UK to future-proof payment services: HMT consults on stablecoins, AI and Open Banking

The Government has launched a major consultation on modernising how the UK regulates payment services and electronic money. HM Treasury seeks views on how firm-facing rules are made, how regulation can support innovation in the payments sector, and how to grow Open Banking to compete with card payments. Firms have until 6 October 2026 to provide their feedback.

Moving regulation from the statute books to the FCA’s rulebook

Under the Government’s plans, the Financial Conduct Authority will take on more responsibility for setting firm-facing requirements relating to payment services. HMT had already committed to taking this approach for the strong customer authentication regime. Its latest consultation anticipates repealing other parts of the legislative framework and replacing them with FCA rules. The consultation asks which requirements should be delegated to the FCA.

Not all parts of the legislative regime would disappear. HMT commits to keeping in law provisions setting the regulatory perimeter, key definitions and key protections for consumers, such as new de-banking protections. The Government seeks to strike an appropriate balance between enabling the FCA to take a more flexible and outcomes-based approach to regulation while preserving elements in legislation for predictability and certainty.

The consultation also asks whether there are any updates that need to be made to regulatory requirements. For example, it plans to simplify the list of activities that constitute payment services by merging some and separating others. This would be consistent with changes that the EU is also planning for its reworked payments regime under PSD3.

Bringing tokenised payments into payments regulation

The consultation asks how the current regime needs to change to support tokenised payments, including tokenised deposits (broadly, a representation of a bank deposit on a blockchain) and stablecoins (principally, cryptoassets that seek to maintain a stable value by referencing fiat currency and holding a reserve of backing assets).

The Government proposes that regulated firms will be able to provide all payment services in both fiat money and tokenised payments. Firms would need to seek a variation of permission from the FCA to provide these tokenised payment services.

HMT recognises the need to address overlaps between the payments regime and the new cryptoasset regulatory regime. The consultation confirms plans to remove UK-issued stablecoins from the scope of the dealing activities in the crypto regime and instead regulate them as money-like instruments under payment services legislation.

As well as UK-issued stablecoins, the Government leaves open the possibility that stablecoins issued overseas could also be treated as money-like and brought within the scope of payments regulation. This would only apply where HMT formally determines that the regulatory framework of the overseas jurisdiction provides similar outcomes to the UK’s cryptoasset regime.

Agentic payments: The next frontier

Agentic AI can autonomously analyse, initiate, approve and execute payments on behalf of consumers or firms. The Government seeks feedback on how standards for consent and authentication, as well as liability for unauthorised payment transactions, need to adapt to “unlock” these agentic payments.

Financial crime and senior manager accountability

The consultation notes that changes in the market have increased the risk of financial crime in the payments and e-money sector. HMT asks whether it should introduce enhanced accountability mechanisms, including imposing responsibilities on senior managers of payments and e-money institutions. Extending a version of the Senior Managers and Certification Regime to payments firms is something which the FCA has suggested to HMT for several years.

Delivering the future regulatory framework for Open Banking

The most detailed section of the consultation relates to how bank customers can share their payments data with third parties, i.e. Open Banking.

In the consultation the Government seeks views on how it can use legislation to support changes to the current Open Banking ecosystem. For example, HMT plans to establish a new right of access in relation to variable recurring payments so that, for example, banks must allow regulated third parties to lodge a payment mandate to initiate a series of payment transactions.

On the commercially sensitive question of pricing, the Government proposes to allow banks and other account servicing payment service providers (ASPSPs) to charge third party firms a fair fee for access under certain circumstances. This would move away from the current model of free access. The FCA would be given powers to require centralised pricing models within commercial Open Banking schemes, and to intervene directly by setting caps or limits on scheme pricing, but would not be given the power to mandate ASPSP participation in such schemes.

The consultation also proposes powers that the FCA will have to make rules in relation to the future entity which will replace Open Banking Limited as the setting common Open Banking standards.

Next steps

Following HMT’s 2022 call for evidence on payments regulation, firms now have another opportunity to help shape the future architecture of the regime. Further proposals are expected to follow via an upcoming FCA engagement paper.

The consultation lands at a time when the EU is poised to finalise changes to its payments framework via PSD3. UK firms will seek to advocate for divergence where it creates competitive advantage and alignment where it reduces friction, including ongoing SEPA membership.

Firms should engage with the aspects of the paper that are relevant to their business and submit responses by the 6 October deadline. HMT is expected to respond before the end of the year and then work with the FCA over the course of the next two years to develop the relevant legislation and revised rulebook for firms to comply with.