News that the UK government has decided to abolish the Payment Systems Regulator (PSR) won’t have surprised many of those working in the payments industry. The current UK government’s agenda of getting rid of red tape in order to encourage economic growth is just one of a number of significant regulatory changes which have been taking place around the globe - not least, the streamlining of the Consumer Financial Protection Bureau (CFPB) announced under the Trump administration. Other jurisdictions including Canada, Singapore and Australia are at various stages of reforming and improving their regulatory framework.
Should anyone be mourning the passing of the PSR? The UK is the only jurisdiction to have a dedicated regulator for payment systems. The PSR - which looks after the UK’s Faster Payment system and the major card schemes - was launched in 2015, ironically following a call for more competition and innovation in payments. It’s in any case a subsidiary of the Financial Conduct Authority (FCA) and shares some of its operations but is an independent economic regulator by statute. Confusion about its boundaries with both the FCA and Bank of England, the two other regulators of the financial sector in the UK, has caused frustration over the years for those in the sector, and there has been criticism of its decisions, not least the introduction of the world’s first scam reimbursement scheme in October 2024. A number of large institutions in the sector are known to have written to the government at the end of last year to express those frustrations and call for the PSR to be merged into the FCA – well, their wish has been granted.
The PSR will mainly be consolidated back into the FCA, simplifying the regulatory landscape for firms. Legislation has to be passed by UK Parliament to enact these changes: until then the PSR will continue to have access to its statutory powers. However, the groundwork for the merger has already been laid: David Geale, FCA Director of Retail Banking and Payments Supervision, was appointed Interim Managing Director of the PSR since June 2024 after Chris Hemsley stepped down.
The decision to close down the PSR will have certainly delighted the smaller PSPs and Fintechs, for whom mandatory reimbursement is particularly contentious, making them for the first time responsible for paying 50% of the reimbursement cost of scams for victims. The PSR had to revise its original cap for reimbursement from £415,000 to £85,000 due to intense lobbying from the sector and politicians.
And yet…whilst the PSR was heavily criticised about introducing mandatory reimbursement, its action, together with the despised ‘league tables’ of the best and worst PSP performers in push payment fraud, undoubtedly brought the spotlight onto those banks that host the mule accounts and gave them incentive to address the issue. Without the PSR, it is unlikely that the status quo would have changed, and the issuers would today still be paying the lion’s share of dealing with scams. That, at least, should be on its tombstone.
Another nagging doubt is whether the FCA will position financial crime high enough within its overall priorities. The tension between Consumer Duty and fraud already exists. The Duty requires banks to keep customers safe from harm, but that protection might mean, for example, delaying payments whilst investigating a suspicious transaction. This is just one example of the fine balance between protection and security versus ease of customer journey we are constantly re-calibrating. Will fraud and financial crime get the resources and focus they deserve from the FCA, or will they take second place against what are perceived to be bigger issues in its broad remit?
So… RIP, PSR. It doesn’t look as if there will be many queuing up to deliver fulsome eulogies at your funeral. Yet it is fair to say that its existence has driven at least some meaningful progress in addressing push payment fraud. The move to merge the PSR back into the FCA raises legitimate concerns about whether financial crime will receive the attention it warrants. Whist a merger will undoubtably streamline regulatory oversight, it is crucial the FCA continues to prioritize financial crime to maintain the momentum achieved under the PSR’s watch.
