UK payments firms face widening compliance cost pressures

Nearly half of senior leaders in the UK payments sector say regulatory demands are moving more quickly than their internal systems can respond, according to research cited by Aaron Holmes, chief executive of Kani Payments. Holmes said 49% of leaders reported that gap, while 45% said compliance spending is increasing faster than company revenue.

The figures point to a growing strain on payment firms as supervision expands across safeguarding, data, operational resilience and financial crime controls. In an external opinion published by Finextra, Holmes said the pressure has shifted from understanding new rules to building the technology and operating processes needed to meet them within shorter timeframes.

Safeguarding rules add to operational demands

Holmes cited the Financial Conduct Authority’s updated safeguarding regime, PS25/12, as a recent example of the burden facing firms. He said the regime came into force only weeks ago and has raised expectations for reconciliation, reporting and operational controls.

Safeguarding rules are designed to protect customer funds held by payment and e-money firms. In practice, stronger safeguarding requirements can require firms to match records more frequently, produce more reliable regulatory reports and demonstrate that controls work in day-to-day operations, rather than only in policy documents.

Holmes said new obligations often create several costs at the same time: specialist compliance staff to interpret and apply requirements, technology investment to support data and controls, and recurring operating expense to maintain the process. When those costs rise more quickly than the underlying business, he said, compliance becomes an operational issue rather than a discrete governance matter.

Older systems built for slower reform cycles

According to Holmes, much of the sector’s compliance infrastructure was designed for a period when major regulatory reforms arrived less often and with longer implementation periods. He argued that firms now face multiple regulatory tracks at once, each adding its own reporting or reconciliation requirement.

That creates a compounding cost problem for companies that address each rule as a separate project, Holmes said. If a new control is attached to existing systems without changing the underlying operating model, the firm may meet the immediate requirement while adding further manual work, specialist dependency and maintenance cost.

The mechanism is familiar across regulated financial services. A reporting obligation that begins as a spreadsheet or manual check may be manageable at low volume, but it becomes harder to sustain as transaction numbers, product lines and regulatory requests grow. Reconciliation has the same issue: manual exception handling can detect breaks, but it does not scale efficiently when the frequency and granularity of checks increase.

Automation framed as capacity, not optional spending

Holmes said payments firms should treat compliance as part of their core operating capacity. He pointed to automated reconciliation, adaptable reporting processes and reduced reliance on informal staff knowledge as ways to make recurring controls easier to repeat.

His argument is that firms can either let compliance costs track the volume of regulatory change or redesign systems so that incremental requirements are absorbed with less rebuild work. He said safeguarding, resilience and reporting standards are likely to continue tightening, with obligations arriving on overlapping timetables.

The comments reflect a broader concern among payments firms that regulatory execution is becoming a technology and operations test. Holmes did not argue against the objectives of stronger oversight, but said the sector’s challenge is whether systems can keep pace with the rate and breadth of new requirements.

This story draws on original reporting from Finextra Research.