access regime is reinforced by PSRs 2017 regulation 103, which provides payment service providers with a right of access to payment systems on proportionate, non-discriminatory terms.
Interchange and pricing regulation
The PSR has regulatory powers over interchange fees and scheme pricing. The Interchange Fee Regulation (IFR), retained in UK law after Brexit as the Payment Card Interchange Fee Regulations 2015, caps interchange fees for consumer debit and credit card transactions at 0.2% and 0.3% respectively. The PSR monitors compliance with the IFR and has taken enforcement action against non-compliant scheme operators.
Beyond interchange, the PSR has examined scheme and processing fees charged by Mastercard and Visa to merchants and acquirers. Its Market Review into Card Scheme and Processing Fees, published in 2024, assessed whether fees are set in a way that is consistent with competition and the interests of service users. The PSR retains the power to impose remedies, including fee caps and enhanced transparency requirements, where it identifies market failures.
For interbank payment systems such as Faster Payments and Bacs, the pricing structure is determined by the scheme operator subject to the PSR’s regulatory oversight. The transition from Faster Payments to the New Payments Architecture (NPA) will introduce a new pricing model, and participants should plan for changes to the cost structure of interbank payments.
APP fraud and the reimbursement requirement
The PSR introduced a mandatory reimbursement requirement for authorised push payment (APP) fraud with effect from 7 October 2024, using its powers under section 55 of the 2013 Act. Under Specific Direction 20 (SD20), sending payment service providers must reimburse customers who are victims of APP fraud within five business days, subject to a claim excess and a maximum reimbursement level. The cost of reimbursement is shared equally between the sending and receiving payment service provider.
The reimbursement requirement applies to payments made through the Faster Payments system. It does not currently extend to CHAPS, Bacs, or card transactions. Directed payment service providers must implement fraud detection systems, customer warning processes, and claims handling procedures that comply with the PSR’s requirements. The PSR may take enforcement action against firms that fail to reimburse eligible victims or that do not maintain adequate fraud prevention measures.
How bratby.law helps
bratby.law advises payment system operators, direct and indirect participants, fintechs, and acquiring institutions on PSR regulation, scheme governance, and the commercial and contractual aspects of payment system participation. Our managing partner holds a General Counsel appointment at UK Payments Initiative Limited and advises on scheme design, participant onboarding, and regulatory strategy.
Our work in this area includes:
- Advising on PSR General Directions and Specific Directions, including GD4 access requirements and SD20 APP fraud reimbursement
- Drafting and negotiating scheme rulebooks, participant agreements, and membership criteria
- Supporting applications for direct and indirect participation in designated payment systems
- Interchange and scheme fee compliance under the Payment Card Interchange Fee Regulations 2015
- Regulatory engagement with the PSR on market reviews, consultations, and enforcement proceedings
- Advising on the transition to the New Payments Architecture and its implications for existing participants
- Liability allocation, dispute resolution, and settlement risk in multilateral payment arrangements
Book a call
For advice on PSR regulation, scheme governance, or payment system participation, book a call with Rob Bratby.
FAQs
What is the difference between PSR regulation and FCA regulation of payments?
The PSR regulates payment systems as infrastructure: the designated systems through which payments are processed and settled. Its focus is on access, competition, and the interests of service users at the system level. The FCA regulates payment service providers as firms: the entities that provide payment services to customers. Its focus is on authorisation, prudential requirements, and conduct of business. A firm that participates in a designated payment system is subject to both regulators. The PSR’s powers derive from the Financial Services (Banking Reform) Act 2013; the FCA’s powers derive from PSRs 2017.
What are the access requirements for joining a designated payment system?
Under GD4, operators of designated payment systems must maintain access criteria that are objective, proportionate, and non-discriminatory. Access cannot be denied on grounds unrelated to legitimate risk management. PSRs 2017 regulation 103 reinforces this by granting payment service providers a right of access to payment systems on reasonable and proportionate terms. In practice, the requirements for direct participation include holding a Bank of England settlement account, meeting technical connectivity standards, and satisfying the scheme’s operational and financial resilience requirements.
How does the APP fraud reimbursement requirement work?
Under SD20, effective from 7 October 2024, sending payment service providers must reimburse eligible victims of APP fraud for payments made through Faster Payments. Claims must be assessed and reimbursed within five business days. The cost is split 50/50 between the sending and receiving provider. There is a claim excess and a maximum reimbursement level set by the PSR. Firms must have adequate fraud detection, customer warnings, and claims handling processes. The PSR can take enforcement action against non-compliant firms.
What is the New Payments Architecture?
The New Payments Architecture (NPA) is the programme to replace the existing Faster Payments clearing and settlement infrastructure with a new central infrastructure operated by Pay.UK. The NPA will introduce ISO 20022 messaging, enhanced data capabilities, and a new commercial model for interbank payments. The transition affects all current Faster Payments participants, who will need to migrate to the new infrastructure. The PSR oversees the delivery of the NPA and has issued directions to Pay.UK on governance and delivery timelines.
Related payments regulation pages
See also our other payments regulation pages: