The consultation is very much a call for views on the government’s outlined approach, with a number of questions for input.

Several of the proposals are likely to be welcomed by firms, for example:

• the overarching payment services regulatory framework reforms to move detailed technical requirements into the FCA Handbook to create a more agile and outcomes-focused regime;
• a simplified, single set of regulated payments activities for both tokenised and non-tokenised payments to be created by merging or splitting some of the regulated payment services currently in Schedule 1 of the PSRs (although currently authorised or registered firms will need to apply to the FCA for variation of their regulatory permissions to provide tokenised payment services); and
• on Open Banking, the proposed ability for the FCA to be able to determine whether any access currently required to be provided for free by ASPSPs under the PSRs and the CMA Order should transition to a commercial basis (except in relation to ‘sweeping’).

However, some areas could prove to be more problematic including:

• on stablecoins for payments, continuing industry uncertainty around the interim period between entry into force of the new crypto regime in October 2027 and implementation of the payments reform package, eg in relation to safeguarding requirements;
• the government’s consideration of enhanced accountability of senior managers in the payment services and e-money sector to support better management of financial crime risks; and
• on Open Banking and establishing an updated framework under the Data (Use and Access) Act 2025 regarding how account access is facilitated, the proposed powers for the FCA to: require each scheme and their respective participants to establish a centralised pricing model; set guardrails for scheme pricing; and intervene directly to set a general limit or cap on pricing or to impose requirements for an individual scheme.

Regarding agentic payments, the government’s stated aim is for the UK to become a world leader in this area. It appears to still be early days in terms of the government’s thinking on how to tackle the issues it raises, given that the consultation only asks a high-level question on what changes might need to be made to the current regulatory regime. Firms can therefore expect this to remain a regulatory change priority.

Affected firms would be wise to take the time to consider the government’s proposals in detail and respond as necessary before the 6 October 2026 deadline to ensure the reform package addresses areas of particular importance to their current or planned business models/strategy.

Read on for more on the consultation.

• Scope: The core regulations for reform are the Payment Services Regulations 2017 (PSRs) and the Electronic Money Regulations 2011 (EMRs). Other related in-scope regulation is the Cross Border Payments Regulation (CBPR) and the SEPA Regulation. However, the Interchange Fee Regulation 2015 (IFR) (as retained) and the Payment Card Interchange Fee Regulations 2015 (PCIFR) are not in scope given the existing work on card fees (eg the two Payment Systems Regulator market reviews on cross-border interchange fees and domestic scheme and processing fees).
• Delegation of technical requirements to FCA: To support a more agile and outcomes-focused regime, the government is considering placing more detailed and technical provisions in regulatory rules. It has already committed to taking this approach with the Strong Customer Authentication requirements in the PSRs.
• Core provisions to remain in legislation: In the interests of certainty and clarity within the framework, certain core provisions would be retained in legislation. These would include provisions relating to the payment services regulatory perimeter and key definitions (eg for electronic money), the notice period and explanation requirements for termination of framework contracts by payment service providers (PSPs), and possibly other provisions establishing key rights, obligations or protections for consumers and firms, or where a clear and stable statutory underpinning for key regulatory requirements is needed.
• FCA to consult on transition of existing requirements to Handbook: The Government would ensure the FCA has the necessary powers to replace the relevant legislative provisions with new requirements in its Handbook. The FCA would consult on carrying over existing requirements where they remain appropriate, but would also be able to propose changes or new requirements where needed.
• Call for suggested updates: As part of deciding which provisions should remain in legislation, the government welcomes stakeholders’ thoughts on any updates to existing legislation - both the detailed requirements and overarching provisions including key definitions. It also seeks views on which international regulatory developments – for example elements of the EU’s PSD3 and Payment Services Regulation – should be incorporated into the updated UK framework. Also in the EU context, the government is looking for input on where the regulatory framework may need to adapt to support the UK’s continuing membership of the Single Euro Payments Area (SEPA).

The government sets out its commitment to making the UK a world leader in both tokenised and agentic payments. To achieve this, the payment services regulatory framework and the payments infrastructure need to provide the basis for innovations to thrive and operate alongside traditional payment methods.

