Modernising Payment Services Regulation HM Treasury Consultation

HM Treasury has launched a significant consultation on modernising the UK’s regulatory framework for payment services and electronic money. Closing on 6 October 2026, the consultation proposes substantial reforms to the Payment Services Regulations 2017 (PSRs) and the Electronic Money Regulations 2011 (EMRs), with a view to ensuring that the UK payments framework remains fit for purpose as tokenised payments, agentic AI and the next phase of Open Banking develop. This briefing summarises the key themes and considers the potential implications for firms operating in the payments sector.

The big picture

The consultation forms a central part of the Government’s National Payments Vision, which aims to maintain a trusted, world-leading UK payments ecosystem supported by next-generation technology. The UK has long been a pioneer in payments innovation, from the launch of Faster Payments in 2008 to the development of Open Banking. The Government’s view is that the regulatory framework must now evolve to keep pace with rapid technological and market change.

The core legislation in scope is the PSRs and EMRs, which together regulate nearly 1,200 firms. The Cross Border Payments Regulation and SEPA Regulation are also within scope. By contrast, the Interchange Fee Regulation and Payment Card Interchange Fee Regulations are excluded, reflecting ongoing work by the Payment Systems Regulator on card fees.

The consultation asks 42 questions across three broad areas: (1) updating existing regulatory requirements, including the balance between legislation and FCA rules; (2) responding to new developments, including tokenised payments and agentic AI; and (3) designing the long-term regulatory framework for Open Banking.

FCA Rules and delegating powers to the FCA

The Government is considering whether certain detailed and technical provisions should be delegated to the FCA. This would mark a shift away from prescriptive statutory requirements towards a more agile, outcomes-focused regime, drawing on the FCA’s supervisory expertise and day-to-day engagement with firms.

The Government expects core provisions, including the regulatory perimeter and key definitions, to remain in legislation. It is also minded to retain certain consumer-facing protections in statute, including contract termination notice periods whereas the Government has already committed to delegating Strong Customer Authentication (“SCA”) rules to the FCA.

For firms, this could represent a significant shift in how regulatory requirements are set and updated. FCA rules may be more responsive to market developments, but firms will need to engage closely with future FCA consultations to help shape the detailed requirements that may replace existing statutory provisions.

Interestingly, the consultation asks a question about which international regulatory requirements the UK should incorporate into its updated framework leaving the door open to the UK adopting aspects of the new European framework set out within PSD3/PSR1. It also welcomes views on where the UK framework may need to adapt to support continuing membership of the Single Euro Payments Area (SEPA).

Tokenised payments: Stablecoins and tokenised deposits

The Government has reiterated its ambition for the UK to be a world leader in tokenised payments, with a payments regulatory framework that supports innovation in tokenised payment services alongside traditional payment methods.

For stablecoins, the Government proposes that only UK-issued qualifying stablecoins, issued under the new Article 9M RAO activity, should be treated as “money-like” for payments purposes and brought within the payments perimeter. This approach may be extended to overseas-issued stablecoins where HM Treasury formally recognises the regulatory framework of the relevant jurisdiction as one that provides similar outcomes.

The Government proposes a single set of regulated activities for both fiat and tokenised payments, reducing the permissions burden on firms. However, existing authorised or registered firms would still need to apply to vary their FCA permissions before providing tokenised payment services, reflecting the potentially different risk profile of those activities.

On safeguarding, the Government intends firms safeguarding UK-issued stablecoins while providing payment services to be regulated under the payments regime, removing the need for separate cryptoasset safeguarding authorisation.

The Government has also published draft legislation to clarify the interaction between the payments and cryptoasset regimes.

Leading the World in Agentic Payments

The Government wants the UK to be at the forefront of the global development of agentic payments. Agentic AI, which can autonomously analyse, initiate, approve and execute payments on behalf of consumers or firms, has the potential to reshape both payments and commerce.

For firms, agentic payments could support better cash flow management, operational efficiency and payment routing. For consumers, they could reduce payment friction, optimise preferences and create cost savings. However, the Government acknowledges that the PSRs were designed before the development of AI and may not fully accommodate agentic AI use cases. The consultation therefore seeks views on what changes may be needed, particularly in relation to authentication, consent and liability.

The FCA’s receipt of a record number of applications to the second cohort of its Supercharged Sandbox also signals the level of industry ambition and innovation already emerging in this area.

Unlocking the future of open banking

The consultation devotes significant attention to the next phase of Open Banking. The National Payments Vision identifies Open Banking as central to the growth of account-to-account payments, including “pay by bank”, as a competitive alternative to card payments.

Variable Recurring Payments: The Government proposes to establish a new right of access to support variable recurring payments (VRPs), giving consumers greater visibility, flexibility and control. The scope of this obligation remains under consideration and could be limited to ASPSPs providing current accounts, or targeted at ASPSPs above a certain size.

Pricing and Commercial Models: The Government intends to support fair and sustainable commercial arrangements for new Open Banking products and services. In a significant shift, it is consulting on whether ASPSPs should be permitted to charge third-party firms for API access that is currently provided free of charge. While free access has been important for fintechs, the Government notes that the current model gives ASPSPs limited incentive to invest in enabling new products.

The Future Entity: A “Future Entity” is being established to replace Open Banking Limited as the central standards-setting body. The Government intends to give the FCA broad powers under the Data (Use and Access) Act 2025 to regulate both the Future Entity and commercial Open Banking schemes.

FCA Powers: The FCA is expected to gain a comprehensive monitoring and enforcement toolkit closely modelled on its existing FSMA powers, including the ability to impose interface-related requirements on ASPSPs, PISPs and AISPs, and potentially to issue compliance notices.

Managing sector risks and accountability

The Government’s most recent National Risk Assessment identified an increased risk of financial crime within the payments and electronic money sector, reflecting both the expansion of the sector and the changing nature of payment flows.

The Government is seeking views on whether additional measures are needed, including whether enhanced ongoing responsibilities for senior managers of payments and electronic money institutions would support more effective oversight and risk management. This could, in effect, extend SM&CR-style obligations to the payments sector (a development that has been considered by the FCA in the past, but not progressed), representing a meaningful increase in personal accountability for those running payments firms.

The consultation also emphasises the importance of financial inclusion, recognising the need to monitor and address the risk that rapid technological change could widen existing gaps for those who cannot, or do not wish to, use digital payments.

What’s next?

The consultation closes on 6 October 2026. Responses can be submitted to Modernisingpaymentservices@hmtreasury.gov.uk.

Any changes to existing regulation will be implemented through secondary legislation, with the Government expected to provide further detail on implementation following the consultation.

For firms operating in the payments and electronic money sector, the breadth of the proposals is significant. The consultation touches on almost every aspect of the regulatory framework, from the perimeter of regulated activity and authorisation requirements to conduct standards, prudential and safeguarding rules, and enforcement powers. The proposed shift towards greater FCA delegation, together with new frameworks for tokenised payments, agentic AI and Open Banking, means firms should engage closely with both the legislative process and future FCA consultations to ensure their interests are reflected in the final framework.

If you would like to discuss any of the issues raised in this briefing, or what the proposals may mean for your firm, please get in touch with our team.