The Financial Conduct Authority (FCA) has welcomed the government's consultation on regulating currently-exempt Buy Now Pay Later (BNPL) products.

The FCA has long supported bringing these products under its regulatory oversight. In 2021, the FCA board backed the Woolard Review, which recommended that BNPL should be regulated.

The FCA plans to implement a Temporary Permissions Regime (TPR), allowing firms to continue BNPL activities while their applications are processed. Firms operating under the TPR will need to comply with FCA rules, and the regulator will take action where necessary.

FCA Consults on BNPL Rules

BNPL offers consumers more payment options and supports merchants, but it also carries risks similar to other credit products. The FCA plans to consult on its regulatory approach for BNPL after legislation is finalized, proposing rules for authorizing firms and safeguarding consumers while allowing firms to innovate and grow.

“We will consult shortly after legislation is finalised on our regulatory regime for BNPL. This will include our proposed rules and approach to authorising firms. We want to ensure those who find BNPL helpful can still benefit from it, firms can innovate and grow, and consumers are appropriately protected,” the regulator stated.

The FCA will consider feedback before finalizing its rules, conducting a cost-benefit analysis to ensure proportionate regulation. Firms will be given a brief period to prepare before the rules come into effect. Regulation of the sector is expected to commence 12 months after the legislation is made.

Implementing Temporary Permissions Regime

The regulation will ensure positive outcomes for borrowers and align with existing rules for other credit providers. Firms will be required to provide clear information to consumers and conduct affordability and creditworthiness checks.

BNPL firms will also fall under the Consumer Duty, and consumers will have the right to raise complaints with the Financial Ombudsman Service.

Once the rules are finalized, BNPL firms currently unauthorised to lend will need to apply for authorisation. Merchants offering credit agreements from third-party lenders will also need to apply for credit broking authorisation.

The FCA will assess applications and seek further information if necessary before deciding on authorisation.