The UK’s payment regulatory landscape is undergoing some significant changes, with the government recently announcing its intention to dissolve the Payment Systems Regulator (PSR) and integrate its functions into the Financial Conduct Authority (FCA). This is with the intention of streamlining regulation by reducing red tape and ensuring that firms only need to deal with the FCA, rather than a range of different regulators.
But the dissolution of the PSR is just one example of where regulatory changes are going to impact different stakeholders in the financial ecosystem. Broader trends are on the horizon that financial institutions, fintechs, merchants and other firms need to keep in their scope.
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Opportunities for payments innovation in the region
As it stands, firms active in UK payments may need to engage with as many as three different regulators: the PSR, FCA and the Prudential Regulation Authority (PRA). The merging of PSR into the FCA is going to reduce the number of regulatory touchpoints, streamline compliance and lower administrative overheads. This is because a single payments supervisor can help to reduce the legal and consultancy costs linked to overlapping guidance and interpretation.
But the move will also help to make the UK more attractive to fintechs and payment innovators, encouraging international firms to enter the market and making it easier to launch and scale new products. And while the abolition of the PSR is loosening the regulatory barriers for the UK financial sector and allowing for more self-regulation, elsewhere, new regulations and frameworks are demanding enhanced security to protect consumers from fraud and safeguard their finances.
Boosting user protections
While the UK is no longer in the EU, the nation often follows the bloc’s lead when new directives are introduced. European frameworks are being updated to boost user protection, so we can expect to see the UK following suit. One such example is the upcoming Payment Services Directive 3 (PSD3), a proposed EU directive that focuses on improving security, fraud prevention and consumer protection in the ecosystem.
A major development with the PSD3 is the revised definition of Strong Customer Authentication (SCA), which requires technically separate authentication methods when customers use mobile wallets and other services.
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By GlobalDataThis opens up the potential for passkey-based, biometric first authentication in combination with other authentication layers such as risk scoring. These authentication methods keep users safe by ensuring their biometric data never leaves their device, while taking just milliseconds to verify their identity. These methods of fraud protection will only become more pivotal for payment providers to introduce, as the UK has now implemented a world-leading fraud reimbursement scheme for victims of Authorised Push Payment (APP) attacks, introduced in 2024. Under these rules, payment service providers will be required to reimburse victims up to £85,000 per claim within five business days, with the scheme covering as many as 99.8% of all APP fraud cases.
Navigating the compliance minefield
Ensuring user protections will be central to change in the UK, and the industry will also have to consider other consumer-focused regulations. The e-money safeguarding regime mandates the need for firms to keep received funds in designated safeguarding accounts with either approved banks or the Bank of England, as opposed to holding them in non-safeguarding accounts.
This regulatory change is to help keep consumer money safe by keeping any shortfalls in funds to a minimum and ensuring that funds are returned in the most cost-effective and quickest way possible. The changes also put more power in the hands of the FCA to intervene when firms fail to meet the proper safeguarding expectations.
With so many regulatory evolutions having an impact on the ecosystem, it can seem like an insurmountable task for payment providers and other firms to keep pace. This is where trusted experts can take on the compliance burden and allow organisations to keep their efforts focused on growth-driven priorities. Partnering with a specialist provider also offers a practical alternative to building costly in-house compliance infrastructure and can even turn what appears to be a burden into a competitive advantage by enabling speed, scale and trust.
An opportunity for innovation
The UK’s rapidly evolving payments landscape is presenting both future challenges and opportunities for firms. For example, as oversight becomes more centralised through the FCA, organisations can benefit from reduced complexity, faster time-to-market and improved clarity across compliance requirements.
At the same time, new regulations, speed of money movements and ever evolving fraud patterns will continue to raise the baron user protection, fraud prevention and fund safeguarding, with consumers at the top of the priority list. It’s time for businesses operating in this space to adapt quickly and strategically. By working with secure and regulatory compliant payment solutions and expert partners, organisations can prevent regulations from becoming a burden, unlocking innovation while crucially maintaining the trust of users and regulators.
Martina Forster is Portfolio Owner Payment & Identity at G+D Netcetera
