Payments regulator ‘abolishedʼ, fraud reimbursement rules live on

UK Prime Minister Keir Starmer announced the Payment Systems Regulator (PSR) would be abolished and folded into the Financial Conduct Authority (FCA) just hours before the PSR chair and interim managing director appeared before the Treasury Committee to explain how they oversaw the mandatory reimbursement rules for authorised push payment (APP) fraud.

In his March 11 announcement Starmer cited business complaints that the complex financial regulatory framework created “cost, time and resource burdens”, when explaining the decision to roll the PSR into the FCA as part of the governmentʼs Plan for Change.

Appearing in front of the committee, PSR chair Aidene Walsh and PSR interim managing director David Geale told lawmakers they were not explicitly informed about the decision beforehand, although there had been speculation since December 24, 2024. Geale said they would “coordinate effectively with the FCA” to ensure the payments system remains properly regulated.

His comments were echoed in FCA chief executive Nikhil Rathiʼs March 12 statement: “We will work closely with government, the Bank of England and the payment sector as the details of this change are decided and to ensure the transfer of any powers is smooth. In the meantime, we will drive forward with change, including welcoming the deep expertise of PSR colleagues within the FCA.”

The FCA confirmed that the PSR continues to be the independent regulator of UK payment systems, and firms should still engage with the PSR in the same way until changes have been made and communicated.

Responsibility for overseeing payments firms has always been shared between the PSR and the FCA, with the former focusing on economic aspects, including competition. Walsh described the move as a “sensible approach” to address regulatory congestion, adding that it had been like “pulling left and right arms” for payments firms.

A timeline for the amalgamation is yet to be announced, however Walsh said all 185 PSR staff would be moving to the FCA, and thereafter some might transfer to the Bank of England. Both Walsh and Geale are already on the FCA board, as a non-executive director and director of retail banking and payments supervision respectively.

PSR-FCA: APP reimbursement rules

While the PSRʼs dissolution took the spotlight at the hearing, Geale also presented evidence on the APP fraud reimbursement policy. Since October 7, 2024, all payments firms have been required to automatically reimburse customers who fall victim to APP fraud, with the responsibility split 50/50 between sending and receiving institution.

The maximum reimbursement amount for APP fraud victims was reduced from the initially proposed £415,000 to £85,000 per claim shortly before the rules came into force last October, after pushback from fintech and e-money institutions. The PSR received feedback that smaller payments firms had “prudential concerns” over the initial maximum level of reimbursement.

“We worked with the FCA to look at the potential impact on the sector: whether a large number of firms would be exposed to risk,” said Geale. “We felt that the right thing to do was to start with a limit of £85,000. The key thing is that this is pretty much guaranteed. It’s mandatory reimbursement, not optional, unless the customer has been grossly negligent,” he added.

According to Geale, the latest PSR data identified only 411 out of 250,000 cases claiming over £85,000, which supported the decision to reduce the limit.

The PSR was designated the regulator responsible for APP fraud reimbursement by the Financial Services and Markets Act 2023, and transferring this power to the FCA will require legislation. However, Walsh and Geale expect the reimbursement rules to continue to apply after the merger.