Buy-Now, Pay-Later regulation: What should firms consider?

The Consultation Paper (CP) comes at a moment of rapid expansion of BNPL products, with 10 million users in the U.K. (up from eight million in 2022). As the BNPL regulation UK evolves, BNPL firms will also have to consider upcoming reforms to the BNPL Consumer Credit Act. To obtain BNPL authorisation and remain compliant thereafter, BNPL firms will require substantial resources to navigate the new regulations and establish effective systems and controls.

The government plans to submit BNPL legislation to Parliament as soon as possible, after which the Financial Conduct Authority (FCA) will have 12 months to finalise its rules. The regulation should then enter into force around mid-2026. 

The UK government proposes new Buy-Now, Pay-Later regulations to protect borrowers

Broadly speaking, in its approach to regulating BNPL products, the government intends to: 

• As implied above, give the FCA oversight of firms offering BNPL products. 
• Allow the FCA to apply rules on affordability and creditworthiness checks, which include requiring proportionality vis-à-vis the borrowing amount.
• Empower borrowers to access the Financial Ombudsman Service (FOS) and benefit from the protections of section 75 of the BNPL Consumer Credit Act.

This will require the government to disapply CCA information requirements that would otherwise apply to BNPL agreements, thus allowing the FCA to design and implement a BNPL information disclosure regime in its rules. The Consultation Paper consists of significantly more content regarding the government’s proposals, including details on information requirements, sanctions, and various other regulatory controls. 

What are the key Buy-Now, Pay-Later regulation considerations for firms?

As BNPL firms begin preparing to comply with the upcoming Buy-Now, Pay-Later regulatory changes, they will need to keep the following considerations, along with relevant CCA reforms, in mind.

BNPL authorisation process

Under HMT’s proposals, firms providing BNPL products must, as a default, apply for authorisation with the FCA. However, as part of a Temporary Permissions Regime (TPR), firms that are not yet authorised to engage in consumer credit lending/broking activities will be permitted to continue with their BNPL activities whilst their authorisation application is being reviewed. Notably, BNPL firms in the TPR will be allowed to approve of financial promotions for onward communication by their unauthorised merchant partners. 

Systems and controls 

During the BNPL authorisation process, the FCA will assess whether firms possess the necessary expertise, systems, and controls to engage in BNPL activities. Seeing this, firms will have to develop systems and controls in line with Buy-Now, Pay-Later regulatory expectations before applying for BNPL authorisation. 

Buy-Now, Pay-Later reporting requirements 

To promote responsible lending, the government has emphasised the importance of consumer credit firms reporting data on credit agreements, including those involving BNPL products, to credit reference agencies (CRAs). As part of its monitoring of BNPL agreements, the government plans to maintain close engagement with CRAs. Consequently, to remain compliant with regulatory expectations, BNPL firms will have to submit accurate and timely reports to CRAs. 

Consumer Duty and CONC 

Although sanctions will be removed from BNPL Consumer Credit regulation, HMT feels confident that BNPL borrowers will have robust protections through Consumer Duty and the arrears and forbearance rules set out in CONC. Returning to systems and controls, BNPL firms will need these to ensure adherence to these regulatory guidelines. 

How can you navigate Buy-Now, Pay-Later regulation uncertainty?

As BNPL firms transition from a largely unregulated environment to a highly regulated industry, whilst simultaneously navigating substantial reforms to a key regulatory regime, they will inevitably face a period of profound change. Determining the right starting point will be challenging. However, as highlighted in the CCA and BNPL CPs, ensuring robust consumer protection remains a central priority for the government, making adaptability essential.

To mitigate the risks associated with Buy-Now, Pay-Later regulatory non-compliance, reputational harm, and other potential challenges, BNPL firms must proactively integrate consumer protection into their strategic considerations at the earliest opportunity.

Get in touch with our experts 

Our expertise in supporting firms implement Buy-Now, Pay-Later regulatory change spans across multiple areas.  

We understand the complexities involved in regulatory change and offer a comprehensive range of support, tailored to a firm’s specific needs and circumstances.

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