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Britain’s payments watchdog will be abolished by Sir Keir Starmer as part of his drive to boost growth by scrapping or merging some of the country’s patchwork of around 130 regulators.
The prime minister said his decision to scrap the Payment Systems Regulator and merge its operations with the Financial Conduct Authority would help reduce overlap and complexity in Britain’s regulatory system and stop it acting as a block on innovation, investment and growth.
“For too long, the previous government hid behind regulators — deferring decisions and allowing regulations to bloat and block meaningful growth in this country,” Starmer said on Tuesday.
But his choice of the PSR, which has 160 employees and already shares senior staff and an office with the FCA, is a sign of the challenges Starmer has faced in meaningfully paring back regulation.
Starmer has told ministers to carry out an audit of all regulators to see which bodies can be axed. “It hasn’t been as easy as they thought,” said one senior government official.
The prime minister is not expected to name other victims of his regulatory cull when he delivers a speech on creating a more “agile state” later this week, according to officials.
The PSR, which has a budget of £28mn for the current financial year, is set to be merged with the FCA once the government has passed primary legislation to enact the change. The UK’s financial regulator will retain the payments agency’s powers after the merger, the government said.
Some officials doubt whether the disruptive and time-consuming process of formally scrapping the PSR will be worth it when it is already in effect a subsidiary of the FCA.
The PSR is housed in the same headquarters of the FCA in Stratford, east London. Since last year, the payments watchdog has been led by David Geale, an FCA director. The government has also been giving more responsibility for payments to the FCA in the past few months.
Charles Randell, former FCA chair, said merging regulators “might be a crowd-pleasing thing to do” for the government, but he added: “I don’t think it would produce payback in the life of this parliament.”
“It presumes an organisational reworking that could mean two years in which little gets done but at the end people are doing the same thing while wearing different badges,” said Randell, who is now a senior consultant at law firm Slaughter and May.
Businesses have complained about several PSR decisions in recent years while its critics point out that few other countries have a separate payments watchdog.
Created in 2013 to encourage innovation and competition in the sector, the PSR suffered a backlash over the way it introduced a mandatory refund system for payments fraud last year.
The regulator proposed banks would have to repay victims of fraud up to £415,000. Heavy lobbying eventually forced it to back down, slashing the threshold to £85,000 at the eleventh hour.
Last week, Visa and Revolut filed legal challenges against the PSR, arguing it had overstepped its powers with a proposed cap on international transaction fees.
James Daley, head of consumer group Fairer Finance, said the PSR had “been widely criticised as a regulator” and it would “not be such a leap” for most of its activities to be folded into the FCA.
John Glen, the City minister under the previous Conservative government, said he had sympathy with the desire to reduce the number of regulators, but warned “all change brings a long lag of disruption which is rarely helpful”.
The UK government said the PSR would continue to have access to its statutory powers until the legislation to merge it with the FCA is passed.
Starmer wrote to several regulators late last year, asking them to propose pro-growth measures. In January, ministers pushed out the chair of the Competition and Markets Authority after deciding he was insufficiently focused on growth.
Ministers are also pushing for change at the Financial Ombudsman Service, which handles consumers’ complaints about the sector and has come under fire for being too quick to reinterpret regulation. The chief executive of the FOS recently quit and its chair is due to step down this summer.
Chancellor Rachel Reeves said scrapping the PSR was part of a broader drive to free business from the “stranglehold” of the regulatory system, which “has become burdensome to the point of choking off innovation, investment and growth”.
Nikhil Rathi, FCA chief executive, said combining the two regulators was “a natural next step following recent work to improve co-ordination and clarity on regulatory responsibilities”.
The PSR said: “Legislation will take time, but we do not need to wait to realise the benefits of an even more streamlined regulatory approach.”
