Government consults on payments regulation reform

HM Treasury is consulting on its approach to modernising the regulation of payment services.

The consultation notes that there are nearly 1200 firms carrying out payment services in the UK, regulated, variously, either solely under the EMRs or PSRs, or for FSMA regulated firms, regulated under those regulations for their payment services. The Regulations, which stemmed from EU Directives, have worked, but both international developments and the industry is moving fast. The Government wants to ensure the UK regulatory framework keeps up generally, and also can facilitate new forms of payment and set the base for further innovation. It also wants to see the UK at the forefront of leading the development of agentic AI payments.

The Government is considering whether to delegate responsibility for setting certain requirements to the FCA, creating a more agile and outcomes-focused regime by placing provisions in regulatory rules. However, it recognises the importance of maintaining appropriate clarity in the legislative framework, so expects to retain certain core provisions in legislation, including the perimeter for which payment services are regulated activities, and key definitions. It may also retain provisions that establish key rights, obligations or protections for consumers and firms, or where a clear and stable statutory underpinning is needed for a regulatory requirement. For example, provisions setting out the notice period payment services users are entitled to when their framework contract is terminated by the service provider will be retained in legislation. To inform its approach, the Government welcomes views on:

• which requirements should stay in legislation;
• which of those requirements need updating;
• what provisions in the current framework need updating – for instance, any key definitions; and
• are there elements of international frameworks that the UK should adopt.

In terms of new developments in payment services, the Government welcomes views on:

• Revising some current payment activities, to merge some (so there would be one activity covering all the payment account operation related activities and one covering execution of payment services, but to split the “issuing and acquiring” activities into two) – and all the payment activities could be carried out in both fiat money and tokenised payments, although, recognising the risks of tokenised payments, firms would need apply for a VOP to deal in tokenised payments;
• Whether the existing regulatory framework (including the new stablecoin issuance activity) needs to adapt to unlock opportunities in tokenised deposits in retail payments
• Whether only stablecoins issued in the UK or a ‘recognised jurisdiction’ should be treated as ‘money-like’ for the purposes of the payments perimeter;
• Whether firms authorised to issue ‘UK-issued qualifying stablecoins’ should be allowed to provide payment services without additional permissions;
• Whether safeguarding qualifying stablecoins (under the new regulated activity) for the purposes of payments should eventually be regulated under the payments regime rather than the cryptoassets regime;
• How the payment services regulatory framework needs to adapt to support smart contract usage and the progammable payments that underpin this;
• Whether current prudential and COB requirements will work for tokenised payments;
• How regulation needs to adapt to support agentic payments;
• How all reforms can support financial inclusion; and
• How well the current regime manages the risks the sector prevents – and whether any targeted amendments or perhaps the introduction of an SMCR like regime for the sector would better reduce financial crime risks.

The paper also covers proposals to continue to support Open Banking and what adjustments should be made. It proposes new powers for the FCA to place requirements on ASPSPs, PISPs and AISPs, and in relation to the Future Entity as an interface body.

The Cross Border Payments Regulation is included in the scope of the consultation, but the Interchange Fee Regulation 2015 and Payment Card Interchange Fee Regulations 2015 are not – although the powers under them will pass to the FCA as it subsumes the Payment Systems Regulator.

The consultation asks 42 questions in total, and closes on 6 October.