HM Treasury Unveils Landmark Reforms to Modernise UK Payments

HM Treasury has announced a sweeping package of measures designed to sharpen the UK’s competitive edge by modernising payment services regulation. The reforms, rooted in the National Payments Vision, seek to transition the UK from legacy frameworks toward an agile, technology-first ecosystem capable of supporting tokenised assets and artificial intelligence.

1. Structural Consolidation: Merging the PSR and FCA

The most significant structural shift is the confirmed consolidation of the Payment Systems Regulator (PSR) into the Financial Conduct Authority (FCA).

• Rationale: Historically, firms faced “regulatory congestion,” satisfying two bodies with overlapping mandates. This merger creates a single “port of call” for the payments stack.

• Implementation: The FCA will absorb the PSR’s objectives to promote competition and innovation. A new Payments Vision Delivery Committee has been established to ensure a smooth transition, allowing firms to report to a unified portal.

• Impact: This reduces the administrative “compliance drag” for fintechs, ensuring that consumer protection and market growth are weighed through a single lens.

2. A Unified Framework for Tokenised Assets

The Treasury is replacing fragmented rules with a single, coherent framework for both traditional and tokenised payments, including stablecoins and tokenised deposits.

• Stablecoin Integration: New legislation will bring stablecoins under the regulatory perimeter for use in retail and wholesale payments. To cement the UK’s destination as a digital asset hub, the government is cutting administrative burdens for stablecoin issuers.

• Digital Markets Champion: Chris Woolard CBE has been appointed as the Wholesale Digital Markets Champion. His role is to accelerate the adoption of tokenised digital assets, shifting wholesale markets away from manual settlement toward instant, blockchain-based reconciliation.

• Real-World Application: While global entities like J.P. Morgan have demoed private blockchain efficiency, these measures allow UK firms like Fnality and Quant to scale regulated, tokenised deposit solutions nationally.

3. Open Banking: Shifting to a Commercial Model

The package grants the FCA permanent powers to regulate Open Banking, moving it from a “read-only” mandatory model to a sustainable commercial framework.

• Commercial VRPs: The government is underpinning the development of commercial Variable Recurring Payments (VRPs). This allows fintechs to offer account-to-account alternatives to traditional card schemes for e-commerce and subscriptions.

• Case Example: Banks like NatWest and fintechs such as GoCardless are already trialling VRPs. The new framework provides the legal certainty needed to roll these out at scale, potentially lowering transaction fees for merchants.

4. Technical Safeguarding and Fraud Prevention

The package introduces critical technical updates to protect consumer funds and combat the rising threat of Authorised Push Payment (APP) fraud.

• Payment Delays: New legislation—the Payment Services (Amendment) Regulations 2024—permits providers to slow down outbound payments if there are “reasonable grounds” to suspect fraud. This provides a vital window for intervention before funds are lost.

• Safeguarding Reform: The existing e-money safeguarding regime is being replaced with a framework aligned with the FCA’s Client Assets Sourcebook (CASS). This requires firms to receive funds directly into designated accounts, improving capital resilience.

• Historical Context: In 2023, UK consumers lost nearly £460 million to APP scams. Firms like Revolut and Wise have highlighted the need for these unified liability rules to ensure industry-wide security.

5. Future-Proofing for AI Agents

Looking ahead, HM Treasury is exploring how payment regulations must adapt to AI agents—software capable of conducting transactions autonomously on behalf of humans.

• Agentic Finance: As consumers use AI to manage bills or switch energy providers, the government is defining liability and authentication standards for non-human initiated payments.

• Zilch Case Study: Philip Belamant, CEO of Zilch, has noted that AI will shift payments from an active task to something managed in the background, making proactive regulation essential for consumer trust.

Strategic Roadmap for Firms

For fintech leaders and technical architects, the message from the Treasury necessitates three immediate actions:

1. Audit Reporting Infrastructure: Prepare for more data-intensive reporting as the FCA assumes broader oversight of payment systems.

2. Integrate VRP APIs: Merchant-facing firms should prioritise VRP integration as the commercial model becomes the UK standard.

3. Security by Design: With the new power to delay payments for fraud checks, firms must ensure their threat detection algorithms are technically accurate to avoid unnecessary friction for legitimate users.

By consolidating oversight and legalising the next generation of digital money, HM Treasury is retooling the UK’s financial engine to lead the future of global payments.