On 14 February 2023, the UK Government published its consultation on the regulation of Buy-Now-Pay-Later (BNPL) which also included the draft legislation.

Currently, BNPLs and STFC companies benefit from the exemption under Article 60F of the Financial Services and Markets Act (Regulated Activities) Order 2001 (RAO). Firms providing BNPL products benefiting from the 60F Exemption do not have to be FCA authorised and the agreements do not need to be in a prescribed form under the CCA.

Scope of the regulation

• BNPL services - usually taken out online by consumers purchasing low value items, made with very little friction. The customer has an overarching relationship with a third party lender.
• Short Term Interest Free Credit (STIFC) - frequently offered in store for higher value items, who may be a third party lender or the merchant itself.

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What are the key changes?

As part of the Consultation, the Government has determined that the risks posed by BNPL are higher than the risks which are posed by Merchant Provided Credit.

1. For BNPL: The scope of 60F Exemption will be narrowed so that such providers cannot rely upon the exemption.
2. Financial Promotions: Merchants will be subject to the Financial Promotions regime when promoting BNPL services (even though BNPL will be authorised)
3. Low value BNPL agreements: Government intends to exclude BNPL agreements from “small agreements”, even for those not exceeding £50
4. Creditworthiness: Currently, creditworthiness checkers are often not carried out by BNPL providers. The Government considers it proportionate to bring BNPL products into the application of the FCA’s creditworthiness assessments.

What will stay the same?

• Merchant-Provided Credit: Merchants should be able to continue to rely upon the 60F exemption if the existing conditions of the 60F Exemption are satisfied (no interest, 12 or less installments in as many months)
• Credit broking: Currently, merchants who introduce their customers to BNPL lenders are exempt from regulation provided that the credit agreement satisfies the requirements of the 60F Exemption. The Government considers that it would be disproportionate to regulate merchants who are introducing their customers to BNPL providers.

Next steps:

BNPL providers which are not currently authorised who wish to undertake regulated activities on or after the date the new regulations are introduced will need to register with the FCA for entry to the Temporary Permissions Regime (TPR).

If firms fail to register on time then they will need to suspend their operations and complete the FCA authorisation process.