FCA Authorisation & The Regulation of Buy-Now Pay-Later Credit Firms

The government is to strengthen the regulation of interest-free Buy-Now Pay-Later agreements, in order to protect the millions of Britons currently utilising this service to manage their finances by spreading costs. The announcement, that Buy-Now Pay-Later Credit firms will need to become FCA Authorised, comes as a result of the government’s plan to intercept the increased cost of living, and assist with economic growth.

According to the government’s announcement:

  • It will be compulsory for lenders to make sure that the loans are affordable, and the advertisements are reasonable and not misleading.
  • The rules will be further expanded so that they cover additional forms of unsecured short-term credit with similar consumer risk, with dentistry work given as an example.

Customers do not currently have full coverage of borrower protection when using buy-now pay-later credit agreements, which prove to be a beneficial way of spreading the cost of a purchase. The increase in demand for these kinds of services, subsequently increases the potential risk of harm to consumers.

Richard Corbyn, Complyport’s Director of Authorisations has said, “Against the backdrop of a sharp cost-of-living crisis the rapid expansion in the use of these services has heightened the need and urgency to ensure that customers using them are afforded a suitable level of protection.  This looks set to mean that a number of market participants not currently caught by existing regulations will need to secure authorisation with the FCA to continue their businesses and will be required to carry out affordability checks, ensure that any advertising is fair and not misleading”.

The government has designed solid plans to make sure that lenders will carry out affordability checks, which will ensure that the loans will be within a reasonable price, and their advertising fair and not misleading. Additionally, the lenders of those products will have the requirement to seek approval from the Financial Conduct Authority (FCA), thus, any complaints from consumers will also be considered by the Financial Ombudsman Service (FOS).

Following recent economic struggles from the biggest Buy-Now Pay-Later firm Klarna, more scrutiny and scepticism has been placed on firms providing these kinds of services. The firm has suffered losses up to four times more since last year so far, resulting in 10% of their workforce losing their jobs, while at the same time the consumer debt has been skyrocketing.

Comments from Economic Secretary to the Treasury, John Glen, focus on the innovation and benefits of the BNPL (Pay-Now Pay-Later) services, however, he additionally highlights the importance of having the appropriate protections and safeguards in place to foster innovation and consumer safety.

Because of the complexity of this sector, the government will publish a consultation on draft legislation around the end of the year. Additionally, secondary legislation will be laid out mid-2023 where the FCA will discuss its rules for this sector.

Finally, confirmation was also provided by the government, that other types of short-term interest-free credit services with the example of dental work or large furniture being given, will have to follow the same rules as the risks to consumers are similar, and shall need to be amended to enhance customer protection. Stakeholder feedback was requested, as to whether these rules should be applied to online merchants as well, who directly offer credit for purchasing their products.

How Complyport can help

Compliance assistance can be invaluable to a firm setting out on the road to regulation, especially against a dynamic backdrop of ever-updated expectations and requirements. (For example, at the time of writing the FCA has just implemented its revised fee structure for firms seeking authorisation.)

Additionally, achieving the goal of FCA authorisation is not the end of the story – if anything it instead marks the end of the beginning.  Once authorised, firms must continue to meet the FCA’s standards and rules and achieve good outcomes.

Complyport is a market leader in FCA authorisations and have successfully assisting in over 1000 applications. Over the last 20 years, we have provided guidance and advice on permissions required, outlined the amount of regulatory capital the new firm will need and project managed the building of the application pack.

Once a firm is successfully authorised, Complyport’s expert consultants assist firms in remaining compliant with regulation as well as advise them on how to meet and adapt for upcoming regulatory change. We are currently providing regulatory support to over 600 regulated firms on an ongoing basis globally.

Click here to learn more about Complyport’s FCA authorisation support and to book a free consultation meeting.

About Complyport

Complyport is the City’s market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.

Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.

With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.

Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.

Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Complyport can also assist firms by providing personnel to cover all the key compliance functions including resourcing individuals to be registered as your Compliance Oversight Function (SMF16) and/or Money-Laundering Reporting Officer (SMF17).

Our clients tell us we live our values; we are driven, agile and collaborative.

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