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    HM Treasury launches Buy-Now-Pay-Later consultation

    By David Petty   | 02/03/2023


    HM Treasury has launched its consultation on the future regulation of the buy-now-pay-later (“BNPL”) sector. The consultation sets out how BNPL firms could be regulated by the Financial Conduct Authority (“FCA”).

    Firms offering BNPL agreements will be required to obtain permission for one or more of the following;

    • Entering into a regulated credit agreement as lender
    • Exercising, or having the right to exercise, the lender’s rights and duties under a regulated credit agreement
    • Credit broking (for domestic premises supplier merchants that offer regulated agreements)

    In addition, the consultation sets out how the proposed approach will be implemented through the draft legislation;

    Changes to The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (“RAO”) will be made so that merchants that introduce their customers to BNPL regulated agreements will remain exempt from credit broking regulation. However, domestic premises suppliers, meaning firms offering BNPL on their products to a third-party lender in customers’ homes, will be required to obtain FCA full permission credit broking authorisation. This means that firms offering finance on items such as white goods and carpets will need to obtain full permission credit broking permissions either directly from the FCA or under an Appointed Representative arrangement.

    The draft legislation will also amend the Financial Promotions Order to require merchants which are exempt under the changes to obtain approval from an authorised person for promotion of agreements which will be brought into regulation.

    Under the drafted changes, there no longer be an exemption for ‘small agreement’ (i.e agreements under £50) meaning that BNPL loans in scope will be regulated regardless of value.

    The consultation proposes that regulation of BNPL will require the FCA to tailor its current rules on creditworthiness assessments. The proposals view is that it is for the regulator to decide how the current rules need to be tailored for BNPL.

    The consultation proposes to put in place a Temporary Permissions Regime (“TPR”). This will grant BNPL firms temporary permission to continue to operate until they are fully authorised by the FCA. Exempt agreements which have been entered into prior to the FCA taking responsibility of regulation will continue to be exempt.

    The consultation will be close on 11 April 2023. Once responses to the consultation have been considered, HM Treasury will consider any necessary changes and will publish a consultation response. It is anticipated that these changes will be introduced be during 2023.

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