Regulatory return to office: catching up on recent developments in UK Retail Banking & Payments

• Public Authorities (Fraud, Error and Recovery) Act 2025: This Act received Royal Assent on 2 December. It includes powers for the Minister for the Cabinet Office and the Department of Work and Pensions (DWP) to issue ‘account information notices', ‘general information notices', ‘further information notices' and ‘direct deduction orders' to banks and e-money institutions (EMIs) in relation to recovery of fraudulent or erroneous payments from accounts, as well as a DWP power to issue ‘eligibility verification notices' to banks and EMIs regarding the checking of eligibility criteria for certain State benefits. There will be fines (including daily default fines) for no, incorrect or late compliance with the new requirements. Banks and EMIs face material implementation costs and risks of reputational harm once the relevant provisions of the Act enter into force in accordance with secondary legislation yet to be introduced. The Act provides for codes of practice on the giving of information notices and on eligibility verification notices. A DWP consultation on draft codes of practice was launched on 8 December and closes on 27 February 2026. Read more here.
• Open Banking developments: On 16 December, the FCA (as lead regulator for open banking) and the PSR published a report providing an update on the development and rollout of variable recurring payments (VRPs), which now account for 16% of all open banking transactions. API performance statistics for open banking have also been published, showing a 53% year-on-year growth in open banking payments overall. The first live payments under the new UK Payments Initiative scheme are expected in Q1 2026. Over 2026, the FCA/PSR will continue to support industry in the rollout of VRPs. HMT is expected to introduce legislation in 2026 (potentially Q4) that will grant the FCA new powers to set open banking rules, and the FCA plans to consult on new rules for the long-term regulatory framework before the end of 2026.
• HMT policy paper on provisional authorisation regime: On 4 December, HMT published a policy paper providing an update on creating a provisional licences authorisation regime (part of the government's March 2025 regulation action plan – see more here). The regime is expected to be most appropriate for early-stage firms, particularly those with an innovative business model, that would otherwise struggle to meet the usual requirements to obtain authorisation in a reasonable timeframe. The regime is intended for firms that are not already authorised and are seeking permission under Part 4A of FSMA for activities already within the FCA's perimeter. Provisional licences will apply for a fixed duration of up to 18 months. This may be extended in limited circumstances. Introducing the regime will require primary legislation, which the government will bring forward when Parliamentary time allows. The FCA will engage with the industry on the design of the regime and consult as necessary.
• Recent Consumer Duty publications: On 9 December, the FCA published a consultation paper (CP25/37) on ‘Targeted clarifications of Handbook materials'. The consultation is part of the FCA's Consumer Duty Requirements Review (CDRR). The FCA is asking for views on a number of proposals including:
  • Smaller Firms Guide: The FCA is seeking views on its approach to creating a smaller firms guide and inviting industry views on where firms have an unmet need in understanding its requirements and how to meet this need.
  • Clarifying references to Principles 6 and 7: There are proposals to amend references to Principles 6 and 7, now that the Consumer Duty has been introduced. The FCA also considers references to ‘treating customers fairly' which is rooted in Principle 6 and the treatment of related non-Handbook materials that are still accessible on its website.

The consultation closes on 27 January 2026. Most of the proposed rule changes would come into force immediately after they are made in the FCA's policy statement. The FCA anticipates that this will be in Q2 2026. There is further information on the progress that the FCA has made in delivering its Requirements Review workplan on its website, including its future priorities following engagement with stakeholders. In addition, on 8 December 2025 the FCA published a statement aimed at clarifying its supervisory expectations to help firms interpret the Consumer Duty where they work together to create products and services. The FCA intends to build on the approach outlined in the statement in 2026, when it plans to review and consult on amendments to the rules.

• Motor finance commission complaints: On 3 December, the FCA confirmed that it will lift the pause on motor finance DCA and non-DCA complaints on 31 May 2026. This is a change to the 31 July 2026 date originally proposed in its consultation on a motor finance redress scheme. The FCA said in the related policy statement that it will announce whether it will go ahead with a redress scheme in February or March 2026, with final scheme rules “unlikely before the end of February at the earliest”. It added that it still considers that implementing a scheme “is the right outcome”. Under the FCA's current proposals for a scheme, firms will have to write to consumers with existing complaints within three months of the scheme starting. For complaints that fall within the scheme (assuming a scheme is introduced), the 31 May 2026 date will be superseded by the operational timetable in the final scheme rules. For complaints that fall outside the scheme, or if there is no scheme, firms will have up to 8 weeks after 31 May 2026 to provide a response. The pause wasn't extended for motor finance leasing complaints, which still ended on 5 December 2025.
• FCA Mortgage Rule Review latest: On 15 December, the FCA published a Mortgage Rule Review Feedback statement and Roadmap for 2026 (FS25/6), setting out in a Roadmap the action it will take as part of a longer-term plan to modernise its mortgage rules. Various work on 4 themes is planned from 2026 through to H2 2027, those themes being: expanding access for first time buyers and underserved consumers; enhancing later life lending; enabling innovation; and protecting vulnerable consumers.

