Our purpose of making sure payments systems work well for people and business means we have to balance a wide range of effects often including ones on investment, innovation and economic growth. Our chief economist, Matthew Cherry, explains the value of cost benefit analysis in our decision-making

In 2023, over £100 trillion flowed through the UK payments infrastructure. 

These payments are essential for the functioning of the economy, and appropriate, proportionate regulation is core to ensuring payments support growth and meet the needs of people and businesses. 

We are committed to further sharpening our focus on competition and innovation, and supporting economic growth and cost benefit analyses (CBAs) are an important tool we use to help us identify the impacts of potential regulatory interventions – assessing the positive change they make.  

We use CBAs where they are valuable to our decision making – not just when they are required by law.  

CBAs help us make evidence-based decisions

It is important that our decisions are evidence-based and use sound analysis to support world-leading payment systems. 

As confirmed in our January 2025 Strategy Update, we want competition and innovation to deliver accessible, convenient, secure, trusted and value for money services that meet people’s and businesses’ needs.  

CBAs already help us in this mission, and they will continue to do so. They: 

  • help us formulate and identify problems
  • provide a framework for articulating why and how our intervention might help improve on existing outcomes (that is, create more benefit than cost overall)
  • can aid more effective and transparent consultation, and support engagement with stakeholders.

CBAs in themselves can’t provide the answer: they won’t on their own identify the best option. 

We use CBAs to assess the scale and direction of different types of impact, taking account of the inevitable risks and uncertainties. They highlight trade-offs and are a way of assessing the likelihood of positive impacts if we act compared to if we do not. 

There are challenges and limitations to applying CBAs: importantly some impacts cannot be quantified. There’s well-established best practice on some of the methodological challenges to CBAs (for example in HM Treasury’s Green Book), but there is often no clear right or wrong approach.  

But the structure of a CBA still helps. For example, even if benefits cannot be quantified, understanding whether relatively small or large changes would be required for them to outweigh costs is important. 

Need for transparency and accountability

Following our consultation in September 2024, we published our final Statement of Policy on our cost benefit analysis framework.

We’d like to thank all stakeholders, especially the FCA CBA Panel, for their input and contributions. 

The document establishes some key principles  that guide our general approach to CBAs: why and how we carry out CBA. 

The FCA CBA Panel, which we’re required to engage with (in some cases by statute) was established in June 2024. 

We welcomed the Panel’s creation and our engagement with it has been valuable and constructive. 

We strongly believe that the transparency in our Statement of Policy - and external expert advice the Panel can give - will help us improve our CBAs, and in the Panel’s first interim annual report, it was positive about our general approach. 

We’re currently considering how to implement its recommendations and look forward to continuing our engagement.  

Our approach is flexible and will need to evolve and adapt 

Our statement of policy on CBA is a principles-based framework, providing our high level approach. 

We think these principles will remain relatively stable over time, but expect to supplement our policy statement with shorter, more targeted and complementary material. These will reflect evolving best practice and also set out our approach on more detailed areas of methodology.

For example, the FCA CBA Panel has already recommended we develop a clear policy on how CBAs reflect our statutory objectives and regulatory principles. 

Our framework will also be a strong foundation for us to reflect and act on stakeholder feedback (including from the FCA CBA Panel) which we might receive. 

To be effective, our interventions need to be well evidenced, transparent and clear about how outcomes will be improved for those making and receiving payments. 

CBAs are an important tool that help us do this.

We would very much welcome ongoing stakeholder feedback and engagement on the issue of CBAs. We’re always interested to hear your reflections, ideas and concerns. 

Please reach out to EconFrameworks@psr.org.uk.