Industry Reacts as UK Government Axes Payments Watchdog
Prime Minister Keir Starmer has announced the abolition of the Payment Systems Regulator (PSR) as part of his government's drive to boost economic growth by streamlining Britain's regulatory landscape.
The move will see the PSR, which employs 160 staff and operates with a budget of £28m (US$36m) for the current financial year, merged into the Financial Conduct Authority (FCA), with which it already shares senior staff and office space in east London.
Starmer justified the decision by criticising the previous government's approach to regulation, stating: "For too long, the previous government hid behind regulators — deferring decisions and allowing regulations to bloat and block meaningful growth in this country."
The Prime Minister has instructed ministers to audit all regulators to identify which bodies can be eliminated from the UK's patchwork of approximately 130 regulatory agencies.
Mixed Industry Response
The announcement has drawn varied reactions from industry experts and stakeholders across the financial and payments sectors.
Dan McLoughlin, Fraud Specialist at Lynx, welcomed the simplification but raises concerns about timing: “All financial institutions will welcome the Government's ambitions to simplify the overly complex UK regulatory market. In the long term, this initiative makes sense and could even benefit consumers directly.”
However, Dan cautions: “The challenge is the short term. As the Payment Systems Regulator is wrapped into the FCA, we'll likely see a slowdown in relation to the latest PSR regulations.
“The PSR has played a crucial role in fraud regulation, and banks continue to lose hundreds and thousands of pounds to fraudulent transactions every year.”
Tony Craddock, Director General of The Payments Association, is more emphatic in his support: “If regulators adhered to the rules of the market, the PSR and FCA would have merged years ago. The PSR was beyond its 'use by' date, with its structure and governance designed for a different world.”
He added that today's environment “demands resourceful, agile, responsive regulators that are in tune with the market. A world in which regulators let entrepreneurs get on with what they do best”.
“Regulatory red tape has increased dramatically in recent years, making it harder for businesses like ours to navigate”
Dima Kats, CEO and Founder of Clear Junction, notes the move was anticipated following November 2024's National Payments Vision: "This is a positive step forward, showing that the UK government is not just setting out a vision for payments but actively implementing it.
“Regulatory red tape has increased dramatically in recent years, making it harder for businesses like ours to navigate.”
Concerns About Expertise and Timing
Jim Conning, Banking & Alliances Director at AccessPay, raises concerns about preserving expertise: “The specialised expertise within the PSR has been instrumental in driving targeted innovation in UK payment systems.
“Any dilution of this knowledge base could severely hamper our progress and potentially damage the UK's hard-earned reputation for payment excellence.”
However, Willem Wellinghoff, Chief Compliance Officer at Ecommpay, expresses reservations about timing: “We believe that abolishing the Payment Systems Regulator at a time when the efficacy and resilience of payment systems, as well fraud risk management, are under intense review and focus, may not be the most opportune course of action.”
Implementation Challenges
“It presumes an organisational reworking that could mean two years in which little gets done but at the end people are doing the same thing while wearing different badges”
Some officials have questioned whether scrapping the PSR will be worth the disruption, given it already functions effectively as a subsidiary of the FCA.
The PSR operates from the same headquarters as the FCA in Stratford, east London, and has been led by FCA director David Geale since last year.
Charles Randell, former FCA chair, suggested the merger “might be a crowd-pleasing thing to do” but doubted it would "produce payback in the life of this parliament.”
He warned: “It presumes an organisational reworking that could mean two years in which little gets done but at the end people are doing the same thing while wearing different badges.”
The PSR has faced industry criticism in recent years, particularly over its introduction of a mandatory refund system for payment fraud.
The regulator initially proposed banks would have to repay fraud victims up to £415,000 (US$537,522), but after intense lobbying reduced this threshold to £85,000 (US$110,000).
Last week, Visa and Revolut filed legal challenges against the PSR, arguing it had overstepped its powers with a proposed cap on international transaction fees.
Government Commitment
Chancellor Rachel Reeves characterised the move as part of a broader effort to free businesses from the "stranglehold" of the regulatory system, which "has become burdensome to the point of choking off innovation, investment and growth."
FCA chief executive Nikhil Rathi supported the decision, describing the combination of the two regulators as “a natural next step following recent work to improve co-ordination and clarity on regulatory responsibilities”.
The PSR will continue to operate with its statutory powers until the government passes primary legislation to enact the merger, with the regulator acknowledging: “Legislation will take time, but we do not need to wait to realise the benefits of an even more streamlined regulatory approach.”
MP Luke Charters welcomed the announcement as “a clear signal of intent to industry that the Government wants to restrike the balance when it comes to payments regulation” and “another step to freeing innovative firms so that they can get on with what they do best”.
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