The UK government has announced its decision to dissolve the Payment Systems Regulator (PSR) as part of a broader effort to simplify financial regulations. The move comes as Prime Minister Keir Starmer seeks to reduce bureaucratic complexity and improve regulatory efficiency. The PSR, which oversees key payment networks such as Faster Payments and Mastercard (NYSE:MA)’s system, will be merged into the Financial Conduct Authority (FCA). Government officials argue that the consolidation will streamline oversight and reduce redundancy in financial regulation.
When the PSR was first established, it aimed to foster competition and innovation in the UK’s payment systems. Over the years, however, concerns about overlapping functions with the FCA and regulatory inefficiencies have surfaced. Similar discussions about merging financial regulators have emerged in previous administrations, but the latest decision by Starmer’s government represents a definitive step toward restructuring oversight in the financial sector.
What Are the Reasons Behind the Decision?
Interim Managing Director of the PSR, David Geale, acknowledged that the regulator was a logical choice for elimination due to its close operational ties with the FCA. He highlighted that both entities share the same systems, work from the same building, and employ staff under the same payroll. These factors contributed to making the PSR an “easy target” for the government’s deregulation efforts.
“We see it as a pragmatic next step to decongest some of that regulatory congestion that we have today,” said Aidene Walsh, Chair of the PSR.
How Will This Affect the Industry?
With the dissolution of the PSR, regulatory responsibilities will shift to the FCA, which already plays a significant role in overseeing financial markets. The transition is expected to take time, as legislative changes will be required for full implementation. The PSR stated that it will collaborate with the government, the FCA, and the Bank of England to ensure a smooth transition.
“Legislation will take time, but we do not need to wait to realize the benefits of an even more streamlined regulatory approach,” the PSR said in a statement.
The announcement comes shortly after Revolut and Visa filed legal challenges against the PSR’s proposed cap on interchange fees for cross-border online payments. Both companies argued that the regulator exceeded its authority with the proposed limitations introduced in 2023. This legal action adds another layer of complexity to the regulator’s final months before its responsibilities are absorbed by the FCA.
The consolidation of financial regulators is not unique to the UK. Other countries have pursued similar efforts to enhance efficiency and reduce overlapping functions. While the merger aims to simplify the regulatory framework, it also raises concerns about potential gaps in oversight during the transition period. Businesses and financial institutions will closely monitor how the FCA integrates the PSR’s functions and whether it maintains the same level of scrutiny in the payments sector.
Policymakers and industry stakeholders will need to assess whether the regulatory restructuring achieves its intended goals without creating unintended consequences. The impact on businesses, particularly small enterprises that rely on payment services, remains a key factor in evaluating the effectiveness of the change. While some view the move as a necessary step to reduce regulatory complexity, others question whether the FCA will be able to effectively manage the additional responsibilities without compromising oversight.
