Dima Kats, CEO and Founder of Clear Junction, explores why the UK’s decision to scrap the Payment Systems Regulator marks a pivotal shift towards smarter, more streamlined oversight — and what payments businesses must watch for during the transition.
The UK government’s decision to scrap the Payment Systems Regulator (PSR) isn’t just about cutting red tape. It’s a shake-up of how payments oversight works. Payments businesses have long argued that compliance had become overly complex, with firms needing to engage with three regulators: the Financial Conduct Authority (FCA), the PSR and the Bank of England. The result was regulatory congestion that slowed decision-making and left businesses unclear on which authority they needed to engage with.
Why the PSR fell out of step
The PSR was originally set up to promote competition and transparency in payment systems, but in practice, its role often overlapped with the FCA’s. This was particularly evident in areas like fraud policy and Open Banking, where coordination between regulators was inconsistent. We were especially concerned when the PSR overlooked key industry feedback on fraud, resulting in avoidable gaps in protection.
Businesses reported that engaging with multiple regulators on the same issue was time-consuming and costly, with conflicting guidance in some cases. For example, Open Banking, intended to increase competition and innovation, has been hindered by regulatory uncertainty. Firms have struggled to engage effectively with the Joint Regulatory Oversight Committee (JROC), a body that includes both the FCA and PSR. This lack of clarity has slowed down progress on initiatives like account-to-account (A2A) payments and fraud prevention, adding to the argument that a single regulatory body should take charge.
The PSR has described this shift as a logical next step following efforts to align responsibilities with the FCA. Meanwhile, the FCA has acknowledged the need to refine payments oversight to match the pace of industry change and ensure a smooth transition.
What this means for payments firms
For payments businesses, particularly smaller firms, this change could remove some of the regulatory roadblocks that have made compliance disproportionately expensive. Many have struggled with inconsistent guidance and conflicting expectations from different regulators. If handled well, the shift to the FCA could reduce duplication and make compliance more straightforward, allowing firms to focus on service delivery and growth.
However, this consolidation raises questions about how the FCA will manage its expanded responsibilities. Payments regulation differs from wider financial services oversight, and there is a risk that payments-specific issues could receive less attention if absorbed into the FCA’s broader remit. The industry must remain engaged to ensure this transition leads to meaningful regulatory improvements rather than just a reshuffling of oversight.
Regulation should evolve, not hinder
At Clear Junction, we work with financial institutions, payment providers and FinTechs that need reliable and compliant access to payment networks, offering correspondent accounts, virtual IBANs and payments infrastructure tailored for cross-border transactions. Regulation plays a major role in shaping how cross-border transactions flow, but too often, outdated regulatory structures have slowed down progress rather than enabling it.
Financial borders are becoming digital, and payments firms need frameworks that reflect that reality. A more coordinated regulatory approach could help by making compliance clearer and reducing friction in areas like fraud prevention, Open Banking and cross-border payments. However, for this transition to work, the FCA must ensure that payments-specific needs aren’t diluted under a broader financial services remit.
The challenge isn’t whether we regulate, it’s how we regulate. Oversight should enable innovation, not slow it down. We often see first-hand how regulatory uncertainty creates operational challenges, and we will continue working with regulators, partners and industry bodies to support an environment that encourages financial innovation while maintaining strong compliance and security standards.
Final thoughts
We love to see the UK government follow through on its plans, such as the National Payments Vision. However, we’ve observed a trend of regulatory easing in the US and are concerned that, if the UK does not strike the right balance, it could become less attractive to fintech entrepreneurs. While we welcome a more flexible approach, it must be implemented responsibly – ensuring stability and trust rather than relying on shortcuts.
It’s important to recognise that the PSR’s contribution to the development and promotion of Open Banking has been and will remain invaluable – not just in the UK, but across the EU and globally. The PSR also played a role in making payment systems more competitive and improving fraud protections. The FCA will need to ensure that this progress is not lost while keeping regulation practical for businesses. If executed well, this could create a more efficient and balanced approach to payments oversight, reinforcing the UK’s reputation as a global leader in FinTech regulation.
