UK Just Axed its Payment Systems Regulator: good move or bad idea?

It’s official: the Payment Systems Regulator (PSR), which oversees systems like UK Faster Payments, will be abolished. This follows an announcement by the UK government earlier this week.

The PSR’s duties will be folded into the Financial Conduct Authority (FCA), which it currently shares some responsibilities and office space with.

By reducing duplicate agencies, the government argues there should be less confusion and red tape.

However, the response from the industry has been mixed. We caught up with three experts from RedCompass Labs to hear what they had to say.

Who remembers 2008?

“Before the financial crisis we had regulators that didn’t understand the products they were regulating,” says Tom Hewson, CEO.

“So, we created regulators to regulate specific products. Ones they understood. In 2013, the Financial Conduct Authority and Prudential Regulation Authority were created because the Financial Services Authority and the Bank of England had failed so miserably back in the 2008 banking crisis. The PSR was created hot on their heels to reduce risk by increasing regulatory expertise in products”

He argues payments have become far more complex in the years since.

“Back in the day, a BACS message had 18 fields (and not all of them were used). Today, an ISO 20022 CHAPS PACS.008 message could contain 100 fields. There are more variations in a CHAPS payment than there are atoms in the universe. Complexity is through the roof. Authorized Push Payment (APP) fraud is through the roof. Stablecoins will disrupt cross-border payments. Instant payments are 24/7. AI is moving at a pace few people understand. The regulatory environment is more dynamic than ever.”

Reducing the number of agencies, then, might not be the best approach. In doing so, we risk repeating past mistakes.

“Are we really happy that we could be heading back to 2008? To a world where the FCA is regulating more than it can manage and truly understand?  Can they truly keep up with the pace of change?”

Not everyone agrees, though

“The UK government’s decision to axe the PSR and shift its responsibilities onto the FCA isn’t just the right move – it’s long overdue,” says Silvija Krupena, Director of the Financial Intelligence Unit.

“The PSR is a prime example of duplication, a middleman adding layers of admin instead of fixing things. For years, UK banks, fintechs, and even regulators themselves have been drowning in red tape. They’ve spent valuable time figuring out which bits of the Payment Services Regulations 2017 belong to the PSR and which sit with the FCA. Pretty much no one can answer that question off the top of their head. To me, that says it all.”

The move is eerily similar to what’s going on in the US. The new Department of Government Efficiency (DOGE) is currently “deleting,” dismantling, and streamlining agencies it feels are unnecessary, hoping to save money and boost innovation. The Consumer Financial Protection Bureau (CFPB) – which introduced new Open Banking rules toward the end of 2024 – is one such example. DOGE has caused controversy. The UK may take a more calculated approach.

“This is a big shift in the UK’s approach to financial regulation,” says David Patrick, Head of Payments Strategy. “While some may view it as a positive step toward reducing red tape and simplifying the regulatory landscape, it’s important to think about what this change could mean in practice. On one hand, merging agencies could make things easier. On the other, we must recognize that uncertainty in regulatory frameworks can cause problems for banks, fintechs, and PSPs.”

What’s the risk?

The PSR most recently ruffled feathers with its rollout of the Authorized Push Payment (APP) fraud mandatory reimbursement rule. It originally wanted firms to reimburse victims up to £415,000 per claim. This was reduced to £85,000 after pushback from the industry.

“It was very short-sighted,” says Silvija. “They could have worked with banks toward a proper, long-term, system-wide solution. Instead, they forced the industry to scramble for quick-fix controls. More firefighting. More patchwork. A whole lot of wasted money.”

Silvija goes on to argue that criminals are getting away with fraud because they adapt faster than regulators react. She says the PSR went for “the headline-grabbing, slap-a-rule-on-it approach, leaving banks to deal with the fallout.”

Scrapping the PSR could lead to less paperwork and wasted time. Clear, consistent rules are vital for fostering safety, soundness, and efficiency in the market. But a shift like this introduces a period of adjustment. And the future might be more uncertain.

“There is a risk we see the same issues that led to the creation of specialized regulators in the first place,” says Tom. “Reuniting regulatory functions might sound good on paper. But will it help us to stay ahead of the curve? Or do we risk repeating past mistakes?”