Tokenised payments

• General:
  • The Government intends to broadly replicate the activities currently in Schedule 1 of the PSRs, creating individual regulated activities for each payment service (subject to potential changes to the definitions of Payment Initiation Service and Account Information Service – see below on Open Banking). It also proposes to maintain the activity for the issuance of e-money.
  • However, requiring separate permissions for fiat and tokenised payments activities could increase administrative burdens for firms offering integrated payment services. To simplify the regime whilst also recognising the distinction between some of the payment services currently grouped together, the government proposes a single set of regulated payments activities for both tokenised and non-tokenised payments by making the following changes in relation to Schedule 1 of the PSRs:
    • Merging activities regarding services enabling cash to be placed and withdrawn from a payment account, and all of the operations required for operating a payment account.
    • Merging the activities regarding the execution of payment transactions where the funds are covered by a credit line or not covered by a credit line.
    • Splitting the activity of “issuing payment instruments or acquiring payment transactions” into separate regulated activities for issuing payment instruments and acquiring payment transactions.
  • The intention is that these new regulated activities for all payment services will be able to be carried out in both fiat money and tokenised payments, streamlining the number of permissions firms need to obtain to carry out tokenised and fiat payment activities. However, given the different risk profiles of non-tokenised and tokenised payments, currently authorised or registered firms will need to apply to the FCA for variation of their regulatory permissions to provide tokenised payment services.
  • The government is also seeking views on how the payment services regulatory framework might need to adapt to support the use of smart contracts and programmable payments, and whether the current conduct of business and prudential requirements for payment services are suitable for tokenised payments.
• Tokenised deposits: The government is looking for views on whether the current regulatory framework for tokenised deposits – under which tokenised deposits are regulated in the same way as traditional bank deposits - presents any barriers for tokenised deposits in retail payments.
• Stablecoins: While recognising the strong potential of stablecoins for use in both retail and wholesale payments, the government points out that the associated risks to financial stability and consumer confidence (eg from “de-pegging”) mean that, when stablecoins used for payment purposes are brought within the regulatory perimeter, they should be subject to robust standards to ensure their stability.
  • This involves considering interactions with the new cryptoassets regime:
    • The government is proposing that where a stablecoin has been issued in the UK within the rules for the new regulated activity of issuing a qualifying stablecoin in the UK under Article 9M of the Regulated Activities Order (RAO), it can be treated as ‘money-like’ for the purposes of payments and brought within the payments perimeter. It also proposes that this approach may be extended to certain overseas issued stablecoins in the future, where HMT formally ‘recognises’ the regulatory framework of that overseas jurisdiction as providing similar outcomes to the UK’s. Otherwise, overseas issued stablecoin will be regulated through the new intermediary activities (dealing as principal, dealing as agent, or arranging deals in qualifying cryptoassets) to be introduced into the RAO by the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026 where these apply.
    • The government is also looking at whether firms authorised to issue UK-issued qualifying stablecoins under the new UK cryptoassets regime should be allowed to provide payment services without additional permissions, but be subject to relevant requirements (ie along the lines of the current position for credit institutions that carry out regulated payment services).
    • To avoid certain transactions falling within both the planned payments regime and the new crypto intermediary activities, Article 9M UK-issued qualifying stablecoins would be carved out from the cryptoasset intermediary activities for certain activities (dealing as principal, dealing as agent, and arranging deals) in advance of them being brought into payments regulation. Exchanges of those UK-issued qualifying stablecoin for money, or other UK-issued qualifying stablecoin, will not be considered cryptoasset dealing. But exchanges of UK-issued qualifying stablecoin for cryptoassets (eg Bitcoin) will be treated as cryptoasset dealing in the same way as the sale of Bitcoin for money. A draft SI clarifying the scope of the new RAO intermediary activities in relation to UK-issued qualifying stablecoins was published in April this year.
    • There is also a proposal that safeguarding of Article 9M UK-issued qualifying stablecoins for the purposes of payments should eventually be regulated under the payments regime and not the cryptoassets regime. The government acknowledges that this causes difficulty for firms that want to provide payment services in UK-issued qualifying stablecoin, who would need to comply with the cryptoasset safeguarding requirements in the period between entry into force of the crypto regime in October 2027 and implementation of the payments reforms. It will set out its approach to interim safeguarding requirements when it provides an update on the cryptoassets draft legislation.

Agentic payments

• The government wants the UK to lead the world in agentic payments. It is looking for feedback on how existing payment services regulation needs to adapt to support developments in this area (eg whether authentication standards and liability requirements need updating), and whether there are any other innovations across the payments landscape that it should take into account.

Financial inclusion risks

• With an eye to its Financial Inclusion Strategy and the need to monitor and address the increased risk of exclusion of those who either cannot or do not want to use digital payments, the government would like input on how to ensure the proposed reforms support an inclusive payments landscape.

Financial crime risks

• The Government’s most recent National Risk Assessment identified an increased risk of financial crime within the payments and e-money sector.
• It is looking at whether enhanced accountability of senior managers in the payment services and electronic money sector would support better management of financial crime risks, and whether targeted amendments to elements of the regulatory framework may be needed to address risks associated with new products and business models.

Open Banking is a key element of the Government’s Smart Data Strategy and is part of a wider agenda to unlock the benefits of secure data-sharing across the economy, including other areas of financial services (Open Finance – see our article on the FCA’s Open Finance roadmap here).

