Executive Summary
- What’s new: HM Treasury published a consultation on 14 July 2026 proposing a major overhaul of UK payments regulation, shifting to an FCA-led model, accommodating agentic AI-tokenised payments and reforming the Open Banking framework.
- Why it matters: The consultation should be viewed as more than a technical refresh of the existing payments regime. It brings together payments regulation, tokenisation, Open Banking, data access and AI considerations within a single reform programme.
- What to do next: Payment providers should consider the current proposals with a view to deciding whether to respond to the consultation or otherwise assess the potential opportunities the proposals may present, as well as the potential impact on (in particular) their current governance models.
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On 14 July 2026, HM Treasury (HMT) published a consultation on modernising the UK regulatory framework for payment services and electronic money (the Consultation). The proposals would amount to the most significant restructuring of the regime since the Payment Services Regulations 2017 (PSRs) and Electronic Money Regulations 2011 (EMRs) were introduced.
The Consultation has three principal objectives:
- To replace the current prescriptive legislative framework with a more agile model led by the Financial Conduct Authority (FCA).
- To accommodate tokenised payment services and consider what framework should be used to manage agentic artificial intelligence (AI).
- To establish a long-term regulatory and commercial framework for Open Banking.
Although many of the detailed requirements would be developed through subsequent legislation and FCA consultations, the reforms, if enacted, would likely to have material implications for banks, building societies, payment institutions, electronic money institutions, cryptoasset firms and Open Banking providers.
The Consultation closes on 6 October 2026.
Key Takeaways
The reforms proposed in the Consultation would result in:
- A more FCA-led regime. HMT is considering transferring many detailed requirements currently contained in the PSRs and EMRs into the FCA Handbook, while retaining the regulatory perimeter, key definitions and certain statutory rights and protections in legislation.
- A single framework for conventional and tokenised payments. Existing payment activities would be rationalised and broadened so that the same permissions could, in principle, apply whether payments are made using fiat money, tokenised deposits or certain regulated stablecoins.
- Stablecoin payments would depend on issuer status. UK-issued qualifying stablecoins (and potentially stablecoins issued in recognised overseas jurisdictions) could be treated as “money-like” instruments within the payments perimeter. Other overseas stablecoins would generally remain subject to the cryptoasset regime, which is due to come into force in October 2027.
- A new consolidated framework for Open Banking. The government proposes to replace the current combination of the PSRs and the Competition and Markets Authority’s (CMA’s) Retail Banking Market Investigation Order with a more unified FCA-supervised framework. This would include potential charging for certain account-access services, industry-led commercial schemes and a future central standards body responsible for technical, security and operational standards.
- Governance expectations may increase. HMT is considering enhanced individual accountability for senior managers at payment and electronic money firms, particularly in relation to financial crime.
We examine each of these in more detail below.
A More Agile Regulatory Framework
The PSRs and EMRs currently contain extensive and detailed requirements covering authorisation, conduct, prudential resources, safeguarding, liability and consumer protection. HMT considers that these requirements limit the regime’s ability to respond quickly to technological and market developments.
HMT therefore proposes to retain the foundations of the regime in legislation but delegate more detailed and technical requirements to the FCA. Core matters such as the regulatory perimeter, key definitions and certain statutory customer protections would remain in legislation.
More operational requirements (including, potentially, authentication, safeguarding, prudential and conduct requirements) could be set through FCA rules.
This change would follow the broader direction of UK financial services reform, under which regulators are increasingly responsible for maintaining detailed firm-facing requirements. It should allow the regime to evolve more quickly but may also lead to more frequent regulatory change and greater reliance on FCA supervisory judgement.
The allocation of requirements between legislation and the FCA Handbook will therefore be critical. Firms are likely to favour flexibility where rules are technical or rapidly evolving, while seeking legislative certainty in areas that determine permissions, liability or fundamental customer rights.
Supporting Tokenised Payments
A central theme of the Consultation is the development of a “multimoney” payments ecosystem in which fiat money, tokenised deposits and stablecoins can operate alongside one another.
HMT does not propose a separate regulatory framework for blockchain-based payments. Instead, the existing list of regulated payment services would be rationalised and made technologically neutral. In principle, a firm carrying out the same underlying activity should be subject to the same category of payment permission regardless of the form of money used.
However, existing firms may still be required to obtain a variation of permission before offering tokenised payment services. This would allow the FCA to assess the particular technology, safeguarding, operational and prudential risks involved.
Tokenised Deposits
Tokenised deposits are already treated as deposits under the UK regulatory framework. The Consultation therefore focuses on whether existing payment rules create practical obstacles to their use, particularly in retail payments.
For banks, the key issues are likely to concern how concepts such as customer consent, payment authorisation, execution and liability apply where transfers are carried out through distributed ledgers or smart contracts. The government’s approach appears to be that specific regulatory treatment should be introduced only where tokenisation produces materially different risks.
Stablecoins
HMT proposes that UK-issued qualifying stablecoins should be capable of being used within regulated payment services. This reflects the fact that UK issuers will be subject to the new regulated activity of issuing qualifying stablecoins and therefore to FCA rules governing matters such as backing assets and redemption.
The same treatment could ultimately be extended to stablecoins issued in overseas jurisdictions whose regulatory regimes have been formally recognised by HMT. Other overseas stablecoins would not be brought into the payments perimeter and would generally continue to be treated as qualifying cryptoassets under the new dealing, arranging and custody regime.
