The Ultimate Guide to Payment Compliance Regulations for UK Businesses

The way customers pay is changing fast. In the UK, shoppers now use debit and credit cards, gift cards, mobile wallets, and digital wallets, both online and in-store.

For businesses, this shift creates a legal responsibility to process payments securely and follow strict UK and international regulations. Failing to meet these standards can lead to serious financial penalties and harm your reputation.

When you choose a payment service provider (PSP) or review your current one, make sure you understand the regulations they must follow. This guide will show you what you need to stay compliant and protect your business.

Introduction to Payment Compliance in the UK

Payment compliance is the obligation for UK businesses to accept, process, and store customer payments in line with law and industry rules. 

The main frameworks are the Payment Services Regulations, FCA and PSR guidance, PCI DSS security standards, anti-money-laundering checks and UK GDPR. 

Payment compliance protects customer data, blocks illicit transactions and keeps merchants legally eligible to take card and digital payments.

Achieving and maintaining payment compliance matters for the following reasons:

• It’s a legal obligation. Non-compliance can trigger FCA fines or even criminal charges. 
• It grants your business card-scheme access. Visa/Mastercard can revoke your merchant ID if you breach PCI DSS. 
• It matters greatly for customer trust. Consumers often abandon merchants after data breaches or hidden fees. 
• It gives your business a competitive edge. A clean compliance record speeds up onboarding with new acquirers and lowers transaction costs. 

These being said, payment compliance is more than just a tick-box exercise. It’s an ongoing effort that combines security measures, legal duties, and ethical standards so that every transaction you accept is legitimate, protected, and auditable. 

Key Payment Compliance Regulations UK Businesses Must Follow

In the paragraphs below, you’ll find the most important and industry-driving payment regulations in the UK. 

PCI DSS (Payment Card Industry Data Security Standard)

The Payment Card Industry Data Security Standard, or PCI DSS, is the global security standard that any organisation storing, processing or transmitting debit or credit card data must follow to protect cardholders’ information through strict technical and procedural controls.

PCI DSS is created by the Payment Card Industry Security Standards Council and has a few key objectives for the payment industry:

• Building and maintaining a secure network and systems: Organisations must install and maintain firewalls to protect cardholder data from unauthorised access. Default system passwords and configurations must be changed to reduce vulnerability.
  
• Protecting cardholder data: Cardholder data must be encrypted when stored and during transmission over open networks. Businesses should retain only the minimum necessary data and securely dispose of it when no longer needed.
  
• Maintaining a vulnerability management programme: Organisations must use up-to-date antivirus software and apply security patches promptly. Regular vulnerability scans help identify and address security weaknesses before they can be exploited.
  
• Implementing strong access control measures: Access to cardholder data must be limited to only those who need it for their job. Unique user IDs, strong passwords, and multi-factor authentication help ensure only authorised users can access sensitive systems.
  
• Regular monitoring and testing of networks: Businesses must log and monitor all access to cardholder data to detect suspicious activity. Regular testing, including penetration testing and file integrity monitoring, helps maintain a secure environment.
  
• Requiring providers to maintain an information security policy: A formal security policy must be established, communicated, and maintained. It should define roles and responsibilities, and include regular staff training and risk assessments to support ongoing security awareness.

The main purpose is to prevent credit card fraud and money laundering as well as safeguard cardholder data from unauthorised access.

What does this mean for you? If you process credit or debit cards and you collect, retain or transmit cardholder information, you need your PSP to be compliant with PCI DSS.

GDPR (General Data Protection Regulation)

If your business collects data from anyone in the European Union, the General Data Protection Regulation (GDPR) still applies to you, even though the UK has left the EU. The regulation sets strict rules on data privacy, especially in the situation of rapid digital transformation.

GDPR has many legal components, but the seven key data protection principles include:

• Lawful, fair, and transparent data processing (to the affected data subjects).
• You must process the data you collect only for legitimate purposes. You must also clearly inform the individual of these purposes at the time of collection.
• You should only collect and process data that is deemed strictly necessary for the purpose in question.
• You must ensure that you keep all personal data accurate and updated.
• You should store personally identifiable data only for as long as needed to serve its intended purpose.
• You need to ensure that you put in the right security measures to ensure integrity and confidentiality (e.g. tokenisation as part of an online payment processing transaction).

