The Treasury says the legislation will enter into force on 2 March 2009, and the PSD regulatory regime will be in place on 1 November 2009. The Government says it committed to early implementation in order to help firms consider the incoming requirements and prepare for compliance.

Publishing the new legislation, the financial services secretary to the Treasury, Lord Myners, says: "This legislation will drive competition in the market for payment services, leading to greater efficiency, transparency and more innovation, bringing further benefits and certainty to UK consumers and businesses making everyday payments. It will also enhance consumer protection, with the new rules for payment service providers."

The PSD affects domestic payments made in sterling, in euro and other non-euro EU currencies, as well as cross-border EU payments from sterling and other non-euro EU currencies into euro.

The rules pave the way for UK-based, non-bank businesses to enter and compete in the EU payments market on the basis of a licence obtained from the Financial Services Authority in the UK.

Licensing requirements are based on a prudential authorisation regime. Small firms operating in the UK only will only need to register with the FSA, and comply with the relevant anti-money laundering supervisory requirements.

Significantly, the legislation also introduces statutory EU-wide conduct of business rules, requiring providers to properly inform their customers about the payments they are making, and rights and responsibilities for providers and users, to increase certainty about the way payments will be delivered.

The FSA says it will shortly be issuing guidance to help businesses understand their compliance duties.