Government set to bring buy-now pay-later firms under FCA regulation

The Treasury is set to unveil its plans for buy-now pay-later (BNPL) rules in a move that could end years of uncertainty surrounding the regulation of the sector, City AM has learned.

In a consultation, the government will offer companies like Klarna and Clearpay another chance to feed into the planned regime after a more than three-year wait, people familiar with the matter said.

The six-week deep dive with the industry is set to close on 29 November, after which the government will pass secondary legislation early next year to allow the Financial Conduct Authority (FCA) to create a bespoke regime for BNPL, a person with knowledge of the matter said.

The FCA is expected to fully implement the new rules in early 2026. The regulator has been approached for comment.

The changes are likely to build on the FCA’s consumer duty with some elements of the Consumer Credit Act (CCA), including payment protection and access to the Financial Ombudsman Service, the person added.

Information and approval requirements for loans with “tick-boxy detail” would be disapplied from new rules, the person added. Cumbersome approval processes required under the CCA had proved a sticking point with the industry and triggered a major lobbying effort under the previous plans.

The Treasury did not respond to a request for comment.

BNPL firms, which allow shoppers to split and defer the payment of purchases, exploded in popularity through the Covid-19 pandemic but remain unregulated in the UK despite warnings over a mounting debt pile racked up by shoppers.  

The announcement tomorrow will mark the third such consultation after Christopher Woolard, former interim boss of the Financial Conduct Authority boss, warned of the “urgent” need for regulation in a 2021 review.

City minister Tulip Siddiq has spearheaded a push to more tightly police BNPL after criticising Conservative Chancellor Jeremy Hunt for the delays while in opposition.

Since taking office as the City minister in July, she has doubled down on her intention to regulate the companies and said later that month the government would “set out its plans shortly”.

The previous Conservative government announced its intention to regulate BNPL in February 2021 but pressed pause on the plans last summer amid tensions with the industry.

People with knowledge of the talks have told City AM that firms raised concerns over whether parts of existing rules are fit to regulate online BNPL products half a century after they were first drawn up.

The Treasury published draft legislation last February that it said would protect roughly 10m consumers. In it, certain sections of the CCA were dropped onto the proposed BNPL rules.

This “lift and shift” approach was heavily criticised by BNPL firms, which warned that parts of the CCA could significant hurt their business models

For example, sources said an initial “credit agreement” would have required a static form for consumers to sign in every credit application and every BNPL transaction, significantly slowing down online purchases.

An insider at one of Britain’s biggest BNPL firms expected Labour to take inspiration from New Zealand, where BNPL is a long-established payment method and regulation came into effect on 2 September.

Updated: After this story was published, the Treasury published details of its plans.

After the Treasury revealed further details on its plans, Sebastian Siemietkowski, the founder and chief executive of the biggest BNPL firm, Klarna, congratulated Siddiq on “moving quickly”.

“We’re looking forward to carrying on that work to put proportionate rules in place that protect consumers while fostering growth,” he added.