These principles are not optional. You must follow all of them at the same time to stay compliant with GDPR.

PSD2 and Strong Customer Authentication (SCA)

Next up is PSD2 – the second EU Payment Services Directive. Adopted in 2015, it had to be written into every member state’s law by 13 January 2018.

Similar to GDPR, it is specific to the EU but applies to businesses that do cross-border business within the region.

The four main goals of PSD2 are:

• Creating greater integration and efficiency in the European payments market;
• Levelling the playing field for PSPs;
• Making payments more safer and secure;
• Boosting protection for consumers and businesses in Europe.

The next stage in regulation is PSD3, the upcoming update to PSD2. It aims to modernise the EU’s financial sector and align it with global changes in digital financial services.

The Payment Services Regulation (PSR)

The Payment Services Regulations 2017 (PSRs) form the core legal framework for payments in the UK. They incorporate the EU’s second Payment Services Directive (PSD2) into UK law and continue to apply after Brexit.

Any organisation that offers payment services must register with or be authorised by the Financial Conduct Authority (FCA). These include card acquirers, payment gateways, e-money issuers, and account-to-account apps. 

The PSRs impose several key obligations. Providers must:

• Segregate client funds;
  
• Maintain detailed records;
  
• Report security incidents promptly;
  
• Apply Strong Customer Authentication (SCA) to most electronic payments and transactions;
  
• Limit consumer liability for unauthorised payments;
  
• Disclose fees transparently.

Failure to comply can lead to fines, licence revocation, and compensation orders. To reduce risk, merchants should work only with providers that can demonstrate full compliance with the PSRs.

Strong Customer Authentication (SCA)

Strong Customer Authentication (SCA) is a UK requirement that applies to most electronic payments. It mandates verification using at least two independent factors from the following categories: knowledge (something the customer knows), possession (something the customer has), and inherence (something the customer is).

SCA is part of the Payment Services Regulations 2017 and is enforced through the FCA’s Regulatory Technical Standards, which reflect PSD2 security rules in UK law. Since 14 March 2022, the FCA has fully enforced these requirements. As a result, most online card and open banking payments now require extra checks, such as one-time passcodes, device-based tokens, or biometrics.

This being said, some transactions are exempt from the requirement. These include low-value payments under £30, contactless taps, mail-order or telephone orders (MOTO), corporate payments, and transactions that pass an acquirer’s risk analysis under defined fraud thresholds.

If you skip SCA without a valid exemption, you risk declined payments, chargebacks, and regulatory penalties. To avoid this, use a payment provider that supports full SCA compliance and builds secure, seamless checkout flows.

3D Secure 2.0 (3SD2)

3D Secure 2 (3DS2) is the card industry’s authentication protocol designed to meet the UK’s Strong Customer Authentication (SCA) requirements under the Payment Services Regulations 2017. It adds an identity check between the merchant and the card issuer during online or in-app purchases.

3DS2 improves on 3DS1 by supporting biometric and token-based authentication, working with mobile wallets, and enabling frictionless checkout when the issuer considers the transaction low risk. During a challenge, the customer can authenticate with a one-time passcode, fingerprint, or facial recognition.

If a transaction qualifies for a low-risk or low-value exemption, the issuer can approve it without requiring customer input while still complying with SCA.

Merchants that fail to implement 3DS2 face higher decline rates, loss of liability protection, and possible regulatory action from the FCA.

FCA Oversight and Local Payment Regulations

The Financial Conduct Authority (FCA) was established in 2013 as the UK’s independent financial regulator. It plays a central role in regulating payment service providers and other financial firms operating in the UK.

Some of the functions of the FCA are:

• Consumer protection;
• Facilitating market integrity;
• Promoting competition;
• Authorisation and supervision;
• Rule-making and enforcement.

