Buy Now Pay Later Regulation in the UK — What BNPL Firms Must Prepare For

The Current Regulatory Position

Buy now pay later (BNPL) products have grown rapidly in the UK, with millions of consumers using interest-free instalment plans to spread the cost of purchases. However, many BNPL products currently fall outside FCA regulation due to exemptions in the Consumer Credit Act 1974.

The primary exemption is Article 60F of the Regulated Activities Order (RAO), which exempts agreements where credit is provided interest-free and is repayable in 12 or fewer instalments within a 12-month period. This exemption was originally designed for traditional retail credit (e.g., "buy a sofa, pay in three instalments") but has been used by modern BNPL platforms operating at scale across thousands of merchants.

The result is a significant gap in consumer protection. BNPL customers currently have no right to complain to the Financial Ombudsman Service, firms are not required to conduct affordability assessments and financial promotions for BNPL products are not subject to FCA rules.

What Is Changing?

Following the Woolard Review (2021), HM Treasury consultation (2022) and subsequent policy statements, the UK government has confirmed that BNPL will be brought within FCA regulation. The key elements of the incoming framework are:

FCA authorisation: Firms offering BNPL products will need to obtain FCA authorisation as consumer credit firms. This will require meeting the FCA's threshold conditions including adequate financial resources, fit-and-proper management and effective compliance arrangements.

Affordability assessments: BNPL firms will be required to conduct creditworthiness assessments before providing credit. The government has indicated these assessments will be proportionate to the value and duration of the credit — but the core requirement to assess sustainable affordability will apply.

Financial promotions: BNPL advertising and marketing will be subject to the FCA's financial promotions regime. This means all promotions must be fair, clear and not misleading, with adequate risk warnings and transparent disclosure of the terms and costs of credit.

Consumer Duty: Authorised BNPL firms will be subject to the Consumer Duty (Principle 12), requiring them to deliver good outcomes across products and services, price and value, consumer understanding and consumer support.

FOS access: BNPL customers will gain the right to complain to the Financial Ombudsman Service if they are dissatisfied with how the firm has handled their credit agreement or complaint.

The Proportionality Principle

The government has signalled that the BNPL regulatory framework will be proportionate — recognising that applying the full CCA 1974 regime to a three-instalment, interest-free purchase would be disproportionate. Expected proportionality measures include:

• Simplified pre-contractual disclosure requirements (rather than the full SECCI form)
• A modified right of withdrawal — potentially shorter than the standard 14-day period
• Proportionate affordability assessments — likely allowing greater use of automated, data-driven approaches for lower-value credit
• Possible exemption from some CCA 1974 form and content requirements that are designed for longer-term, interest-bearing credit

However, the core consumer protections — affordability assessment, access to the FOS, financial promotions rules and the Consumer Duty — will apply in full.

Impact on Different Business Models

Pure-play BNPL platforms (e.g., firms operating as intermediaries between merchants and consumers, providing interest-free instalment plans at checkout): These firms face the most significant compliance impact. Most currently operate without FCA authorisation and will need to apply for consumer credit permissions, build compliance frameworks and implement affordability assessment processes.

Retailers offering in-house credit: Retailers that provide their own interest-free credit (rather than using a third-party BNPL platform) will also need FCA authorisation if their products currently rely on the Article 60F exemption. Many retailers may choose to outsource credit provision to an authorised firm rather than seeking authorisation themselves.

Banks and authorised lenders: Firms that already hold FCA consumer credit authorisation and offer BNPL-type products may face fewer changes — but will need to ensure their existing compliance frameworks cover the specific characteristics of BNPL products (short duration, lower values, online checkout integration).

Preparing for Regulation

Firms that currently offer BNPL products without FCA authorisation should begin preparing now. Key preparatory steps include:

Gap analysis: Conduct a comprehensive assessment of the gap between your current operating model and the expected regulatory requirements. Focus on affordability assessment capability, financial promotions compliance, complaints handling and management information.

Compliance framework design: Design your target compliance framework, including policies for creditworthiness assessment, vulnerable customer identification, complaints handling and financial promotions approval. Where possible, align with existing FCA guidance — particularly CONC and the Consumer Duty.

Data and technology: Assess whether your existing data infrastructure can support regulatory requirements. Affordability assessments require access to income and expenditure data — whether through credit reference agencies, open banking or customer-declared information. Invest in the technology needed to conduct assessments at scale without degrading the customer experience.

Financial resources: FCA authorisation requires firms to hold adequate financial resources. Conduct financial projections to determine the capital, liquidity and operational resources needed to meet regulatory expectations while maintaining commercial viability.

Board and governance: Establish governance arrangements that meet FCA expectations — including designated Senior Management Function holders, a compliance monitoring programme and board-level oversight of conduct risk and customer outcomes.

Engage with the FCA: The FCA has indicated it will provide guidance to support firms through the transition. Consider engaging with the FCA's pre-application process (if available) to discuss your business model and anticipated compliance approach before submitting a formal application.

Market Implications

The introduction of BNPL regulation will likely reshape the UK market:

• Consolidation — smaller BNPL firms that cannot absorb the cost of FCA authorisation and ongoing compliance may exit the market or be acquired by larger, already-regulated firms
• Pricing changes — the cost of compliance (affordability assessments, regulatory capital, FOS levies) may lead some firms to introduce charges or modify their merchant commission models
• Merchant relationships — merchants that offer BNPL at checkout will need to ensure their BNPL partner is FCA-authorised. Merchants may also face regulatory obligations if they are involved in financial promotions for credit products
• Consumer behaviour — affordability assessments may reduce approval rates, particularly for consumers with limited credit histories or existing high levels of indebtedness. This is arguably the intended policy outcome

Regulatory Outlook

The exact timeline for BNPL regulation remains subject to parliamentary process. Draft legislation was expected in late 2024 or early 2025, with a transition period following Royal Assent to allow firms to apply for FCA authorisation. The FCA has indicated it will consult on detailed rules once the primary legislation is in place.

Firms should not wait for final legislation before preparing. The direction of travel is clear, and the FCA has publicly stated it expects firms to begin building their compliance capabilities in anticipation of regulation.