The buy now, pay later industry (BNPL) will now be regulated by the U.K. Financial Conduct Authority (FCA) following a four-month review led by former interim chief executive Christopher Woolard, according to a report released by the agency on Tuesday (Feb. 2).
The FCA looked into the unregulated BNPL sector after the industry quickly escalated amid the coronavirus pandemic. Woolard recommends that BNPL products come under the supervision of the FCA as soon as possible. The Review outlined 26 recommendations to the FCA, sometimes collaborating with the government and other bodies.
BPNL firms like Klarna, the industry leader, Clearpay, Laybuy and others give shoppers the ability to spread payments across several weeks with no interest or fees — unless they fail to pay back on time.
“Most of us will use credit at some point in our lives. So, it’s vital that we have a fair market that works for everyone. New ways of borrowing and the impact of the pandemic are changing the market, with billions of pounds now in unregulated transactions and millions of consumers at greater risk of financial difficulty,” Woolard said in the statement.
“Changes are urgently needed: to bring buy now, pay later 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,” he said.
According to the report, U.K. households are holding almost £250 billion of outstanding credit debt, and over 42.5 million people used consumer credit in 2019.
“By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford — the same protections you’d expect with other loans,” John Glen, economic secretary to the Treasury, said in the statement.
Last month, the U.K. and European Union started discussions about regulating the financial services sector now that Brexit has taken effect. The financial services sector was largely overlooked in December’s Brexit deal. The U.K. and EU are drafting a Memorandum of Understanding to establish a regulatory framework by March.