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The UK is moving towards a fully operational buy now, pay later (BNPL) regulatory regime, with the government aiming to deliver on its commitment to enact new consumer credit legislation by 2026.
The Financial Conduct Authority (FCA) has long advocated for BNPL regulation, and under legislation passed by the UK government in July 2025, will have oversight of third-party BNPL lenders.
The regulator has outlined how it intends to approach its new oversight responsibilities, proposing new rules for BNPL products, officially termed deferred payment credit (DPC), under its regulatory remit, with a compliance deadline set for July 15, 2026.
From that date, BNPL providers will need to be authorised by the FCA or operate under a temporary permissions regime while their applications are reviewed. However, merchants offering credit directly to customers will remain outside the regulatory scope.
The FCA aims to implement a proportionate regime that supports innovation while ensuring fair treatment for consumers. It plans to apply its existing Consumer Duty framework, requiring firms to deliver good outcomes, consider the needs of customers — including those with vulnerabilities — and act responsibly throughout the customer journey.
Key proposals include mandatory affordability checks, improved consumer disclosures, access to the Financial Ombudsman Service (FOS) and enhanced support for customers in financial difficulty. BNPL firms will also need to report data to help the FCA monitor the market.
Although some BNPL providers are already regulated for other types of credit, many remain outside the current framework.
The FCA is encouraging firms to begin preparing now and apply for temporary permissions to avoid disruption when the new rules take effect. Feedback on the proposals is open until September 26, 2025.
The bigger picture
BNPL typically refers to interest-free loans repayable in 12 or fewer instalments. A key motivator for regulation is its rapid growth, from £60m in 2017 to more than £13bn in 2024.
According to the FCA’s latest Financial Lives Survey, 20 percent of UK adults, around 10.9m people, used BNPL in the year to May 2024.
The UK has had a high degree of consensus on the need for regulation of BNPL for some time.
Providers, such as Klarna and Clearpay, have pushed for it, as has the FCA and parliamentarians such as Labour’s Stella Creasy, who in 2021 described BNPL as risking being the “true villain” of Christmas if regulatory action was not taken.
The FCA has previously attempted to use the tools at its disposal to oversee BNPL firms in lieu of a specific framework.
For example, it secured changes to potentially unfair and unclear terms in the contracts of Clearpay, Klarna, Laybuy and Openpay in 2022, and QVC and PayPal a year later.
The regulator also previously issued a warning to the industry that the financial promotion of all BNPL products must comply with financial promotion rules.
The UK was one of the first countries to begin considering measures to regulate the unsecured credit market back in 2021 following the publication of the Woolard Review, but other countries and jurisdictions have since moved ahead.
In Australia, the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 introduced new licensing requirements for BNPL providers.
In addition, Singapore’s fintech industry drew up guidance, and both the EU and Saudi Arabia have updated their consumer credit regimes.
Why should you care?
The proposed framework in the UK can be viewed as a watershed moment, showing BNPL’s increasing maturity as a sector and a genuine disruptor in the credit market.
Groups such as low earners and students have traditionally found getting credit challenging, but can benefit from the interest-free instalments that BNPL permits.
BNPL firms with operations in the UK should begin preparing now for FCA regulation, which takes effect in July 2026. Early action has been recommended by the regulator and should guarantee a smooth transition, avoiding disruption to business operations.
Preparations may involve:
- Assessing their regulatory status to determine whether they need to apply for full FCA authorisation or register for temporary permission.
- Reviewing their credit practices to ensure that they can meet expected standards on affordability checks, transparency and borrower support.
- Mapping how they will comply with the Consumer Duty by evaluating products, services and customer interactions to ensure they deliver good outcomes, in particular around fair value, consumer understanding and appropriate support.
- Improving monitoring to track customer outcomes, including missed payments and complaints, and ensuring that this data reaches the board level.
- Preparing to handle complaints to FOS standards, including ensuring well-established internal complaints procedures, clear documentation and a strong understanding of regulatory expectations.
Many firms rely on basic affordability checks and boilerplate language for communications, but this often means relatively limited support for vulnerable customers and little ongoing monitoring.
Under the Consumer Duty, firms would need to define clear target markets, assess product impact, especially on vulnerable groups such as those on low wages, and ensure that fair value exists in the process beyond just pricing.
Support should also be tailored, and options should be provided to customers such as flexible repayment options or referrals to debt advice if not already.
The introduction of access to the FOS is also a significant shift for BNPL firms, many of which are not currently subject to FCA oversight or the formal complaints regime.
Once these firms are regulated, customers will have the right to escalate unresolved complaints to the FOS, which applies a "fair and reasonable" standard when assessing disputes, and this can go beyond strict interpretations of contract law or internal policies.
Such a change will bring challenges. For example, firms may see a rise in complaint volumes as customers become more aware of their rights.
FOS rulings are also binding on firms, even if they disagree with the outcome. This can increase financial liabilities, especially if a ruling sets a precedent for similar cases.
Firms may find themselves exposed to reputational risk if complaints reveal poor treatment of customers, inadequate affordability checks, or misleading product disclosures.
Overall, some operational strain is likely. Dealing with FOS cases involves time, legal expertise and dedicated resources, especially if firms are handling high volumes or complex issues such as disputed late fees or customer vulnerability.
For firms with small compliance or legal functions and tight budgets, this may require significant upskilling or investment in new capabilities, something that will be challenging at a time when bottom lines are being hit by increasing costs thanks to inflation and general compliance requirements.