• Cryptoasset regulation: On 15 December, The Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025 were laid before Parliament. The full commencement date of the SI is set for 25 October 2027 (see more here). HMT also updated its policy paper to reflect the fact that the government has now laid the final legislation. On 16 December and in line with its crypto roadmap, the FCA published three consultations and other related materials. The consultations, which all close on 12 February 2026, relate to: (i) proposed rules and guidance for firms conducting regulated cryptoasset activities such as trading platforms, intermediaries (including cryptoasset lending and borrowing), staking and decentralised finance (CP25/40); (ii) the admissions and disclosures and market abuse regime for cryptoassets (CP25/41); and (iii) a prudential regime for cryptoasset firms (CP25/42). See the FCA's press release here. We have also published key takeaways articles on CP25/40, CP25/41 and CP25/42.

One of the key themes in the above crypto SI is stablecoins, where issuing a qualifying stablecoin is recognised as a regulated activity which will require FCA authorisation. In its December letter to the government providing a progress update on its pro-growth work and related press release, the FCA makes it clear that stablecoin payments are a particular priority for 2026. It is inviting firms that plan to issue a stablecoin in the UK and wish to test their products in its regulatory sandbox to apply by 18 January 2026. It also points out that it is working closely with the Bank of England to develop the regulatory regime for stablecoins. The Bank's November 2025 consultation on a proposed regulatory regime for sterling-denominated systemic stablecoins closes on 10 February 2026, after which the Bank will consider feedback before consulting on and finalising Codes of Practice later in 2026 (see here for more on the consultation). The CoPs will set out the detailed requirements for systemic stablecoins. Also in 2026, the Bank and the FCA will publish a joint approach document to clarify how rules will apply in practice and support a smooth transition between the non-systemic and systemic stablecoin regimes.

• Contactless payment limits: Following its September 2025 consultation (see more here), on 19 December the FCA announced that from 19 March 2026 Article 11 will be amended to enable payer PSPs to opt not to apply SCA at the point of sale for a contactless payment that been reasonably identified as posing a low level of risk through their transaction monitoring mechanisms (see the relevant FCA Instrument here). The FCA has updated its Approach Document to provide that additional factors, such as normal spending or behavioural pattern of the payer, or location of the payer can be considered to establish whether the transaction is low risk. PSPs may also look to the value of the individual contactless electronic payment transaction in question as well as the cumulative value of previous contactless electronic payment transactions and/or the number of consecutive contactless electronic payment transactions made since the last application of SCA.

Banks and payment providers with strong fraud controls will be able to set their own limit for contactless payments, allowing them to better respond to changing consumer demands, inflation and new technology. They are also being encouraged to let customers set their own limit, or turn contactless off altogether, as many high street banks already do.

Technically the Article 11 exemption (and the move to let customers set their own limits) is only relevant to true contactless payments (i.e. where a customer is seeking to make a card payment via a contactless payment with a physical card and is not required to authenticate using chip and pin). It is not relevant to payments made using a card stored in a digital wallet, where SCA occurs in any event. However, there may be an expectation from the FCA and customers (and FOS too) that the flexibility to apply limits should apply to payment made via digital wallets too, which to all intents and purposes are contactless from a customer perspective. PSPs may want to think about how they should communicate any difference in approach to ensure customers understand when payments they seek to make are subject to the protection of spending limits and when they are not.

• Final texts for PSD3 and PSR awaited: In late November, the European Parliament and the Council of the EU announced that they have reached a provisional political agreement on the texts of the proposed Directive on payment services and electronic money services (PSD3) and Regulation on payment services in the EU (PSR). Subject to completion of work on the technical elements of the payments package, PSPs should expect to see the final texts in the coming weeks. Read more here.
• Payment and Electronic Money Institution Insolvency Regulations 2021: The final report of HMT's independent review of these Regulations (16 December) identified several key issues with the Payment and Electronic Money Special Administration Regime (PESAR), in particular the absence of a clear hierarchy among the three statutory objectives, creating uncertainty over priorities. It highlighted significant delays in returning funds to customers, gaps in consumer protection (given the lack of anything equivalent to the Financial Services Compensation Scheme (FSCS)), and the requirement for court entry and court approval of distribution plans causing unnecessary delays and additional costs. The report recommends targeted reforms rather than an overhaul of the PESAR. These include prioritising business rescue and customer transfers above the other PESAR statutory objectives, where appropriate, an out-of-court route into special administration, alternatives to court approval of distribution plans, FSCS-style protection for customers, and contingency planning for the insolvency of large-scale failures, with a focus on cross-border recognition of PESAR appointments. The government is considering the review's recommendations, so we could see more on this during 2026.
• PSR market review of card scheme and processing fees: On 19 December, the PSR launched a consultation on proposed directions relating to remedies to address the issues it identified during the market review. This follows an earlier consultation on potential remedies (April 2025). The PSR has decided to implement remedies relating to information, transparency and complexity and to pricing governance and is now consulting on the detailed form of the directions it plans to make. It has published two draft specific directions to Mastercard and Visa on measures to improve information transparency of scheme and processing fees charged to acquirers and on pricing governance. In addition, the PSR has decided to introduce a remedy relating to regulatory financial reporting and expects to consult on a draft direction for this by 31 March 2026. The consultation closes on 13 February 2026.