FCA Announces Comprehensive Regulation for Buy Now Pay Later Industry
The Financial Conduct Authority has confirmed that the buy now pay later sector will come under its regulatory oversight from July 15, 2026, marking a significant shift in consumer credit protection. The City regulator has outlined a framework designed to ensure the sector can thrive while implementing crucial safeguards for the estimated 11 million adults who use these services.
New Consumer Protections and Requirements
Under the forthcoming regulations, BNPL providers will need to obtain authorisation from the FCA to operate legally. Lenders must conduct proportionate affordability assessments before offering credit to ensure customers can realistically manage repayments. Consumers will receive clear, upfront information about their agreements, including payment schedules, amounts due, and consequences of missed payments.
The sector will also be subject to the Consumer Duty, which requires financial firms to prioritize customer interests in all aspects of their operations, from product design to customer service interactions. BNPL companies must provide appropriate support to customers experiencing financial difficulties and direct them toward free debt advice services when necessary.
Addressing Market Concerns and Growth
Sarah Pritchard, deputy chief executive at the FCA, emphasized the regulator's balanced approach: "We want the buy now pay later sector to thrive – it provides an important source of credit to many – and we will continue to support firms who want to develop innovative new products. But crucially, no-one should be lent to if they're unable to repay because that could worsen their financial situation."
The BNPL market has expanded dramatically in recent years, reaching over £13 billion in transactions during 2024. According to the FCA's 2024 Financial Lives Survey, approximately 20% of UK consumers, equivalent to 10.9 million adults, utilized BNPL services in the twelve months leading to May 2024.
Industry and Advocacy Responses
Consumer advocacy groups have welcomed the regulatory changes. Peter Tutton of StepChange Debt Charity noted: "The absence of FCA regulation until now has only heightened the risk of financial harm for those relying on BNPL. Going forward, people using BNPL products will be protected by affordability checks, consistent support from lenders and access to the Financial Ombudsman if things go wrong."
Rocio Concha from Which? added: "Which? has campaigned for years for BNPL to be regulated and clearer information, proper affordability checks and access to redress when things go wrong should give shoppers proper protections should they choose this payment method."
Industry representatives have also expressed support. A spokesperson for banking and finance body UK Finance stated: "It's right that the product is regulated and our members welcome the application of more flexible regulation through the FCA." Similar endorsements came from BNPL providers Clearpay and Klarna, who highlighted the benefits of consistent operating standards across the market.
Implementation Timeline and Additional Safeguards
Firms will be able to register for the temporary permissions regime between May 15, 2026, and July 1, 2026. Providers will then have six months from the regime's implementation to apply for full authorisation. Consumers will gain access to the Financial Ombudsman Service for complaint resolution, adding an important layer of consumer protection previously unavailable for BNPL transactions.
Anne Pardoe of Citizens Advice highlighted the urgency of these measures: "These protections couldn't come soon enough. The growing BNPL market is driving more people to our services each year, with many struggling to repay credit they can't afford or falling behind on essential bills."
The FCA's proportionate regulatory approach aims to maintain access to BNPL credit where lending remains sustainable while encouraging innovation and healthy competition among providers. Consumers experiencing financial difficulties are advised to seek guidance through the Government-backed MoneyHelper website or contact debt charities like StepChange for free, impartial advice.
