The FCA has written to buy-now-pay-later (BNPL) chiefs warning that they could face up to two years in prison unless they fall in line with financial promotion rules. The FCA plans to use a ‘loophole’ to clamp down on products it does not directly regulate.
A letter sent by the FCA and seen by the newspaper City A.M. warned BNPL bosses and retailers that any communication or ‘explainers’ on BNPL products constitute ‘financial promotions’ and so fall within its jurisdiction. This latest move follows an earlier warning shot from the FCA back in August aimed at BNPL firms like Clearpay, Laybuy, and Klarna. This emphasised that promotions must be ‘clear, fair and not misleading’. FCA rules state that ‘any invitation or inducement to engage in investment activity’ can constitute a financial promotion.
Industry insiders have hit back, however, claiming that the FCA is stretching the definition of financial promotions and is choking-off BNPL firms’ revenue. This came after scores of retailers received similar letters from the FCA and promptly revoked shoppers’ access to the payments products. One BNPL firm told City A.M. it is now facing a ‘horrific’ run-up to Christmas.
A source at the firm told the newspaper that ‘The FCA has identified what can only be described as a loophole to try to enforce regulation on the sector. The regulator appears to have taken the position that any information explaining how a product works is a financial promotion which therefore needs to go through a regulated sign-off process.’
The FCA has issued a tight turnaround to firms that they say have not given sufficient time to hire ‘approved’ individuals or strike deals with regulated third-party firms to sign off the communication of products on websites. An FCA spokesperson said ‘If the content on a webpage is causing a consumer to engage, it is likely to be a financial promotion and would need to be issued or approved by an authorised firm. It is vital that all financial promotions are clear, fair, and not misleading.’
Not all BNPL firms who were warned by the FCA in August have been hit with the new letters, however. Some BNPL providers licensed to provide other types of credit, and regulated in other European jurisdictions, have not received the follow-up warning. The FCA and Treasury have previously come under fire from some quarters over their slow speed of movement on BNPL and the fact the sector remains unregulated despite warnings of the ‘urgent’ need for oversight more than 18 months ago.
Debt campaigners have been sounding the alarm over the unregulated nature of these products, as consumers lean on credit and borrowing to cope with the soaring cost of living. In June, the Treasury announced a framework for the regulation of BNPL products, which included enhanced affordability checks and inclusion within the Financial Ombudsman Service scheme.