The FCA also maintains a public register of the firms it regulates. This register includes details such as registration date, type of authorisation, and current status. 

In short, if your payment service provider or financial institution isn’t on the FCA’s list, then it’s not a good sign.

Compliance for Different Payment Channels

In addition to the overarching payment compliance rules, your business must meet specific requirements based on the types of payments you accept.

Let’s take a closer look:

• In-store card payments (card machines): There are a few important requirements that apply to card machines. You need to ensure the physical security of the payment terminal as a starting point. You also need to comply with receipt data rules. And there is also PCI PTS certification for devices, which stands for Payment Card Industry PIN Transaction Security.
• Online payments and e-commerce: When it comes to e-commerce and online payments, SSL certification for your website is a must. But so is tokenisation, fraud prevention, and the need to meet SCA standards.
• Mobile and SoftPOS solutions: SoftPOS solutions must meet CPoC/SPoC regulations for compliance for card and PIN on mobile phones. It’s worth knowing that solutions like myPOS Glass do meet these standards, making it a safe and quality choice.
• Remote or phone payments: Special rules apply for Mail Order/Telephone Order (MO/TO) payments. These payments are outside the scope of Strong Customer Authentication, but you still need to complete the PCI SAQ MOTO (or SAQ C-VT if using a virtual terminal) and ensure agents never write down or store the CVV after authorisation.

The section below helps you understand the ways in which you can ensure you stay compliant.

How to Become and Stay Compliant

Since you are essentially relying on your PSP to maintain payment security compliance on your behalf, when assessing different options, be sure that they adhere to all the regulations mentioned above as well as any local rules that may be applicable. 

Note that brick-and-mortar merchants don’t store or process customer’s financial data or have access to it via their card machine whereas online merchants with e-commerce stores can collect this information. That’s why online merchants must follow rules for storage and processing.

If you sell online and accept payments through your online store, be sure to do the following:

• Perform regular risk assessments and security audits: These regular checks should be implemented to identify weaknesses in payment processing and storage.
• Work with a compliant payment provider: Choose a provider like myPOS that handles encryption, tokenisation and SCA out of the box.
• Carry out staff training and create internal policies: Educate teams on card data handling, password hygiene and incident response plans.
• Ensure accurate record keeping and audit trails: Know your local regulations for how long to retain receipts, transaction logs and incident reports under UK law.

Overall, choosing the right compliance payment solutions can help you stay on the safe side of the law while helping your business grow.

Common Payment Compliance Pitfalls to Avoid

Apart from the good practices mentioned above, it’s important to avoid actions that can undermine full regulatory compliance.

A robust compliance plan that’s carried out by your compliance team should never, for example, do any of the following things:

• Storing card details improperly: There are many dangers of paper storage or insecure databases Learn how to avoid violations.
• Using non-certified card machines or software: The importance of using PCI-certified devices and regularly updating your point-of-sale (POS) systems can’t be overstated.
• Failing to respond to data breaches promptly: Be sure to note Incident reporting timelines under GDPR and notification obligations.

Reducing your compliance risk means protecting your customers’ sensitive personal information. Always monitor and assess where your systems stand in terms of ongoing changes in the regulatory landscape to ensure you meet every regulatory requirement.

Industry-Specific Payment Compliance Considerations

In addition to all of the above, you’ll want to ensure your payment system is compliant based on the industry your business operates in. 

A few examples to consider include:

• Retail and hospitality: Since you operate in multi-terminal environments, your focus should be on tipping and contactless compliance.
• Healthcare and legal services: Additional data protection rules apply when accepting payments tied to sensitive services.
• Charities and non-profits: Consider the fundraising rules and payment reporting requirements for your charity or non-profit organisation.

As you can see, payment processing compliance is not a one-size-fits-all kind of deal. That’s why you need your PSP to consider your business needs and industry niche so that you get the best solution for your requirements.

The Role of myPOS in Simplifying Payment Compliance

Looking for the right payment provider to be confident that your compliance requirements are fully met? Welcome to myPOS. 

Here, you can choose from a broad range of card machines based on your business needs in terms of speed, mobility, tipping functions, and more.

