Ten years after its launch, the Payment Systems Regulator (PSR) is being dismantled, with its duties moving to the Financial Conduct Authority. Created to champion competition and innovation in UK payments, the PSR now faces criticism for doing the opposite – burdening the industry with red tape and slowing progress.

As the PSR’s functions are absorbed by the FCA, the UK has an opportunity—perhaps a final one—to reassess its approach to payments governance. Should regulation lean more into enabling innovation than constraining risk? And could elements of self-regulation, once a hallmark of British financial pragmatism, offer a better path forward?

A Decade of the PSR: Time for Reflection

The payments landscape is fast-moving, technically complex, and commercially nuanced. From the outset, the PSR faced structural disadvantages. As a new regulator with limited in-house sector expertise and a still-evolving mandate, it often found itself reacting to events rather than shaping the direction of the industry.

Much of the PSR’s early focus was driven by merchant lobbying, particularly around reducing interchange fees and scheme costs. Its most visible consumer initiative—targeting Authorised Push Payment (APP) scams—has proven difficult to implement effectively. According to UK Finance, APP scams resulted in £239  million in losses in just the first half of 2023, with only around 47% of stolen funds returned to victims.

Initially, the PSR proposed bank liability limits of £450,000 per scam. However, this figure was swiftly revised down to the £85,000 Financial Services Compensation Scheme (FSCS) threshold amid concerns that smaller banks could face insolvency under the original rules. Even so, the cost-sharing model introduced by the PSR applies only to sending and receiving banks, excluding digital platforms—such as social media companies—whose services are often used to initiate scams.

The lack of accountability for digital intermediaries, combined with a broad and sometimes ambiguous definition of APP fraud, has led to inconsistent enforcement and widespread operational confusion.

Innovation at Risk: The UK’s Declining Influence

Historically, the UK has been a global payments pioneer. It was the first country to roll out a national chip-and-PIN system in the early 2000s and introduced the Faster Payments Service (FPS) in 2008—both of which became international benchmarks. However, in recent years, the UK’s leadership position has faltered. Many in the industry point to the PSR’s heavy regulatory focus on domestic cost concerns, at the expense of broader innovation, efficiency, and scalability. With the regulator’s remit now shifting to the FCA, questions remain over whether this consolidation will improve or further complicate matters. The FCA already faces significant challenges managing its wide-ranging post-2008 financial risk mandates and has come under fire for its implementation of the Consumer Duty regulations—a set of new rules that many institutions argue are costly, vague, and difficult to comply with.

Could a Return to Self-Regulation Work?

Looking ahead, budget constraints may force the FCA to reassess its approach. There is a growing argument for reintroducing elements of self-regulation, backed by robust governance from institutions such as the Bank of England and the Treasury Committee.

Previous self-regulatory bodies such as the Association for Payment Clearing Services (APACS) played a vital role in coordinating industry-wide initiatives like EMV standards and chip-and-PIN rollout. The success of Faster Payments also stemmed from collaborative interbank development, rather than prescriptive external oversight. Critics of self-regulation highlight the risk of inertia and self-interest within banking consortia, but these concerns can be mitigated by transparent governance, independent codes of conduct, and regular parliamentary scrutiny.

A Tipping Point for UK Payments Policy

The future of UK payments regulation is at a crossroads. A streamlined regulatory model—focused less on reactive interventions and more on enabling innovation—could help reinvigorate the sector and restore the UK’s global leadership in payments technology. However, continuing with a fragmented or overly prescriptive approach may further delay much-needed infrastructure upgrades and discourage investment.

As the FCA takes the reins from the PSR, there is a critical opportunity to rethink the balance between oversight and innovation. Getting it wrong could mean falling further behind global competitors in a sector that underpins nearly every part of the digital economy.