Background
Earlier this year [insert link - The uncertainty surrounding Buy Now Pay Later regulation | DWF Group] we updated on the uncertainty regarding the long awaited BNPL regulation, and the steps the Financial Conduct Authority (FCA) was taking in the meantime to manage the risks of customer harm that it had identified.
Our previous article sets out the prior history and background on the product and it’s perceived concerns. Since then, there had been very little comment from the outgoing government, or the incoming Labour government. Then a few weeks ago, the news broke that the regulation was finally coming, with the consultation published shortly after.
What is now being proposed
The proposed regulation will apply to BNPL agreements offered by third-party lenders. However, certain exemptions are outlined:
- Merchant-Provided Agreements: BNPL agreements directly provided by merchants will not fall under this regulation.
- Specific Exemptions: insurance financing, lending by registered social landlords, and employer/employee lending arrangements are also exempt.
To ensure consumers are adequately protected, several measures are proposed:
- Information Disclosure: there is an aim to make information clearer and more accessible to consumers.
- Affordability Assessments: rules will be established to ensure lenders conduct thorough affordability and creditworthiness assessments.
- Complaints Handling: consumers will gain access to the Financial Ombudsman Service (FOS) for resolving disputes, providing an additional layer of protection.
The regulation introduces specific controls to maintain market integrity:
- Financial Promotions: unauthorised merchants must have their BNPL promotions approved by an authorised person, ensuring compliance with advertising standards.
- Credit Broking: while merchants are generally exempt from credit broking regulation, domestic premises suppliers are an exception and must comply.
To facilitate a smooth transition, a Temporary Permissions Regime (TPR) will allow unauthorised firms to continue operating while they seek full FCA authorisation. During this period, TPR firms will be deemed authorised under part 4A of FSMA and must adhere to relevant FCA rules.
What are the timelines?
The consultation period is open until November 29, 2024. Following this, the government will review the feedback and publish the final policy position. Necessary legislation will be laid before Parliament, and the FCA will consult on detailed rules to implement the regulation.
After the consultation period closes, the government will review all responses. This process is expected to take a few months, considering the volume and complexity of the feedback. The final policy position is anticipated to be published in early 2025, which will outline the government’s definitive approach to BNPL regulation based on the consultation feedback.
Draft legislation is expected to be laid before Parliament in early 2025. The timeline for parliamentary approval can vary, but it is anticipated that the legislation will be passed within a few months.
Once the legislation is passed, the FCA will begin its own consultation on the specific rules and regulatory framework for BNPL products. This consultation will likely start shortly after the legislation is finalised. This consultation process is expected to be completed by late 2025.
As a result, the FCA aims to implement the new rules and regulatory framework by early 2026, with firms given a short period to prepare for compliance with the new regulations.
Conclusion
The proposed regulation of BNPL products represents a significant step towards ensuring consumer protection in the rapidly growing BNPL market. Firms should prepare for these changes by reviewing their current practices and ensuring compliance with the forthcoming FCA rules. This proactive approach will not only ensure regulatory compliance but also enhance consumer trust and confidence in BNPL products.
For further details or to participate in the consultation, Firms are encouraged to review the full consultation document and consider the implications for their businesses.
