PSR-FCA Consolidation: What Payment Services Firms Need to Know About the Regulatory Merger

The UK's payment services regulatory landscape is undergoing a fundamental transformation. On 8 September 2025, HM Treasury launched a consultation on consolidating the Payment Systems Regulator (PSR) into the Financial Conduct Authority (FCA), marking one of the most significant structural changes to financial services regulation in recent years. For payment service providers, e-money institutions, and other firms operating in the payments sector, understanding this consolidation is critical to strategic planning and regulatory preparedness.

Background: Why Is the PSR Being Abolished?

The move to consolidate the PSR into the FCA follows the government's announcement in March 2025 that the PSR would be abolished as a standalone regulator. Established in 2015 as part of the Financial Services (Banking Reform) Act 2013, the PSR was created to promote competition and innovation in the UK payment systems whilst ensuring they serve the interests of service users.

However, a decade on, the regulatory landscape has evolved considerably. The proliferation of payment technologies, the rise of open banking, and the increasing complexity of cross-border payments have created overlaps and inefficiencies in the regulatory framework. The decision to merge the PSR with the FCA reflects a broader government strategy to streamline financial services regulation, reduce regulatory fragmentation, and create a more coherent oversight structure for the rapidly evolving payments sector.

The consultation, which closed on 20 October 2025, sought views on the practical implementation of this consolidation, including transitional arrangements, governance structures, and the preservation of the PSR's specialised expertise within the FCA.

Understanding the Proposed Changes

The FCA's Expanded Role

Under the proposed consolidation, the FCA would assume all of the PSR's current functions and responsibilities. This includes:

Regulation of designated payment systems (such as Faster Payments, CHAPS, and LINK)
Oversight of payment system operators and infrastructure providers
Competition enforcement in payment systems
Access and governance requirements for payment systems
Consumer protection in the payments ecosystem
Enforcement powers specific to payment systems

The FCA already regulates payment institutions and e-money institutions under the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. The consolidation would bring payment systems regulation under the same roof, creating a single regulatory touchpoint for many firms operating across the payments value chain.

Preserving Bank of England Oversight

Crucially, the consultation confirms that the Bank of England and the Prudential Regulation Authority (PRA) will retain their veto powers over certain PSR decisions, particularly those relating to financial stability. This safeguard ensures that systemic considerations remain central to payment systems regulation, even as day-to-day oversight transfers to the FCA.

The Bank of England's Financial Policy Committee (FPC) and the PRA will continue to have a statutory role in decisions that could impact the stability of the UK financial system, maintaining the essential link between payment systems regulation and macroprudential oversight.

Timeline and Implementation

With the consultation having closed in October 2025, the government is expected to publish its response and draft legislation in early 2026. Subject to parliamentary approval, the consolidation could take effect in late 2026 or early 2027, with transitional arrangements likely to span 12-18 months to ensure continuity of regulatory oversight.

Key Implications for Payment Service Providers

Single Regulatory Interface

For many payment firms, particularly those that are both payment institutions and participants in designated payment systems, the consolidation offers the prospect of a more streamlined regulatory relationship. Rather than navigating requirements from both the FCA and PSR, firms will deal with a single regulator with unified supervision, enforcement, and policy functions.

This integration may lead to more consistent regulatory expectations, reduced duplication in reporting requirements, and clearer guidance on cross-cutting issues such as operational resilience, financial crime controls, and consumer protection.

Enhanced Regulatory Coherence

The FCA's assumption of payment systems regulation creates opportunities for better alignment between retail payments conduct regulation and infrastructure oversight. Issues such as authorised push payment (APP) fraud, which span both retail conduct and payment system design, may benefit from integrated regulatory approaches that address the full value chain.

Similarly, emerging payment technologies such as stablecoins, central bank digital currencies (CBDCs), and blockchain-based payment rails may be more effectively regulated under a unified framework that considers both systemic and conduct dimensions.

Continuity of Specialised Expertise

A key concern for the industry has been whether the PSR's specialised expertise in payment systems economics, infrastructure resilience, and interoperability would be preserved post-consolidation. The consultation indicates that the FCA intends to maintain dedicated teams with payment systems expertise, likely organised within a specific directorate or division.

Firms should expect continuity in existing PSR programmes, including work on access to payment systems, variable recurring payments (VRPs), and fraud prevention initiatives. The institutional knowledge built up over the PSR's decade of operation will be critical to the FCA's effectiveness in this expanded remit.

Potential Changes to Fees and Funding

The consolidation may result in changes to how payment systems regulation is funded. Currently, the PSR operates under a separate fee structure from the FCA. Integration may lead to revised fee blocks, potentially affecting the cost of regulation for different categories of firms. Payment institutions, e-money institutions, and payment system participants should anticipate updates to the FCA's fees regime once implementation details are finalised.

What This Means for Your Firm

Immediate Considerations

While the consolidation will not take effect until legislation is passed, firms should begin preparing now:

Review your regulatory relationships: Map out which aspects of your business are currently supervised by the PSR versus the FCA. Identify areas where integration may create efficiencies or raise questions about regulatory expectations.

