UK’s FCA to regulate buy-now-pay-later market

By Sunniva Kolostyak

The Financial Conduct Authority (FCA), UK’s financial services regulator, has published a review into the unsecured credit market, stating that the buy-now-pay-later (BNPL) market needs to be regulated in order to protect consumers.

The report follows a review by the former Interim Chief Executive of the FCA, Christopher Woolard, which looked at the business models of BNPL solutions such as Klarna, Clearpay and LayBuy, and the impact of the coronavirus pandemic. The review stated that BNPL products, currently exempt from regulation, should be brought within the regulatory perimeter ‘as a matter of urgency’, outlining 26 recommendations for the FCA and the UK government.

The FCA has welcomed the Woolard review, stating that its board agrees that there is a strong and pressing case to bring BNPL business into regulation.

Charles Randell, Chair at the FCA, said unaffordable credit can damage the lives of people who are already struggling to manage everyday expenses.

“While we have made progress in reducing unaffordable debt in the years before coronavirus, the pandemic has had an unequal impact on households. Many people have been able to reduce their debts, but some of the poorest in our society have exhausted any savings or run up more debts. All the authorities which cover debt and debt advice must act together systematically to prevent problem debt and to help people get out of a spiral of debt through properly funded debt advice,” Randell said.

“Regulation should be consistent and the review shows how we can ensure high standards in consumer credit regardless of the form of credit.”

Woolard’s recommendations include the provision of debt advice, greater consistency in support for consumers struggling to pay, more alternatives to high-cost credit and making sure products are affordable.

Woolard himself, Chair of the Review, said: “Changes are urgently needed: to bring BNPL into regulation to protect consumers; to ensure that there is secure provision of debt advice to help all those who may need it; and to maintain a sustained regulatory response to the pandemic.”

Currently, UK households have nearly £250 billion of outstanding consumer credit debt, and more than 42.5 million people used consumer credit in 2019. Klarna raised a $650m funding round in September last year.

In response to the review, Randell has written to the Economic Secretary to the Treasury setting out the FCA board’s view and proposing that the watchdog works with the government to design the appropriate regulation. The board has also asked Woolard to build the review’s recommendations into its business planning which will be published in April this year.

Randell said: “The review has powerful recommendations on debt advice and insolvency including on the IVA market. We are ready to work with other regulators to reduce the harm that IVAs can produce for people that use them, and to reduce the scope for unscrupulous operators to prey on vulnerable indebted people through for-profit debt packaging

“As the market innovates and changes, regulators and legislators need to respond quickly and decisively to protect consumers by facilitating credit where it is beneficial and clamping down on it when it does harm. The FCA agrees that there is a strong and pressing case to bring buy-now-pay-later business into regulation.”