PSR axed – What does this mean for your business?

In a significant shake-up of the UK’s regulatory framework, the government announced on 11 March 2025 that the Payment Systems Regulator (PSR) will be absorbed into the Financial Conduct Authority (FCA). The move, aimed at streamlining oversight and reducing regulatory duplication, is expected to take effect by 2025. While the move is intended to improve efficiency, firms must now assess how this transition will impact compliance, supervision, and industry innovation.

The government has confirmed that a consultation on the PSR’s integration into the FCA will begin in summer 2025, with legislation expected to be introduced to formalise the merger shortly thereafter. Until the necessary statute is enacted, though, the PSR will retain its statutory powers and continue its regulatory functions independently.

Why is the PSR being axed?

The decision to merge the PSR into the FCA aligns with the government’s broader strategy of cutting red tape and enhancing efficiency. The two regulators have always worked closely together, despite their operational independence. By integrating the PSR’s functions within the FCA, the government hopes to reduce overlap, leverage existing expertise and create a more cohesive regulatory environment.

John Pauley, our Financial Services Partner, commented:

It’s unsurprising that as the government seeks efficiencies and to reduce the regulatory burden on businesses, it has identified rolling the PSR into the FCA as a logical step. The two regulators are very closely intertwined despite being operationally independent. The duplication of roles means the existing PSR functions can be carried out by a larger, more efficient merged organisation, whilst the skilled expertise of PSR staff is a deep well of resource for the FCA to draw upon in maintaining its headcount.

What this means for you

If you are a payment service provider, bank, or fintech firm, this regulatory change presents both challenges and opportunities:

• Regulatory approach – Supervision under the FCA may introduce changes to compliance expectations, reporting requirements, and enforcement priorities. Firms should review how the FCA’s approach differs from the PSR’s and prepare for potential adjustments in operational risk management and consumer protection measures.
• Efficiency gains – The streamlining of regulatory functions could reduce administrative burdens, creating a more predictable regulatory landscape and offering a clearer, single point of engagement for regulatory matters.
• Continuity of expertise – The FCA will integrate the PSR’s staff and regulatory expertise, ensuring that specialist payments knowledge remains within the regulatory framework. Firms can expect ongoing engagement with familiar policymakers and technical experts.

Challenges to monitor

The transition carries risks that you must be aware of:

• Regulatory drift – The FCA will need to ensure that key PSR-led initiatives, such as the New Payments Architecture, continue without disruption. Delays or changes in strategic priorities could impact payments innovation and competition.
• Compliance adjustments – You may need to update internal processes to align with revised FCA handbooks. Expect updates to reporting requirements, supervisory expectations, and potential changes to consumer protection measures.
• Fee structures – While consolidating regulators could create efficiencies, the FCA’s expanded remit may introduce new regulatory costs. Firms should monitor changes to fees and levies under the FCA’s funding model.

What’s next?

John Pauley adds:

This consolidation promises long-term efficiency, but success hinges on preserving the PSR’s agility. Firms should view this as an opportunity to advocate for regulation that balances innovation with stability. In a sector where regulatory clarity drives competitiveness, the PSR-FCA merger could ultimately strengthen the UK’s position as a global payments hub – provided the FCA leverages its expanded expertise effectively.

While the transition will take time, you should stay informed and engaged with industry consultations. Our financial services solicitors can help you assess how FCA-led oversight might impact your compliance strategies. With the consolidation of regulatory functions, you may find a more integrated approach to supervision, but you must be proactive in adapting to the new landscape. Our team can help prepare you for potential shifts in compliance requirements and enforcement strategies.