Monitor the consultation response: HM Treasury's formal response to the consultation will provide critical detail on transitional arrangements, timing, and governance structures. Firms should ensure they have processes in place to track and analyse these developments.

Engage with the transition process: Once legislation progresses, both the FCA and PSR are likely to publish transition plans and seek industry input. Active engagement will help ensure your firm's voice is heard and practical concerns are addressed.

Assess your compliance framework: Consider whether your current compliance management system, policies, and procedures will need updating to reflect the consolidated regulatory structure. This includes reporting lines, escalation procedures, and regulatory contact points.

Strategic Opportunities

Beyond the immediate compliance implications, the consolidation presents strategic opportunities for forward-thinking payment firms:

Regulatory dialogue: A single regulator may create opportunities for more holistic discussions about business models, innovation, and regulatory approaches that span retail payments and infrastructure.

Authorisation efficiency: Firms seeking FCA authorisation for payment services may benefit from streamlined processes that consider their full role in the payments ecosystem, including any participation in designated payment systems.

Product development: Greater regulatory coherence may reduce uncertainty around new products and services that operate across retail payments and payment systems, potentially accelerating innovation timelines.

Long-Term Planning

For firms with multi-year strategic plans, the consolidation should feature as a key planning assumption. Consider how the merged regulatory landscape might affect:

Your competitive positioning and market access strategies
Investment decisions in payment infrastructure and technology
Partnerships and collaborations across the payments value chain
Geographic expansion plans, particularly in light of the UK's evolving regulatory attractiveness post-Brexit

Sector-Specific Considerations

Payment Institutions and E-Money Institutions

For firms already regulated by the FCA under payment services and e-money regulations, the most significant impact will be if you participate in or seek access to designated payment systems. The consolidation may create clearer pathways for payment services authorisation that considers both retail and infrastructure dimensions.

Payment System Participants

Firms directly participating in designated payment systems (as operators, payment service providers, or infrastructure providers) will experience the most direct impact. Your primary regulatory relationship will shift from the PSR to the FCA, with implications for supervision approaches, reporting requirements, and enforcement interactions.

Fintech and Non-Bank Providers

The consolidation may have particular significance for fintech firms and non-bank payment providers seeking access to payment systems. The FCA's broader mandate across financial services may bring different perspectives on competition, innovation, and market access compared to the PSR's more focused remit.

Cross-Border Operators

For firms operating across multiple jurisdictions, the UK's regulatory consolidation may affect comparative regulatory burden assessments and decisions about where to establish or maintain payment services operations. Understanding how the consolidated regime compares to alternatives in the EU, US, and other markets will be important for location strategy.

Preparing for the Transition

Practical Steps

As the consolidation progresses through 2026 and into implementation, payment firms should:

Establish a tracking mechanism: Designate responsibility within your compliance function for monitoring developments and assessing implications.
Update stakeholder communications: Brief your board, senior management, and relevant committees on the consolidation timeline and potential impacts.
Review regulatory correspondence: Ensure your firm's regulatory contact details are current and that you're registered to receive updates from both the FCA and PSR during the transition.
Assess training needs: Your compliance, legal, and business teams may need updated training on the consolidated regulatory structure once implementation details are clear.
Engage professional advice: Complex regulatory transitions often raise firm-specific questions that benefit from expert guidance tailored to your business model and regulatory permissions.

How MEMA Can Help

At MEMA Consultants, we specialise in helping payment service providers navigate complex regulatory changes. Our team has extensive experience with both FCA and PSR regulation, positioning us uniquely to guide your firm through this consolidation.

We can assist with:

Regulatory impact assessments: Analysing how the PSR-FCA consolidation affects your specific permissions, obligations, and strategic plans
Compliance framework reviews: Updating your policies, procedures, and governance structures to reflect the new regulatory architecture
Authorisation support: Guiding firms through payment services authorisation and FCA authorisation processes in the consolidated landscape
Training and briefings: Providing tailored sessions for your board, management, and compliance teams on the practical implications of the merger
Ongoing monitoring: Keeping you informed of developments as the consolidation progresses through legislation and implementation

Conclusion

The consolidation of the PSR into the FCA represents a watershed moment for UK payment services regulation. While the full implications will only become clear as implementation details emerge, the direction of travel is unmistakable: towards a more integrated, coherent regulatory framework for the payments sector.

For payment firms, proactive preparation is essential. Understanding the changes, engaging with the transition process, and adapting your compliance and strategic planning accordingly will position your organisation to thrive in the consolidated regulatory landscape.

The consolidation also reflects the UK's ambition to maintain a world-leading payments sector that balances innovation, competition, and protection. Firms that embrace this transition as an opportunity rather than merely a compliance obligation will be best placed to succeed in the evolving market.

Need expert guidance on the PSR-FCA consolidation? Contact MEMA Consultants today for a confidential discussion about how these changes affect your firm. Our regulatory specialists are here to help you navigate the transition with confidence.

Get in touch: Contact our team to arrange a consultation.