Modernising UK payment services regulation: evolution, integration or fundamental reform?

The Government’s consultation could reshape payments, e-money, stablecoins, agentic commerce and Open Banking, but much of the architecture remains to be designed.

HM Treasury’s Modernising Payment Services Regulation consultation is potentially the most significant redesign of the UK’s payments and electronic money regime since the first EU Payment Services Directive was implemented in 2009. It is not simply another adjustment to the Payment Services Regulations 2017  (PSRs) or Electronic Money Regulations 2011 (EMRs). It asks how the framework should be rebuilt for a market in which fiat payments, tokenised money, artificial intelligence and data-led services increasingly converge.

That ambition deserves attention. Yet the consultation is also notably high-level. It establishes a direction of travel, but leaves many of the choices that will determine firms’ permissions, controls, liabilities and economics open for industry input. The result is both a major policy signal and a reminder that the detailed destination remains unsettled.

A BROAD REFORM PROGRAMME, NOT A SETTLED BLUEPRINT:

At the centre of the proposal is a modernised framework for payment services and e-money. The Government is considering which requirements should remain in legislation and which should move into FCA rules, with core perimeter provisions and key definitions likely to retain a statutory foundation. It also proposes a revised set of regulated activities spanning payment services and e-money issuance, capable of covering both traditional and tokenised payments.

The scope reaches well beyond regulatory housekeeping. It includes prudential and safeguarding standards, conduct and consumer protection, authorisation and registration, financial crime risk, senior management accountability, financial inclusion, Strong Customer Authentication and international alignment, including developments in the EU and the UK’s continuing participation in SEPA.

THE CONSULTATION AT A GLANCE

HOW FAR HAVE WE REALLY MOVED SINCE 2023?

The scale of the stated ambition should not obscure an uncomfortable question: how much further forward are we than in January 2023? HM Treasury’s Payment Services Regulations Review and Call for Evidence already asked whether the framework supported agile and proportionate regulation, innovation, competition and consumer protection. It invited views on the regulatory perimeter, safeguarding, fraud, customer rights and transferring greater responsibility to the FCA. Stablecoin regulation and the long-term model for Open Banking were already parallel priorities.

There has been progress. The 2026 consultation is more explicit about combining the future treatment of conventional and tokenised payments; it sets out a proposed restructuring of regulated activities; and it gives considerably more shape to the future Open Banking framework. The emergence of agentic payments has also introduced issues that were not developed in 2023.

However, many of the foundational questions remain open. The consultation contains 42 questions and repeatedly seeks views on what should change, how risks should be addressed and which powers the FCA will need. That is legitimate at this stage, but it means firms should read it as the opening phase of a multi-stage redesign, not as an implementation plan. Further legislation and FCA consultation will be needed before the operational consequences are clear.

STABLECOINS: THE FAULT LINE BETWEEN TWO REGIMES

The stablecoin proposals demonstrate why joined-up design matters. Under the new FSMA cryptoasset regime, issuing a qualifying stablecoin in the UK is a regulated activity. The payments consultation now proposes bringing payments using certain UK-issued qualifying stablecoins (and potentially recognised overseas-issued stablecoins) within the payment services perimeter.

The Government is seeking to avoid firms needing duplicate cryptoasset and payments permissions for the same activity. Its intended end-state is that safeguarding undertaken in the course of providing payment services would sit under the payments regime rather than requiring separate cryptoasset safeguarding authorisation. Yet interim friction and boundary questions remain, including the treatment of custody, exchange, lending and borrowing; overseas-issued stablecoins; and whether a UK stablecoin issuer should need separate permissions to provide payment services.

For payments firms, banks, cryptoasset businesses and technology providers, perimeter analysis cannot therefore be conducted in isolation. Business models involving stablecoins will need to be mapped across both regimes, including the sequence in which new permissions become available and the controls required during transition.

AGENTIC PAYMENTS CONNECT PAYMENTS REFORM TO THE UK’S AI AGENDA

The consultation’s treatment of agentic payments sits within the Government’s wider pro-innovation approach to AI and its July 2026 Financial Services AI Adoption Plan. AI agents could compare options and autonomously initiate, approve or execute transactions, reducing friction and improving cash-flow management and payment routing.

The regulatory questions are equally fundamental. Existing concepts of payer consent and authorisation assume an identifiable instruction at a particular point in time. Agentic commerce may instead rely on delegated mandates, parameters and decisions taken dynamically by software. Firms will need clarity on when a transaction is authorised, how limits are evidenced, who is liable when an agent acts outside its mandate, what authentication should look like, and how customers can challenge or reverse outcomes. AI governance and payment controls will need to be designed together, with clear accountability, explainability, monitoring and auditability.

OPEN BANKING MOVES TOWARDS A PERMANENT (COMMERCIAL) MODEL

The Open Banking proposals are among the consultation’s most developed elements. The Government intends to preserve statutory rights of access, create a new access right for variable recurring payments and give the FCA extensive powers under the Data (Use and Access) Act 2025. Those powers would cover interfaces and standards, funding and oversight of the Future Entity, commercial schemes, information sharing, dispute processes, monitoring and enforcement.

The commercial model is critical. The consultation asks whether access that is currently free should become chargeable in some circumstances, how pricing guardrails should work and whether the FCA should be able to intervene. The outcome could determine whether account-to-account payments become a scaled alternative to cards. It also provides the bridge from Open Banking to the Government’s wider Smart Data and Open Finance ambitions.

WHO SHOULD ENGAGE AND WHAT SHOULD FIRMS DO NOW?

This is relevant to far more than authorised payment institutions and electronic money institutions. Banks and building societies, registered firms, payment and e-money agents, card acquirers, Open Banking providers, stablecoin issuers, cryptoasset intermediaries and custodians, merchants, payment technology providers, AI developers and consumer groups all have a stake in the outcome.

Boards should not treat the consultation as the starting gun for implementation. The proposals are not yet sufficiently developed for firms to undertake detailed regulatory impact assessments or begin redesigning their control frameworks. Instead, firms should identify which areas could materially affect their business models, permissions or customers; consider the outcomes they want the future regime to deliver; and gather evidence on the costs, risks and practical consequences of the available options. Particular attention should be paid to dependencies between the payments, cryptoasset, AI and Open Banking reforms. This analysis should be used to shape an evidence-led consultation response and position the firm for the more detailed legislative and FCA consultations that will follow.