The Financial Conduct Authority (FCA) has announced plans to introduce a Temporary Permissions Regime (TPR) for Buy Now, Pay Later (BNPL) companies, allowing them to continue operating while new regulations are finalized. The move comes as the regulator supports the government’s efforts to bring BNPL products under regulatory control.
The FCA has advocated for BNPL oversight since 2021, following recommendations from the Woolard Review, which called for greater regulation in this sector. The TPR will allow firms to continue offering BNPL services while their applications for authorization are reviewed. In the meantime, these firms must comply with the FCA’s rules, with the regulator prepared to take action if necessary.
FCA Plans Consultation on BNPL Regulation
BNPL services provide consumers with more flexible payment options and help merchants drive sales. However, they come with risks similar to other forms of credit. The FCA intends to launch a public consultation on its approach to regulating BNPL after legislation is passed. The proposed rules will outline how firms will be authorized and how consumers will be protected while still enabling innovation within the sector.
The FCA emphasized its goal of balancing consumer protection with growth for BNPL providers, stating, “We will consult shortly after legislation is finalized on our regulatory regime for BNPL. This will include our proposed rules and approach to authorizing 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.”
As part of this process, the FCA will gather feedback and conduct a cost benefit analysis to ensure the rules are proportionate. Firms will have a transition period to prepare for the new regulations, which are expected to come into force 12 months after the legislation is enacted.
Introducing the Temporary Permissions Regime
The upcoming BNPL regulations are aimed at ensuring better outcomes for consumers, aligning BNPL services with existing rules for other credit providers. Under the new regime, BNPL companies will need to provide clear and transparent information to customers and conduct affordability and creditworthiness assessments.
BNPL firms will also be required to adhere to the FCA’s Consumer Duty, and consumers will have the right to lodge complaints with the Financial Ombudsman Service.
Once the regulations are finalized, BNPL firms that are not currently authorized to lend will need to apply for proper authorization. Additionally, merchants offering BNPL agreements through third party lenders will also be required to obtain credit broking authorization.
The FCA will carefully evaluate each application, requesting additional information if needed, before making authorization decisions.