The government notes that delivering the future legislative framework for Open Banking will involve both:

• Modernising the Open Banking-related provisions in the PSRs

This includes:

• • Supporting the development of new variable recurring payments (VRPs) in line with the National Payments Vision by a proposal to establish a new right of access in relation to VRPs, eg a requirement that, at the request of a PISP, an ASPSP must allow the PISP to lodge a payment mandate for a series of payment transactions to be initiated by that PISP.
  • Proposals on pricing arrangements for rights of access, including:
    • Equipping the FCA with powers in relation to the pricing of new Open Banking products and services outside commercial schemes;
    • Enabling the FCA to determine whether any access currently required to be provided for free by ASPSPs under the PSRs and the CMA Order should transition to a commercial basis (except in relation to ‘sweeping’, ie automatic own account to own account transfers). This includes considering whether to lift the ban on ASPSPs requiring a contract in regulations 69 and 70 PSRs.
  • Considering whether any legislative changes are needed to ensure that the information provided by ASPSPs to PISPs on the status of initiated payments is sufficient for the PISP’s customers and comparable with other payment methods.
  • Considering whether other adjustments are needed to support new Open Banking payment and data use cases, including whether the definitions of Payment Initiation Service and Account Information Service remain fit for purpose.
  • As for the wider payments framework (see above ‘Updating existing regulatory requirements’), looking at which Open Banking requirements in the PSRs should remain in legislation, rather than being transferred to the FCA Handbook.
• Establishing an updated framework under the Data (Use and Access) Act 2025 (DUAA) regarding how account access is facilitated
  • The government intends to provide the FCA with powers to place requirements relating to interface use, standards and arrangements on ASPSPs, PISPs and AISPS. It will be for the FCA to consult on the detailed design of this future-proofed regulatory regime for Open Banking under the DUAA.
  • At this stage, the government doesn’t plan to give the FCA power to mandate ASPSP participation in commercial Open Banking schemes, as it thinks the proposed new right of access for VRPs and pricing arrangements for new products will incentivise voluntary ASPSP participation.
  • Regarding other requirements on ASPSPs under the CMA Order, stakeholders are invited to comment on:
    • whether it’s necessary to maintain a requirement on ASPSPs to publish ‘product’ and ‘reference’ information via Open Banking APIs.
    • the government’s proposal to maintain a requirement on ASPSPs to enable sweeping variable recurring payments, and if so the scope of application of that requirement.
  • The FCA would also be given powers to regulate the Future Entity (the new central standard-setting body for Open Banking – and potentially for future Open Finance arrangements) as an interface body under the DUAA. For example, the FCA would have the power to set requirements for how the Future Entity delivers its interface (API) standards, and for the establishment of a dispute resolution process to manage potential complaints from market participants.
  • On pricing:
    • While the development of new Open Banking schemes would be industry-led, the government proposes to provide the FCA with a power to require each scheme and their respective participants to establish a centralised pricing model, thereby facilitating the scaling of Open Banking payments, encouraging participation by smaller PISPs/AISPs, and improving price certainty for participants. The government acknowledges potential competition law issues with this approach, but suggests that scheme participants may be able to benefit from the ‘compliance with legal requirements’ exclusion set out in paragraph 5 of Schedule 3 to the Competition Act 1998.
    • The FCA would also be enabled to make rules which set guardrails for scheme pricing, eg to require fair and transparent pricing.
    • In addition, the government is considering giving the FCA a more direct intervention power if needed, for example to enable the setting of a general limit or cap on pricing or to impose requirements for an individual scheme (eg along the lines of its product intervention powers under s.137C FSMA, or the PSR’s price regulation powers for payment systems). It asks for views on whether the power should differ depending on whether the pricing arrangement is established through or outside a commercial scheme.
  • The government also proposes to give the FCA powers to make rules in relation to operators of commercial Open Banking schemes (again, as interface bodies under the DUAA).
  • For regulatory consistency, the government proposes to provide the FCA with monitoring and enforcement powers ‘closely modelled’ on its existing monitoring, intervention, and enforcement toolkit under FSMA. This would include the power to impose additional requirements in relation to interface bodies (including both the Future Entity and scheme operators), ASPSPs, PISPs and AISPs in order to address firm specific risks or concerns.
  • As it may be necessary for the FCA, in exercising its role as Open Banking regulator, to request and share confidential information, the government is also thinking about imposing FSMA-style restrictions on it sharing and disclosing confidential information received under the DUAA, and the use of information-sharing gateways to allow the FCA to disclose certain confidential information to the Future Entity.
  • As well as mirroring the FCA’s FSMA objectives and matters to which it must have regard for the purpose of exercising its new powers and functions in relation to Open Banking, there is also a proposal to provide it with an additional objective reflecting the broader innovation and data focused aims of the DUAA to support its approach to regulating Open Banking, eg an objective of supporting innovation or enabling the sharing of customer data and access to account functionality.

The consultation closes on 6 October 2026. Any changes to existing regulation will be implemented via secondary legislation. The Government will set out further detail about how these reforms will be implemented following the consultation.

The Government is also considering the findings of the independent review of the Payment and Electronic Money Insolvency Regulations 2021, which it published in December 2025. It plans to publish its response to the independent review and associated guidance on next steps later this year.

For more on other recent developments relating to digital markets, tokenisation, payments (including retail payments infrastructure renewal) and artificial intelligence, take a look at this Our Thinking article which provides an update on the key initiatives in these areas.

If you would like to discuss the potential impact of any of the government’s proposed changes to the payment services and e-money regulatory framework on your business, please get in touch with one of the people listed above or your usual Hogan Lovells Cadwalader contact.

Authored by Virginia Montgomery.