Top regulatory priorities for the payments sector

In 2025, payments firms must prioritise compliance, open banking expansion, and stablecoin readiness to navigate regulatory shifts and drive growth.

With regulatory scrutiny at an all-time high, payments firms must keep pace with evolving regulations to avoid financial penalties and reputational risks. In 2025, three priorities stand out: safeguarding customer funds, expanding open banking, and preparing for stablecoin regulation.

Safeguarding customer funds

The Financial Conduct Authority (FCA) has proposed significant changes to the safeguarding regime for payments and e-money firms. These changes aim to enhance consumer protection by ensuring that customer funds are adequately safeguarded. The FCA is introducing phased safeguarding rules, with interim measures strengthening existing regulations and final requirements aligning with the Client Assets (‘CASS’) framework. Firms must ensure robust trust arrangements and clear segregation of customer funds to minimise financial risk. The FCA’s consultation closed in December 2024, with final rules expected in mid-2025.

Although we must wait until the final policy proposals to determine the final rules, the FCA’s consultation indicates that future regulatory scrutiny on safeguarding will be significantly more stringent than before. Firms need to act now in examining their existing processes and controls and strengthening these where needed to prepare with sufficient time for the changes. Firms should be prepared for more onerous record-keeping and reporting requirements and factor in the costs of additional compliance obligations, including holding client funds under statutory trust.

Key actions for firms

1. Implement robust internal processes: Firms must establish (or bolster) comprehensive internal processes to comply with the new safeguarding requirements. This includes setting up dedicated safeguarding accounts, ensuring proper segregation of customer funds, and maintaining accurate records.
2. Regular audits and compliance checks: Firms will face enhanced monitoring and reporting under the proposed policy. They should implement regular audits and strengthen compliance oversight to uphold safeguarding practices. Engaging external auditors may provide additional assurance.
3. Staff training: Training staff on the importance of safeguarding and the new regulatory expectations is crucial. Employees should be well-versed in the safeguarding procedures and understand their role in protecting customer funds.
4. Evaluate third-party relationships: Given firms are likely to be holding client money with third parties, firms should review their existing arrangements with those entities and consider the extent to which changes may be needed and how those are implemented, in particular, to ensure their third-party arrangements stand up to increased FCA scrutiny around aspects such as operational resilience.

Embracing open banking

Open banking is transforming payments by allowing consumers to share financial data with third-party providers securely. The FCA and PSR are advancing this with variable recurring payments (VRPs) and an independent entity to drive progress. Open banking enhances competition, consumer choice, and cost efficiency while increasing focus on fraud prevention and consumer protection to support wider adoption.

The rollout of variable recurring payments (VRPs) in 2025 will drive open banking adoption, with live services enabling recurring payments to utilities, government, and financial services. The FCA sees industry collaboration as ‘critical.’ Early adopters will shape standards and lead innovation, while latecomers risk falling behind.

Key actions for firms

1. Invest in technology: Investing in secure APIs, data protection, and third-party integration is key to supporting open banking initiatives.
2. Collaboration and partnerships: Collaborating with third-party providers and other fintech companies can help firms develop innovative payment solutions. Partnerships can drive the creation of new products and services that leverage open banking capabilities.
3. Consumer education and engagement: Educating consumers about the benefits and security of open banking is essential for its widespread adoption. Firms should engage with their customers through various channels, providing clear and transparent information about how open banking works and its advantages.
4. Regulatory compliance: Staying compliant with open banking regulations is crucial. Firms must meet all regulatory requirements, including data protection, consent management, and security standards.

Integrating stablecoins

As stablecoins gain traction as a reliable payment method, the UK’s National Payments Vision (NPV) highlights the importance of integrating stablecoins into the payments ecosystem to promote innovation and competition. Stablecoins offer the potential for faster, cheaper, and more secure transactions, making them an attractive option for both consumers and businesses. The Government has confirmed its plans to regulate cryptoassets, which includes regulating for stablecoins simultaneously. Proposals from the Treasury include making stablecoin issuance an FCA-regulated activity. Draft legal provisions for the new cryptoasset regime, including stablecoins, are due ‘early’ in 2025, and the FCA has published its own roadmap of cryptoasset policy publications it intends to publish.

The regulatory landscape for stablecoins is set for significant change. Firms engaging with cryptoassets must already navigate UK financial promotions and anti-money laundering rules, with further oversight expected. Regulatory intervention has posed challenges, such as a shortage of firms qualified to approve cryptoasset financial promotions. As stablecoins gain traction, firms must assess compliance requirements, security risks, and integration strategies to ensure readiness.

Key actions for firms

1. Develop infrastructure: Developing the necessary infrastructure to support stablecoin transactions should be a priority. This includes creating digital wallets, payment gateways, and other tools that facilitate stablecoin usage or partnering with existing providers.
2. Regulatory compliance: Ensuring compliance with regulatory requirements for stablecoins is essential in the context of existing and future regulations. In scope, firms must adhere to anti-money laundering (AML) and know-your-customer (KYC) protocols to prevent illicit activities, maintain trust, and comply with the UK’s financial promotions regime.
3. Risk management: Implementing robust risk management practices is crucial when dealing with stablecoins. Firms should assess the risks of stablecoin transactions, including volatility, cybersecurity threats, and regulatory changes.
4. Education: Educating consumers about stablecoins is important for driving adoption. Firms should provide clear information about stablecoins and the ability to protect users.

The road ahead

With the payments industry set to maintain the momentum of 2024, the proposals around safeguarding, open banking, and stablecoins are just some of the regulatory developments firms need to be aware of. While regulatory compliance may present challenges for firms, it also provides opportunities to mitigate risk, enhance customer trust, and maintain a competitive edge. In 2025, regulatory changes will be as pivotal as technological advancements. Firms that strengthen compliance, invest in open banking, and prepare for stablecoins will mitigate risk and unlock growth.