This distinction could have significant commercial consequences. The regulatory treatment of an otherwise similar stablecoin may depend on where it is issued and whether the issuer’s home jurisdiction has been recognised by the UK. Global firms may therefore need to adapt the stablecoins used for UK payment products or establish UK issuance structures.
HMT is also considering whether UK stablecoin issuers should be able to provide associated payment services without obtaining a separate payments authorisation, broadly reflecting the existing treatment of banks. Any such approach is likely to be limited to payment services closely connected with the issuer’s stablecoin activities.
The Consultation also seeks to reduce overlap between payments safeguarding and cryptoasset custody requirements. HMT’s intended end state is that holding UK-issued stablecoins in the course of providing a regulated payment service would generally be addressed under the payments framework, rather than requiring duplicative cryptoasset custody permission.
Firms providing stand-alone custody or investment services would remain subject to the cryptoasset regime.
Programmable and Agentic Payments
The Consultation considers how the framework should accommodate smart contracts, programmable payments and AI agents that initiate or execute payments on behalf of users. These developments challenge regulatory concepts that assume a customer gives a discrete instruction for each payment. Where transactions are triggered automatically, the regime will need to determine:
- The scope and duration of the customer’s consent.
- When an automated transaction is treated as authorised.
- How Strong Customer Authentication (SCA) should apply.
- Who bears responsibility for faulty code, incorrect data or an AI agent acting outside its mandate.
- How customers can limit, amend or revoke an automated authority.
HMT does not yet propose detailed rules. However, institutions developing these services should expect the eventual framework to place particular emphasis on clear mandates, transaction parameters, audit trails, revocation mechanisms and the allocation of responsibility between payment firms and third-party technology providers.
Financial Crime and Senior Management Accountability
HMT is considering whether targeted reforms are needed to address fraud and financial crime risks in the payments and electronic money sector.
One option is to impose enhanced ongoing responsibilities on specified senior managers. The Consultation stops short of proposing a full Senior Managers and Certification Regime, but the direction of travel is towards clearer individual accountability for the design and operation of financial crime controls.
Payment institutions and electronic money institutions should consider whether their current governance arrangements clearly allocate responsibility for anti-money laundering, sanctions, fraud prevention, safeguarding and oversight of agents and outsourced providers. Firms may also need to demonstrate that senior managers receive sufficiently detailed management information to discharge those responsibilities effectively.
A New Framework for Open Banking
The government proposes to replace the current combination of the PSRs and the CMA’s Retail Banking Market Investigation Order with a more unified framework overseen by the FCA.
Variable Recurring Payments
HMT intends to create a statutory access right for variable recurring payments (VRPs). This would allow a payment initiation service provider to establish a mandate under which a series of payments may be initiated within parameters agreed by the customer.
VRPs could support recurring bills, subscriptions, investment contributions and broader account-to-account retail payments. However, the commercial success of the model will depend on the detailed rules governing authentication, mandates, cancellations, refunds, fraud liability and payment-status information.
Charging for Access
Open Banking access is currently generally provided free of charge. HMT is considering allowing the FCA to determine when account servicing payment service providers may charge fair fees for access or enhanced services.
Core statutory access may remain free, while enhanced, high-volume or commercial services could become chargeable. VRP access may also be provided commercially, although HMT suggests that “sweeping” between a customer’s own accounts could continue to be free.
This will be one of the most commercially sensitive elements of the reforms. Banks may welcome a mechanism for recovering infrastructure costs, while payment initiation and account information providers may be concerned that pricing or bilateral contracting could restrict access and create barriers to entry.
Commercial Open Banking Schemes
The government also proposes to support industry-led commercial schemes under which banks and third-party providers agree to common service, liability and pricing arrangements.
The FCA would have powers relating to participation, nondiscrimination, operational resilience, dispute resolution and pricing. Commercial schemes could facilitate premium services beyond the statutory baseline, but the government will need to guard against fragmentation and the development of incompatible standards.
The Future Open Banking Entity
A future central standards body would succeed the current Open Banking implementation arrangements. The body would establish technical, security and operational standards and provide central services, but enforcement would remain with the FCA.
The FCA would receive extensive powers under the Data (Use and Access) Act 2025 to regulate participating firms, the standards body and commercial schemes. Open Banking would consequently move away from a model centred on competition law remedies applying principally to the largest banks and towards a broader financial regulatory framework.
Key Implications for Financial Institutions
The proposals remain at an early stage, and further consultations will be required before detailed rules are settled. Nonetheless, financial institutions should begin to consider:
- Reviewing whether current and planned products may involve tokenised deposits, UK-issued stablecoins or overseas stablecoins.
- Identifying potential overlaps among payment services, stablecoin issuance and cryptoasset custody permissions.
- How Open Banking charging and commercial schemes could affect existing business models.
- Reviewing governance and senior-management accountability for financial crime and safeguarding.
- Ensuring that programmable and AI-enabled payment products incorporate clear consent, control and liability mechanisms from the outset.
The Consultation should be viewed as more than a technical refresh of the PSRs and EMRs. It brings together payments regulation, stablecoins, tokenisation, Open Banking, data access and AI within a single reform programme.
The resulting framework could create significant opportunities for integrated payment products but will also require firms to navigate increasingly complex interactions among payments, banking and cryptoasset regulation.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.