Professional & Financial Services Consumer Credit

Prepare for Buy Now Pay Later regulation

How Buy Now Pay Later providers should prepare for FCA regulation. Covers the current exemption under Article 60F(2), expected 2025-2026 legislative changes, and what authorisation requirements may involve.

UK-wide
Guide summary

Buy Now Pay Later (BNPL) providers must prepare for FCA regulation. Check if your products meet current exemption rules. Build compliance processes for affordability checks, credit reporting, and customer complaints. Apply for FCA authorisation once the regime opens.

  • Check if your BNPL products meet Article 60F(2) exemption rules
  • Build affordability checks for customers
  • Set up credit reporting to agencies
  • Create complaints handling procedures
  • Prepare for FCA authorisation in 2025
  • Monitor FCA consultations for updates
  • Consider appointing a Senior Manager for compliance
  • Factor in costs of new regulatory requirements
  • Engage credit reference agencies early
  • Legislation expected by 2025 with FCA rules by 2026
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UK-wide

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Buy Now Pay Later (BNPL) products let consumers defer payment or spread costs interest-free. Most BNPL products are currently exempt from FCA regulation, but this is changing. The government has confirmed it will bring BNPL into consumer credit regulation.

This guide explains:

  • Why BNPL is currently unregulated
  • What changes are expected
  • How to prepare your business
  • Alternative routes to market

Who this guide is for: Fintech providers offering BNPL products, retailers considering BNPL partnerships, and investors assessing regulatory risk in the sector.

Current regulatory position

Most BNPL products fall outside FCA regulation because they meet the conditions of Article 60F(2) of the Regulated Activities Order 2001:

  • No interest charged: The credit must be interest-free
  • Limited fees: Only a single fee (not exceeding the cost of providing credit) can be charged
  • Repayment within 12 months: Credit must be repayable in 12 instalments or fewer over 12 months or less

This exemption was originally designed for retailers offering short-term credit to customers. It was never intended to cover the scale and consumer harm potential of modern BNPL products.

Why regulation is being introduced

The Woolard Review (February 2021) identified significant consumer harm from unregulated BNPL:

  • Lack of affordability checks: Consumers can accumulate debt across multiple providers without proper assessment
  • Invisible debt: BNPL doesn't appear on credit files, so lenders can't see existing commitments
  • No Financial Ombudsman access: Consumers have no regulatory complaints route
  • Aggressive marketing: BNPL is often presented as a payment method rather than credit
  • Vulnerable consumers: Young people and those with lower financial literacy are disproportionately affected

The government consultation (2022-2023) confirmed the intention to regulate. Legislation is expected in 2025, with FCA rules following in 2025-2026.

Expected authorisation requirements

Based on government consultation responses and FCA guidance, BNPL providers should expect to need:

FCA consumer credit authorisation

Full FCA authorisation for consumer credit activities, including:

  • Demonstrating adequate financial resources
  • Meeting threshold conditions (suitability, resources, effective supervision)
  • Appointing approved persons (Senior Managers under SM&CR)
  • Implementing robust compliance frameworks

Creditworthiness assessments

BNPL providers will need to assess whether customers can afford repayments. This likely means:

  • Income and expenditure verification
  • Credit reference agency checks
  • Assessment of existing commitments (including other BNPL)
  • Proportionate checks based on credit amount and risk

Credit reporting

BNPL agreements will need to be reported to credit reference agencies, making the debt visible to other lenders and improving overall lending decisions.

Consumer protections

Standard consumer credit protections will apply:

  • Pre-contract disclosure requirements
  • Right to withdraw within 14 days
  • Access to the Financial Ombudsman Service
  • Fair treatment requirements under Consumer Duty

How to prepare

BNPL providers should start preparing now, even before final rules are published. The authorisation process typically takes 6-12 months.

  1. 1

    Assess your regulatory position

    Confirm whether your current products rely on the Article 60F(2) exemption. If you charge interest or fees beyond the exemption limits, you may already need FCA authorisation. Seek legal advice if uncertain.

  2. 2

    Review your business model

    Consider how regulation will affect your economics. Affordability checks add cost and may reduce approval rates. Credit reporting infrastructure has ongoing costs. Factor these into financial projections.

  3. 3

    Start building compliance infrastructure

    Develop creditworthiness assessment processes, complaints handling procedures, and vulnerable customer policies. These take time to implement properly.

  4. 4

    Consider SM&CR requirements

    Identify who will hold Senior Management Functions (SMF16 Compliance Oversight, SMF17 MLRO at minimum). Ensure they have appropriate experience and qualifications.

  5. 5

    Engage with credit reference agencies

    Establish relationships with credit reference agencies for both checking and reporting. Data sharing agreements take time to negotiate.

  6. 6

    Monitor regulatory developments

    Follow FCA consultations and government announcements. The detail of how regulation applies to different BNPL models may affect your compliance approach.

  7. 7

    Consider early application

    Once the authorisation regime opens, early applicants may benefit from faster processing. Being 'first mover' in compliance can be a competitive advantage.

Alternative routes to market

Some BNPL providers may consider alternative structures:

Appointed Representative

Operating as an Appointed Representative of an existing FCA-authorised firm allows faster market entry without direct authorisation. However, the principal firm is responsible for your compliance, and the FCA has enhanced oversight of AR arrangements following sector concerns.

White-label through authorised lender

Partnering with an authorised consumer credit lender who provides the regulated credit, while you provide the customer interface. This shifts regulatory responsibility but reduces your margin.

Restructure outside scope

Some providers may restructure products to fall outside consumer credit regulation entirely (for example, invoice factoring models or merchant credit). This requires careful legal analysis to ensure the restructured product genuinely falls outside scope.

Expected timeline

Based on government announcements (subject to change):

  • 2025: Primary legislation passed
  • 2025-2026: FCA consultation on detailed rules
  • 2026: Authorisation regime opens
  • 2026-2027: Transition period for existing providers

Important: Timelines may slip due to parliamentary timetable pressures. However, providers should not delay preparation - being ready early is better than scrambling to comply.

Common questions

Will all BNPL products be regulated?

The government has indicated a proportionate approach. Very short-term credit (under 3 months) or very low values may have lighter-touch requirements. Final scope will be confirmed in legislation.

Can I continue operating while applying for authorisation?

Transition arrangements are expected for existing BNPL providers, allowing continued operation while applications are processed. New market entrants will need authorisation before launching.

What about merchant partners?

Retailers offering BNPL through third-party providers are unlikely to need their own authorisation - the BNPL provider holds the regulatory responsibility. However, retailers should ensure their BNPL partners are authorised once regulation takes effect.

How much will authorisation cost?

FCA application fees for consumer credit authorisation are typically £1,500-£5,000 depending on category. However, the real cost is in building compliant systems and processes - budget £50,000-£200,000+ for a full compliance implementation.