PSR axed: FCA consultation

In March, the UK government announced plans to consolidate the Payment Systems Regulator (PSR) into the Financial Conduct Authority (FCA). HM Treasury opened a consultation on 8 September 2025 that closed on 20 October 2025, on how this should be implemented, with legislation to follow when Parliamentary time allows. 

The consultation proposes transferring all PSR functions to the FCA, including its competition, innovation and service-user objectives, while keeping the existing designation model for bringing systems into scope. HM Treasury has confirmed that no new categories of firms will be caught and no new FSMA-regulated activity will be created. 

In preparation, the FCA and PSR have already acted: appointing a new FCA Executive Director for Payments & Digital Finance (also PSR MD) and updating the inter-authority Memorandum of Understanding to support a smooth transition. 

Why is the PSR being consolidated?

The government wants to reduce duplication and improve coherence. Importantly, HM Treasury has stressed this is not an expansion of the regulatory perimeter: the Payment Services Regulations (PSRs), Electronic Money Regulations (EMRs) and Consumer Credit Act remain unchanged. Instead, the aim is to create a more streamlined and proportionate regime under a single regulator. 

John Pauley, Financial Services Partner, comments: 

“For many firms, the key reassurance is that regulation isn’t widening. This is a structural change, not a perimeter change, so businesses already authorised under PSRs or EMRs should not suddenly face new requirements.” 

What this means for your business

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

• Designation regime: Scope will still hinge on HM Treasury-designated systems. 

• No new permissions: Pure scheme operators will not require Part 4A authorisation unless already in scope. 

• Objectives & powers: The FCA will take on PSR-equivalent objectives alongside its own strategic and competitiveness duties. HM Treasury is consulting on whether oversight should use directions, rules, or both. 

• Continuity: The PSR keeps its powers until legislation passes; no start date is set. 

• Regulatory approach: FCA supervision may bring new compliance, reporting and enforcement expectations. Firms should prepare for shifts in governance, risk and consumer protection. 

• Efficiency gains: Streamlining should cut duplication and offer a more precise, single point of regulatory engagement. 
• Expertise retained: PSR staff and knowledge will transfer to the FCA, ensuring continuity with familiar experts. 

John adds: 

The consolidation won’t extend permissions, but FCA-style supervision can feel different. Much depends on how the FCA uses its new powers. If it leans more on broad rules rather than targeted directions, firms could face increased compliance demands. 

Challenges and watchpoints

Challenges you may need to consider: 

• Form of obligations: Rules vs directions (or both) will affect governance, compliance and appeals. 

• Access regime: Simplification could alter how Payment Services Providers and challenger banks connect to schemes. 

• Fee structures: Not covered in this consultation, but firms will want clarity on FCA levies. This is particularly relevant given recent reports of a slump in FCA licence approvals, with start-ups citing cost and time as key barriers. 
• Change management: The FCA and PSR are already collaborating on Open Banking, Variable Recurring Payments (VRP) and the National Payments Vision. 

What to do now

• Map your touchpoints: Review where you currently interact with PSR directions vs FCA rules. 

• Check designation exposure: Confirm which designated systems you rely on and ensure access remains compliant. 

• Governance & MI: Test whether your board reporting can meet FCA oversight and objectives. 

Next steps 

We will continue to track HM Treasury’s consultation and the evolution of the FCA’s role. If you would like to discuss how these changes may affect your business, please get in touch with our financial services solicitors. You may also find our FCA authorisation FAQs a helpful starting point.