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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.
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.
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.
This 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.
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