UK Unveils Reforms to Prepare Payments Sector for Future Innovation

The UK government has launched a package of reforms aimed at modernizing payments regulation, as it looks to position the country at the forefront of financial innovation while maintaining strong consumer protections.

The measures set out how regulation will evolve to keep pace with rapid technological change, with a focus on creating a more agile and streamlined framework that supports growth across the payments sector.

A key pillar of the reforms is the integration of payment services and e-money regulation into the UK’s core financial services regime, establishing a single, coherent framework covering both traditional and emerging forms of money, including stablecoins and tokenized deposits.

For the first time, stablecoins used for payments will be brought into scope of UK regulation, provided they are issued under a new regulated activity.

The government is also exploring how rules should adapt to payments made by AI agents, signaling a forward-looking approach to emerging technologies.

Regulators will gain enhanced powers under the proposals, with the Financial Conduct Authority set to play a central role in overseeing the future of Open Banking, including the development of new payment models within commercial schemes.

In a further move to streamline oversight, the Payment Systems Regulator will be folded into the FCA, reducing fragmentation across the regulatory landscape.

The government has also pledged to cut administrative burdens for firms offering stablecoin-based payments, in a bid to cement the UK’s status as a global hub for digital assets, while preserving safeguards for consumers.

Alongside the regulatory changes, Chris Woolard has been appointed as Wholesale Digital Markets Champion. The former interim FCA chief, now a partner at EY, will lead efforts to develop a tokenized wholesale financial markets system.

An additional £1m in funding has also been allocated to the Centre for Finance, Innovation and Technology to support industry collaboration, as the government prepares to launch a consultation with the payments sector on the proposals.