UK regulators and fintechs seek to reset relationships to deliver growth

The UKʼs payments regulators and fintech firms are looking to reset their relationship to create pro-innovation regulations that deliver market growth. The Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) are re-examining payments infrastructure regulations and seeking more industry engagement, according to their representatives at the Pay360 event on March 26.

Payments, open banking and open finance are a priority for the UK governmentʼs growth strategy as framed in the National Payments Vision document.

Jana Mackintosh, managing director for payments and innovation at UK Finance, considered the FCAʼs five-year strategy to be a positive regulatory shift for fintechs. While the published plan dedicated one and a half pages to payments — a change from “just a footnote” — there was still room for firms to create their own strategies, resetting the relationships with UK regulators, she said.

However, she also commented that “zero-risk regulation means zero innovation” and therefore the FCA needs to execute beyond the UK market, by acting as a “finance exporter” to support international trade and deliver growth.

Following Marchʼs engagement paper on removing the £100 limit for contactless payments, the FCA aims to deliver more collaborative frameworks in the future, aligning with its five-year strategy launched on March 25. FCA director of payments and digital assets Matthew Long explained that the core priority is being more “efficient and effective” to support sustained economic growth.

PSR head of strategy, analysis and engagement Dan Moore said: “We aim to engage with parties in a way that best suits their needs. A key point we emphasise in our research strategy is not just what we do, but how we do it. This could be through round tables, bilateral engagement, or other methods.”

Meanwhile, PSR interim managing director David Geale highlighted that the payments world is now cross-border, which requires international collaboration. The PSR, which will be merged with the FCA, will continue to focus on “changing the incentives” for firms to fight financial crime. The most prominent example of this is the authorised push payment (APP) fraud reimbursement scheme introduced last October.

The PSR aims to work on cross-border payment issues with regulators both in and outside the UK, as well as the Global Financial Innovation Network (GFIN).

Collaboration

National competent authorities should share information to prevent companies from ‘jurisdiction shoppingʼ, speakers said.

Carolin Gardner, head of AML/CFT unit at the European Banking Authority, gave an example: “Last year, we found there was one [cryptocurrency] firm that was based in a third country, and started applying for licences in different member states, apparently finding the path of least resistance.”

“This one entity clearly wanted to set itself up in the EU and sent out about 11 applications for registration or licences under the regime; it dropped applications that were questioned by a local regulator but pursued ones where there were no questions asked.”

“What we were able to do is to get all the supervisors together. We explained that this is what we had observed and asked them about the strategies that they have put in place. As a result, they took action to ask more questions, to challenge the firm that was complying for this authorisation or licence,” she added.

The European Union also plans to introduce confirmation of payee rules — a step the UK has already introduced — as part of its efforts to combat fraud in the payments sector. A host of other fraud fighting requirements will be introduced when the Payment Services Directive (PSD3) applies in 2026 at the earliest.

Open-banking regulations

While fintech innovations promise economic opportunities, UK regulators also raised concerns about the fast-developing commercial model around the open-banking network.

The PSR is currently looking at Brazil’s open-banking regulations implemented in 2021, exploring data sharing requirements and firms’ reporting responsibilities. Moore also cited India’s success with the Unified Payments Interface (UPI) regulations, which control mobile applications that facilitate multiple bank accounts.

Meanwhile, the FCA’s Long highlighted the open-banking network as having potential “financial crime risks” that required immediate governance. He recently had a conversation with the Central Bank of Brazil, to understand key takeaways from its regulatory model, specifically how the Brazilian regulator has pushed ahead with the infrastructure and opportunities for competition and innovation.

“In open banking or open finance, I’d like to see smaller groups, more foreign ideas, driving through the industry group, driving through into the governance with their big changes,” said Long.