The UK government has announced that the Payment Systems Regulator (PSR) will be abolished and its operations merged with the Financial Conduct Authority (FCA) as part of Prime Minister Keir Starmer's drive to cut red tape and stimulate economic growth.

The decision follows complaints from businesses that the UK's regulatory environment had become too complex, with payment system firms having to engage with three different regulators – costing them time, money and resources. The government said this consolidation would provide firms with a single point of contact, reducing complexity and expenses, particularly for smaller businesses trying to scale up.

"For too long, the previous government hid behind regulators — deferring decisions and allowing regulations to bloat and block meaningful growth in this country," said Starmer. "This is the latest step in our efforts to kickstart economic growth, which is the only way we can fundamentally drive-up living standards and get more money in people's pockets."

The PSR, which oversees payment systems like Faster Payments and Mastercard, currently has 160 employees and a budget of £28 million for the current financial year. It already shares senior staff and an office with the FCA in east London, with David Geale, an FCA director, leading the payments watchdog since last year.

Chancellor Rachel Reeves described the UK's regulatory system as "burdensome to the point of choking off innovation, investment and growth" and pledged to "free businesses from that stranglehold."

However, some officials question whether formally scrapping the PSR will deliver meaningful benefits, given it is effectively already a subsidiary of the FCA. Charles Randell, former FCA chair, suggested such mergers might be "crowd-pleasing" but doubted it would "produce payback in the life of this parliament."

The PSR has faced criticism in recent years, particularly over its handling of a mandatory refund system for payments fraud. Last week, Visa and Revolut filed legal challenges against the regulator, arguing it had overstepped its powers with a proposed cap on international transaction fees.

Nikhil Rathi, chief executive of the FCA, supported the change, saying: "With a changed payments landscape, now is the right time to put in place a more streamlined regulatory framework. Doing so is a natural next step following recent work to improve co-ordination and clarity on regulatory responsibilities."

The government clarified that the PSR will continue to operate with its statutory powers until legislation is passed to enact the merger. The PSR and FCA will work closely to ensure a smooth transition while maintaining market competitiveness.

This move follows broader government efforts to reform regulation, including lifting the onshore wind ban, introducing the Planning and Infrastructure Bill, and asking regulators to propose at least five pro-growth reforms each.

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