Both buy now, pay later (BNPL) and crypto firms came under heavy criticism in the latest debate on the Financial Services and Markets Bill, following the introduction of new amendments to the proposed legislation.
On Wednesday (December 7), the Financial Services and Markets Bill was back in the UK parliament for its third reading, after being first introduced by HM Treasury in July this year.
For the first time, lawmakers debated an amendment authored by Labour MP Stella Creasy, among others, that will significantly affect the way that BNPL firms are regulated in the UK.
The main changes put forward in Creasy’s amendment are credit checks for BNPL users prior to approval, protection for BNPL users under the Consumer Credit Act and access to the Financial Ombudsman Service to settle complaints.
As noted by Creasy, the amendment will bring the non-interest-bearing elements of BNPL lending and similar services under the regulatory ambit of the Financial Conduct Authority (FCA), therefore closing the loophole that has allowed BNPL to remain unregulated.
“For nearly three years we have been warning the government on the need to act on legal loans sharks and buy now, pay later companies,” said Creasy during the debate.
“Companies such as Klarna are now worth billions of pounds because they can exploit our constituents.
“Officially they do not charge interest, so they are not regulated by consumer credit.”
Although BNPL users tend to increase their average order value (AOV) by as much as 40 percent, as shown by a Klarna study, Creasy said they may not necessarily understand what they have signed up to.
“They cannot go to the ombudsman if they feel they have been mis-sold this type of credit, and many constituents and consumers are saying they are being mis-sold,” she said.
“They did not realise that they had used buy now, pay later because it is so pervasive on websites.
“It means that consumers are dependent on the companies themselves, because they are not regulated, to do their own affordability checks, which is literally like asking turkeys whether they think Christmas is a good idea.”
Creasy also quoted statistics from a YouGov poll for StepChange Debt Charity, published on the same day as the debate, which found that three quarters of respondents will “struggle to afford Christmas” this year.
About 8 percent of respondents said they will be “relying on credit” to get through Christmas this year, and of those who intend to borrow, 40 percent said they intend to use BNPL services to do so.
However, when Creasy referenced this statistic in parliament, she claimed that "a poll published today says that 40 percent of the British public will do their Christmas spending with a buy now, pay later loan".
Despite Creasy’s error, lawmakers were broadly supportive of her amendment and her insistence that BNPL must be regulated as quickly as possible.
Anthony Browne, Conservative MP for South Cambridgeshire, joined Creasy in her likening of BNPL firms to payday loans companies.
“I was involved with the regulation of payday loans, something else that fell between the gaps and needed to be sorted — it was outrageous,” he said.
“I am convinced by her arguments that buy now, pay later is another gap that is not addressed.
“I am sure the FCA has powers to deal with that already, but I hear her frustration that the Government keep saying that they will deal with it but have not done so, so I urge the Minister to put that on his list of things to take up and deal with.”
Creasy’s amendment includes a requirement that BNPL regulations are introduced within a 28-day implementation period as soon as the bill is signed into law.
During the debate, Creasy also asked whether the introduction of ombudsman protection for BNPL users could be fast-tracked so that “this Christmas does not leave families with a nasty wake-up call come 1 January?”.
Andrew Griffith, economic secretary to the Treasury, did not respond directly to this suggestion.
Crypto firms and the fight against fraud
A second amendment to the bill, authored by Labour MP Tulip Siddiq, calls for more involvement from crypto firms in the fight against financial crime.
During the debate, Siddiq said she had heard from leaders in the financial services sector that the government’s approach of placing data sharing responsibilities on the banks alone was “stuck in the last century” and allows “tech-savvy criminals to get rich at the public’s expense”.
Siddiq’s new amendment aims to introduce a data-sharing arrangement that extends beyond the banks to include social media companies, crypto-asset firms, payment system operators and other platforms that are exploited by criminals.
Siddiq asked the minister for guidance as to whether the amendment will be included in the bill, but again the minister did not respond explicitly.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said the government is “walking a tricky tightrope” between over- and under-regulation of the crypto industry.
“It wants to put better safeguards in place to ensure consumers are more protected from another FTX-style implosion, but at the same time it doesn’t want to quash innovation in the digital coin and blockchain space,” she said.
“It’s keen to incubate new ideas, without giving too much legitimacy to an industry where fraud is rife and the intrinsic value of coins and tokens is sorely lacking.”
Noting the European Central Bank’s recent pronouncement that bitcoin is in its “last gasp”, Streeter added: “There is a danger that the UK could be seen as a safe haven for illegal money if the UK’s arms open too wide to welcome the crypto industry.”
Bradley Rice, financial regulatory partner at law firm Ashurst, said that he is disappointed that the government has had to be shocked into action by the FTX implosion and other crypto mishaps, instead of regulating pre-emptively and proactively.
“We will now get reactionary policy that fails to strike the right balance between protecting consumers, and encouraging the innovation and development of the underlying technology,” he said.
“That balance is vital if the UK is serious about being the crypto capital of the world, and exporting these services and knowledge to the rest of the world.
“The UK is currently lagging behind the leading pack. It's crucial that this next step is done correctly as it's not too late to leapfrog them.”