UK sets out new framework for future-ready payments ecosystem

The UK government has unveiled a comprehensive package of reforms aimed at future-proofing the payments sector, reinforcing its position as a global fintech leader. Announced during Fintech Week, the initiative focuses on enabling innovation while maintaining strong regulatory oversight and consumer protection.

At the core of the reforms is a plan to modernise payment services regulation, aligning it with the UK’s broader financial regulatory framework. This includes integrating traditional and emerging payment methods—such as stablecoins and tokenised deposits—into a single, coherent system. The government also intends to regulate stablecoins used in payments under a new framework, providing clarity and confidence for market participants.

Economic Secretary to the Treasury Lucy Rigby emphasised the importance of balancing innovation with trust. She stated, “Fintech is a true British success story, and we are backing the industry to maintain its competitive edge and go even further and faster in driving growth.” She added that the reforms aim to build “a payments ecosystem that is secure, competitive and fully equipped to harness the opportunities created by rapid technological change.”

A notable aspect of the package is the exploration of regulatory frameworks for AI-driven payments, acknowledging the growing role of agentic AI in financial services. In parallel, the government plans to enhance open banking by granting the Financial Conduct Authority expanded powers to oversee its future development, including commercial payment schemes.

To support innovation in digital markets, Chris Woolard has been appointed as Wholesale Digital Markets Champion. His role will focus on advancing tokenisation in wholesale financial markets. Woolard noted, “As financial markets increasingly move away from manual processes to digital, tokenised systems, collaboration between the private and public sectors will be critical to success.”

The reforms also include structural changes, such as integrating the Payments Systems Regulator into the FCA, aimed at reducing regulatory complexity. Additionally, £1 million in funding has been allocated to the Centre for Finance, Innovation and Technology to drive industry collaboration.

Industry stakeholders have welcomed the measures. Janine Hirt highlighted the UK’s potential to lead in areas like open banking, digital assets, and AI-driven finance. Meanwhile, Philip Belamant noted that AI will transform how consumers interact with money, making adaptive regulation essential.

The UK fintech sector already comprises over 3,000 firms, supporting tens of thousands of jobs and attracting more than £2.6 billion in investment annually. With these reforms, the government aims to accelerate innovation, enhance competitiveness, and position the UK at the forefront of next-generation financial services.