PSR/FCA Consolidation: What Changes for Payment Firms and Scheme Participants

ByRob Bratby Posted on Government policy, Payments Regulation, UK
PSR FCA Consolidation What Changes for Payment Firms - Bratby Law payments regulation

The PSR FCA consolidation is the most significant structural reform to UK payments oversight in a decade. HM Treasury proposes to abolish the Payment Systems Regulator and transfer its functions to the Financial Conduct Authority. The consultation closed in October 2025, legislation is expected in 2026, and the operational merger is already underway. For payment service providers, payment system operators, and infrastructure providers, this is not an abstract institutional reform. It changes who supervises them, under which statutory framework, and with what enforcement powers. This article sets out what scheme participants need to do now.

The current regulatory framework before the PSR FCA consolidation

The PSR was established under Part 5 of the Financial Services (Banking Reform) Act 2013 (FSBRA) as a subsidiary of the FCA with independent regulatory functions. It regulates payment systems designated by HM Treasury under section 43 FSBRA, which currently include Faster Payments, Bacs, CHAPS, LINK, Visa, Mastercard, and the cheque clearing systems. The PSR’s statutory objectives under section 50 FSBRA are to promote competition, innovation, and the interests of service users.

The FCA, by contrast, regulates payment service providers and e-money institutions under the Payment Services Regulations 2017 (PSRs 2017) and the Electronic Money Regulations 2011 (EMRs 2011), which derive from EU directives transposed into UK law. This creates a split: the PSR regulates payment systems and their participants at the scheme level, while the FCA regulates individual firms’ authorisation, conduct, and prudential requirements.

That split has generated friction. A firm operating within the Faster Payments scheme may be subject to PSR directions on access and interoperability, while simultaneously complying with FCA rules on safeguarding, operational resilience, and Consumer Duty. Two regulators, two reporting lines, two sets of information requests, and two enforcement regimes. As we noted in our guide to UK payments regulation, the overlap is already significant. The consolidation is intended to eliminate it.

What the PSR FCA consolidation consultation proposes

HM Treasury’s September 2025 consultation, A Streamlined Approach to Payment Systems Regulation, proposes transferring all PSR functions to the FCA. The core design features are as follows.

The FCA would receive statutory objectives equivalent in scope to the PSR’s current objectives under section 50 FSBRA: promoting effective competition, fostering innovation, and ensuring payment systems operate in the interests of service users. These would sit alongside the FCA’s existing strategic and operational objectives under sections 1B to 1E of the Financial Services and Markets Act 2000 (FSMA).

The FCA would regulate the same categories of persons currently subject to PSR oversight: payment system operators, infrastructure providers, and payment service providers participating in designated systems. The designation mechanism under FSBRA would transfer to the FCA, so HM Treasury would continue to designate which payment systems fall within scope.

Where PSR functions can be integrated into the existing FSMA framework, they will be. Where they cannot, HM Treasury proposes a new part of FSMA to house them. The consultation is explicit that this is not a deregulatory exercise. The substance of PSR regulation is intended to survive; it is the institutional structure that changes.

The FCA and PSR joint response to the consultation supported the proposals and confirmed that operational integration is already underway. The shared leadership structure, with a single Chair and a single Executive Director for Payments and Digital Finance across both bodies, has been in place since early 2026.

What changes for payment firms and scheme participants

The PSR FCA consolidation affects three areas that require attention from firms currently supervised by the PSR.

Regulatory permissions and reporting. Firms that currently hold PSR-specific authorisations or are subject to PSR general directions will need to understand how those obligations map to the FCA’s framework. The consultation indicates that existing PSR directions, including the APP fraud reimbursement requirements, will continue in force until replaced by equivalent FCA rules. But the transition mechanism matters: firms should expect new FCA handbook provisions to replace PSR directions over time, and should plan for the compliance cost of migrating internal policies and procedures.

Enforcement powers. The FCA’s enforcement toolkit is broader than the PSR’s. Under FSMA, the FCA can impose unlimited financial penalties, apply to court for injunctions, pursue criminal prosecutions for certain offences, and use its own-initiative variation of permission powers to restrict a firm’s activities at short notice. The PSR’s penalty powers under section 73 FSBRA are more limited in practice. Consolidation means that a scheme participant’s non-compliance with access, interoperability, or fee requirements could attract FCA-level enforcement action, including public censure and significant fines calculated under the FCA’s penalty framework.

Interaction with Consumer Duty. The FCA’s Consumer Duty applies to all FCA-authorised firms. Once PSR functions transfer to the FCA, the question is whether Consumer Duty obligations will extend to conduct that was previously subject only to PSR regulation, such as scheme-level fee structures, interchange arrangements, and access terms. The consultation does not address this directly, but the direction of travel is clear: a single regulator applying a single conduct standard across both firm-level and scheme-level activity.

Commercial and operational implications of PSR FCA consolidation

For payment system operators, the PSR FCA consolidation means a single supervisory relationship with the FCA rather than dual oversight. In principle, this should reduce compliance costs and simplify engagement. In practice, the transition period creates risk. Firms will need to maintain compliance with existing PSR directions while preparing for new FCA rules, and there will be a period where both frameworks run in parallel.

For payment service providers and e-money institutions, the practical impact depends on scale. Larger firms already subject to intensive FCA supervision may see little change. Smaller PSPs that currently interact primarily with the PSR on access and participation requirements will find themselves subject to the FCA’s broader supervisory expectations, including its approach to operational resilience, outsourcing, and business model sustainability.

The Payments Forward Plan published in February 2026 sets out a three-year roadmap that includes the consolidation alongside other major initiatives: the FCA’s long-term regulatory framework for open banking (consultation expected Q3 2026), commercial variable recurring payments, and digital pound development. Firms need to assess the cumulative regulatory burden of these overlapping workstreams, not the consolidation in isolation. As we discussed in our analysis of the Payments Forward Plan, the sequencing of these initiatives will test capacity across the sector.

Viewpoint

The PSR FCA consolidation is structurally sound. Two regulators overseeing the same market with overlapping jurisdiction creates cost and confusion, and the PSR has never fully resolved its position as a subsidiary of the body whose regulatory perimeter it was created to supplement. From a scheme participant’s perspective, a single point of contact at the FCA is an improvement.

The risk lies in the transition. In my experience, the operational cost of regulatory change is driven not by the end-state rules but by the period of uncertainty while the old regime is being wound down and the new one is being stood up. HM Treasury has not yet published the consultation response or the draft legislation. Until it does, firms are planning against a direction of travel rather than a settled framework. The prudent approach is to map existing PSR obligations to the FCA’s likely framework now, identify gaps, and build transition planning into 2026/27 compliance budgets.

The area to watch most carefully is enforcement. The FCA’s penalty framework is materially more severe than the PSR’s, and the FCA has shown in recent years that it is prepared to use it. Scheme participants who have treated PSR compliance as a lighter-touch obligation should recalibrate.

Key sources

If you are assessing how the PSR FCA consolidation affects your regulatory obligations, Bratby Law advises payment service providers, payment system operators, and scheme participants on UK payments regulation. Contact Rob Bratby at Bratby Law for transition planning and compliance mapping.

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