FCA Consolidates Priorities to Modernise the UK Payments Sector

The Financial Conduct Authority has introduced a new supervisory framework for the payments industry, replacing more than 40 individual portfolio letters with a single annual Regulatory Priorities report. The move is designed to create a more streamlined and proportionate regulatory model while supporting the UK’s broader National Payments Vision.

The new approach adopts a risk-based supervision model, where firms that demonstrate strong compliance and customer protection will face lighter supervision, while higher-risk firms will be subject to faster and stricter enforcement action.

Clearer Regulatory Direction for the Payments Industry

According to Matthew Long, the payments sector is evolving rapidly due to open banking, digital wallets, and new payment technologies. The new Regulatory Priorities report is intended to act as a single reference point for company boards and executives, helping them understand where to focus compliance and risk management efforts.

The regulator aims to strengthen trust in the payments sector while supporting innovation and sustainable growth.

Open Banking and Future Payment Infrastructure

One of the FCA’s main priorities is expanding open banking and establishing a long-term governance structure for the ecosystem. With more than 16 million individuals and businesses using open banking in the UK, the FCA is working with the UK Treasury to introduce legislation that would give the regulator permanent powers to oversee the open banking framework.

The regulator is also focusing on developing commercial models for Variable Recurring Payments (VRPs) and expanding open banking into e-commerce use cases. In addition, the FCA is reviewing emerging technologies such as agentic AI payments to determine whether existing regulations are suitable for these new transaction models.

Strengthening Customer Fund Protection

Protecting customer funds remains a major priority for the regulator. Electronic money institutions safeguarded approximately £26 billion in customer funds in 2024, but the FCA has expressed concerns that some firms still lack strong risk management systems and proper wind-down plans.

To address these risks, the FCA plans to implement its Safeguarding Supplementary Regime in May 2026, which will introduce stricter standards for how firms protect customer funds. The regulator expects that tighter oversight may lead to an increase in adverse audit findings in the short term as firms adjust to the new requirements.

Financial Crime and Fraud Prevention

The FCA also continues to focus on financial crime prevention, particularly authorised push payment (APP) fraud and money laundering. Payments firms are expected to invest in skilled personnel and modern systems to detect and prevent fraud rather than relying on outdated legacy processes.

The regulator also confirmed that it plans to consolidate the responsibilities of the Payment Systems Regulator into its own operations where possible, creating a more unified and responsive regulatory structure.

Preparing for the Future of Payments

The FCA is expected to release final policy statements later this year covering cryptoasset regulation and stablecoin issuance. As the payments industry continues to evolve, firms will need to balance innovation with strict regulatory compliance and customer protection requirements.