Concerns raised over government's decision to abolish Payment Systems Regulator

As the government has confirmed that it will abolish the Payment Systems Regulator (PSR) as part of its drive to cut red tape and boost economic growth, payments platform Ecommpay voiced concerns over the potential risks of dismantling a dedicated regulator at a time of heightened scrutiny in the payments sector.

Willem Wellinghoff, chief compliance officer and UK chair of Ecommpay, acknowledged the government’s commitment to "streamlining regulation, simplifying the amount of regulators that companies have to manage, and fostering economic growth through its deregulatory agenda."

However, he warned that eliminating the PSR may not be "the most opportune course of action" given the industry's ongoing focus on payment system resilience and fraud risk management.

“The payments industry is evolving rapidly, and with increased scrutiny on payment services and electronic money providers, maintaining a robust and dedicated regulatory framework is critical to ensuring stability, innovation, and consumer protection in support of the National Payments Vision,” Wellinghoff said.

The government's announcement positions the abolition of the PSR as a means to reduce regulatory burdens, particularly for businesses facing the challenge of navigating multiple regulatory bodies. The regulator's responsibilities will be largely transferred to the Financial Conduct Authority (FCA), a move intended to make compliance easier for firms.

“For too long, the previous government hid behind regulators – deferring decisions and allowing regulations to bloat and block meaningful growth in this country,” prime minister Keir Starmer said, announcing the decision on Tuesday.

“And it has been working people who pay the price of this stagnation. This is the latest step in our efforts to kickstart economic growth, which is the only way we can fundamentally drive up living standards and get more money in people’s pockets.”

Chancellor Rachel Reeves echoed these sentiments, arguing that an overly complex regulatory system has been “choking off innovation, investment and growth.”

“We will free businesses from that stranglehold, delivering on our Plan for Change to kickstart economic growth and put more money into working people’s pockets,” she added.

Despite the Government’s assurances, Ecommpay remains cautious about the transition, particularly regarding the FCA’s capacity to absorb the PSR’s responsibilities without disrupting the sector.

“We express concern that the Financial Conduct Authority (FCA) already operates under significant pressures. Absorbing the PSR’s responsibilities into the FCA risks adding further complexity to an already demanding agenda, potentially disrupting the ongoing development and supervision of the UK payments ecosystem with a view to kickstart growth,” Wellinghoff noted.

Ecommpay urged the government, the FCA, the Bank of England, and the PSR to ensure that the transition leads to "a more harmonised and effective approach to regulating payment systems and services that will not erode trust in the UK payments ecosystem."

Meanwhile, the PSR acknowledged the government’s decision as "a pragmatic next step in simplifying and clarifying payments regulation."

In its response, the regulator highlighted its achievements in fostering competition, innovation, and fraud protection and pledged to work closely with stakeholders to facilitate a smooth transition of its duties to the FCA.

“Legislation will take time, but we do not need to wait to realise the benefits of an even more streamlined regulatory approach. Doing so builds on recent work bringing the PSR and FCA closer together,” the PSR said, noting that the managing director of the PSR role has already been joined with that of executive director of payments and digital finance at the FCA.

The announcement does not result in any immediate changes to the PSR’s remit or ongoing programme of work. The regulator will continue to have access to its statutory powers until legislation is passed by the parliament to enact these changes.

Earlier this month, a report by the PSR showed that leading credit cards have been consistently increasing their processing fees, squeezing businesses' ability to invest and grow.