UK payments sector set for financial innovation with new regulatory package

The UK’s payments sector is set for the future of rapid financial innovation through a new package announced during Fintech Week in London.

The government outlined plans to modernise the regulation of payment services and electronic money, integrating these frameworks with the UK’s core financial services regulation. This will establish a single, coherent framework covering both traditional and tokenised payments, including stablecoins and tokenised deposits.

Key elements include regulating stablecoins used in payments under a forthcoming new regulated activity for stablecoin issuance in the UK and exploring adaptations in payment services regulation to accommodate payments conducted by AI agents.

It also includes providing the Financial Conduct Authority (FCA) with new powers to regulate the future of Open Banking, supporting the development of new Open Banking payment solutions within commercial schemes.

The new package would introduce legislation to reduce administrative burdens for companies offering stablecoin payments, reinforcing the UK’s position as a global leader in digital assets while maintaining robust safeguards.

On this, Lucy Rigby, Economic Secretary to the Treasury, said, “Fintech is true British success story, and we are backing the industry to maintain its competitive edge and go even further and faster in driving growth. Today’s package is our latest stake in the ground as we build a payments ecosystem that is secure, competitive and fully equipped to harness the opportunities created by rapid technological change.”

Leadership and funding initiatives

Chris Woolard CBE, partner at EY and former interim CEO of the FCA, has been appointed as the government’s new Wholesale Digital Markets Champion. Woolard will lead efforts to build a tokenised wholesale financial markets system, enhancing efficiency and competition in the financial sector.

The government is allocating £1 million to the Centre for Finance, Innovation and Technology (CFIT) starting in April to support collaboration and tackle key challenges in the fintech sector.

Chris Woolard CBE, Wholesale Digital Markets Champion, said, “It’s an honour to be appointed Digital Markets Champion for the UK’s Wholesale Financial Markets Digital Strategy. As financial markets increasingly move away from manual processes to digital, tokenised systems, collaboration and an open two-way dialogue between the private and public sectors will best support the Strategy’s success, and will ultimately enhance the UK’s global competitiveness as a leader in digital markets.”

“UK fintech benefits from Britain’s world leading financial services sector offering a thriving start-up ecosystem, global banks and insurers, leading universities, and a regulator that engages with innovation early so firms can test, learn and scale responsibly,” he added.

Janine Hirt, CEO, Innovate Finance, said, The UK has all the ingredients to be a global superpower in fintech, payments and capital markets by leading in open banking, digital assets and stablecoin, and agentic AI. Unleashing innovators and championing transformation in markets is critical. We look forward to mobilising industry to work with Chris Woolard, Government and regulators to drive this strategic ambition and deliver at pace.”

Regulatory streamlining and embracing digital assets and blockchain

The government also announced its response to a consultation on bringing the Payments Systems Regulator (PSR) into the FCA, with the aim of streamlining regulation. The UK fintech sector supports over 3,000 firms, tens of thousands of skilled jobs, and attracted more than £2.6 billion in investment last year, second only to the United States.

Rossana Thomas, head of commercial payments solutions, Fiserv, commented, “The UK government’s commitment to modernising payment regulations is a significant moment for the industry – it is set to catalyse widespread digital asset adoption by providing institutional trust. By bringing traditional payments and tokenised assets such as stablecoins under one regulatory roof, the UK is ensuring that real-time payments and blockchain technology can finally converge at scale.”

Recognising the transformative potential of digital assets and blockchain technologies, the UK is positioned to lead in reshaping consumer and business interactions with financial services. 

Upcoming consultations are likely to focus on reforming payment services and electronic money regulation to support tokenised payments, unlock Open Banking’s full potential, and enable safe adoption of AI agents for payments.

“For UK businesses, this translates to a massive reduction in cross-border friction. With real-time rails and interoperable digital assets working in tandem, capital can move at the speed of modern commerce, removing the liquidity bottlenecks inherent in traditional correspondent banking. This shift also transforms stablecoins from a speculative asset into a practical utility for 24/7 treasury management.” Thomas added.

“As we move toward a future of agentic AI-driven payments and tokenised wholesale markets, the UK’s focus on data consistency through ISO 20022 will allow markets to exchange value more intelligently, consistently and securely than ever before.”

Philip Belamant, Co-Founder and CEO, Zilch, said, “AI will fundamentally change how people interact with money, shifting payments from something consumers actively manage to something that is intelligently managed and optimised in the background. As this becomes a reality, it’s critical that regulation evolves to support innovation while maintaining strong consumer protections.”

“We welcome the government’s focus on adapting payment regulation for AI-driven transactions. The UK has a real opportunity to lead globally in enabling agentic finance, helping consumers benefit from smarter, more efficient ways to manage their money,” he added.

The Leeds Reforms: A ten-year vision

These initiatives align with the Financial Services Growth and Competitiveness Strategy, known as the Leeds Reforms, announced last summer. The strategy sets out a ten-year plan to establish the UK as the world’s premier destination for financial services investment, streamlining regulation and fostering an environment where fintechs can start, scale, list, and remain competitive.