But there’s more. You already understand that PSPs face really strict licensing and compliance requirements. That’s where myPOS gives you total peace of mind through its regulation under the payment systems regulator – or the FCA – mentioned above.

Additionally, myPOS has checks in place to ensure all compliance-related factors are addressed accurately and quickly on an ongoing basis. Examples of procedures include Know Your Customer (KYC), adhering to Anti-Money Laundering (AML) regulations, ensuring data privacy and security, carrying out merchant onboarding and so much more.

Plus, once a merchant is onboarded, they can also take advantage of online payment solutions. And no matter if you’re an in-store or e-commerce merchant, one thing is always guaranteed with myPOS: instant settlement of funds.

Adhering to all regulations and compliance for payment service providers makes myPOS a trusted choice for thousands of businesses across the UK. From the taxi industry to retailers and restaurants, we meet all compliance requirements for your safety and peace of mind. 

This makes us a reliable partner that offers the right and smart small business payment compliance solutions.

Preparing for the Future of Payment Compliance

Payment solutions and compliance go hand-in-hand. It’s about having certainty and peace of mind that you’re using a trusted provider that will give your customers more confidence to shop at your brick-and-mortar or online store. 

So, what does the future hold in terms of payment compliance regulations? 

Let’s look at a few possibilities:

• Upcoming regulatory changes in the UK: There will likely be impacts of post-Brexit financial regulation divergence and tech trends will also shape the way that compliance is carried out.
• AI and payment fraud detection: AI and machine learning are changing compliance needs. They’re offering real-time data into patterns that can identify fraudulent behaviors and prevent them from causing harm.
• Increasing scrutiny of mobile and remote payments: With greater focus on mobile and remote payments, small and medium-sized enterprises (SMEs) need to future-proof their businesses for heightened payment security.

Need to exercise greater payment control when performing transaction monitoring as part of your compliance process? Be sure to choose a partner like myPOS to help you navigate payment systems compliance with confidence and certainty.

Conclusion: Making  Payment Compliance a Business Advantage

Payment compliance is more than just ticking legal boxes. It’s a critical part of running a modern, secure and trustworthy business. By understanding and meeting Payment Card Industry compliance requirements and ensuring payment gateway PCI compliance, you don’t just avoid penalties. You build lasting trust with your customers.

Regardless of whether you’re managing a complex payment stack or relying on a single payment gateway, working with a provider that offers built-in payment compliance simplifies the process. myPOS is this provider, delivering full payment services compliance through advanced features.

As the regulatory landscape continues developing, especially in the UK post-Brexit, staying ahead of regulatory payment compliance trends will be key. Choosing a provider like myPOS gives you a smart edge. 

Let compliance become your business’ advantage. Choose myPOS and turn trust and transparency into growth.

Frequently Asked Questions

What is the meaning of compliance?

Compliance refers to the act of following laws, regulations, and industry standards that govern how businesses operate, particularly in the payments sector. It includes areas like fraud prevention (e.g., AML and KYC), data privacy and consumer protection. For businesses handling digital payments, compliance is essential for reducing risk, building customer trust and avoiding legal or financial penalties in an increasingly regulated and evolving digital environment.

What are the three types of compliance?

The three main types of compliance in the payments industry are fraud prevention, data privacy, and consumer protection. Fraud prevention includes measures like AML and KYC to detect and stop fraudulent activity. Data privacy ensures the secure handling of sensitive payment information in line with regional laws. Consumer protection focuses on fair treatment, transparent fees and clear terms for users. Together, these compliance areas help businesses maintain trust, meet regulations and safeguard both customers and transactions.

What is the payment compliance standard?

A payment compliance standard is a set of rules and regulations that businesses must follow to ensure secure, legal and ethical payment processing. This includes adhering to fraud prevention protocols like AML and KYC, data privacy laws that protect sensitive customer information and consumer protection measures that promote fairness and transparency. These standards are essential for maintaining trust, avoiding penalties and ensuring safe and compliant digital transactions in today’s evolving payments landscape.