The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

This review aims to modernise the framework to foster innovation, enhance consumer protection and maintain market resilience. FTI Consulting’s Financial Services team outline additional focal points that the government and regulators should address to enhance the effectiveness of the regulatory environment.

Balancing innovation with compliance

The Payment Services Directive has long been the backbone of the UK's payments regulatory framework. However, with the rapid evolution of digital payment methods, including digital wallets and buy now, pay later (BNPL) services, it is essential to reassess the relevance of existing regulations. Regulatory expansion to cover these new providers would enhance consumer protection and market stability by ensuring all major players adhere to consistent standards.

A critical consideration is the UK's participation in the Single Euro Payments Area (SEPA). While diverging from EU regulations like the Payment Services Directive could foster innovation, it's crucial to ensure that changes don't jeopardise the UK's SEPA equivalence. Ongoing dialogue with the European Payments Council and careful consultation before implementing changes will be vital to maintaining the UK's competitive edge globally. More broadly, it will crucial to ensure that any new measures are proportionate, targeted and aligned with international standards to avoid unintended negative consequences for access to SEPA.

Strengthening consumer protection

Protecting consumers from fraud remains a concern. Current PSR provisions focus on unauthorised transactions but fail to address the growing threat of authorised push payment (APP) fraud. The government should consider placing APP scams on the same regulatory footing as unauthorised transactions. This approach would mandate payment warnings, customer education, and obligations for firms to attempt fund recovery and repatriation, providing a more comprehensive defence against fraud.

The financial sector also advocates for a more flexible approach to payment execution requirements. Revising the “D+1” execution rule to allow for a risk-based approach would enable firms to delay payments if there is a suspicion of fraud. This flexibility would be particularly beneficial in complex cases, allowing longer engagement periods to secure customer funds.

Additionally, the prescriptive nature of Strong Customer Authentication standards can hinder the development of more effective, risk-based controls. Simplifying these regulations and adopting a more flexible, outcomes-based approach would enable firms to tailor fraud prevention measures to their specific risk profiles and customer needs. Revisiting the practice of secured screen scraping could provide a practical fall-back mechanism while maintaining security and customer trust.

Improving provision of information to consumers

Current consumer information requirements are outdated and cumbersome. Transitioning to the Financial Conduct Authority’s (FCA) Consumer Duty framework, which is more intuitive and flexible, would significantly improve how information is conveyed to customers. A layered approach to information dissemination ensures that customers receive pertinent information in a timely and accessible manner, enhancing understanding and engagement.

Moreover, moving conduct and information requirements from the PSRs to the FCA Handbook could enhance regulatory agility. This transition would streamline processes, allowing for faster adaptation to industry changes without lengthy legislative procedures.

Moving forward

By balancing innovation with compliance, strengthening consumer protection and enhancing regulatory agility, the UK can maintain its position as a leader in the payments sector. As the review progresses, payment service providers (PSPs) must proactively assess the impact of potential changes on their operations. PSPs should incorporate these impacts into their strategic planning and budget forecasts to ensure timely compliance with new regulatory requirements. Monitoring compliance and ensuring alignment with regulatory deadlines will be essential for maintaining operational stability and consumer trust. 

Read FTI Consulting’s recent article on how firms can navigate the UK’s payments regulatory landscape.

The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals