Watchdog ‘cherry-picking’ buy-now pay-later rules, fintech groups claim

Fintech bodies have rounded up the City watchdog for “cherry-picking” its regulation of buy-now-pay-later firms today, after it threatened managers with jail for breaching financial marketing rules.

By AM revealed on Monday that the Financial Conduct Authority, which is expected to draw up specific rules to regulate the deferred payment products by 2024, wrote to bosses last week warning that any communications and product explanations on BNPL products constitute “financial promotion” and therefore fall within its jurisdiction.

However, the move has irked some parts of the fintech industry, which has suggested the watchdog has cracked down on financial marketing rules due to a lack of tailored regulation.

“Buy-now-pay-later should have been regulated a long time ago, but it needs to be done properly,” said Luke Kosky, fintech head of sector group Coadec By AM

“Cherry picking which activities are now to be regulated is bad for consumers, bad for businesses and bad for innovation.”

In a letter seen by City AM, the regulator demanded that all communications regarding BNPL products are now signed by regulator-approved persons. A BNPL firm claimed that the letter had also gone to its key retail customers, scaring them into withdrawing access to the products en masse.

Speaking to City AM, Russ Shaw, head of technology body Tech London Advocates, said regulation is “ultimately a good thing” but warned it must not “stifle innovation in the UK’s world-leading fintech sector”.

“Ultimately, loopholes leave regulations open to interpretation and can be misleading and ineffective. The FCA and the fintech sector must come together to find a fair solution as the status quo is not working,” he said.

“UK fintech companies are pioneering, creating jobs and generating growth for the UK economy – it is in the interests of all parties to come together, work across differences and provide a balanced approach around rules and regulations.”

The Ministry of Finance has drawn up a framework for regulating the sector which includes improved reasonableness checks and allows customers to take complaints to the Financial Ombudsman Service. But ministers and the regulator have faced criticism over the pace of regulation despite warnings of the “urgent” need for oversight last year.

However, the FCA hit back at the allegations by BNPL groups today, claiming “this is not a loophole, it is the law.”

“Consumers facing higher living costs and looking for credit that meets their needs expect us to enforce it,” a spokesperson said By AM.

“The standard for financial campaigns is that they are clear, fair and not misleading. It would be worrying if any firm found this to be a significant barrier.”

The spokesman added that the government plans to publish a second consultation document on regulating the sector more broadly, along with detailed draft legislation, “around the end of the year”, and it will develop further rules after that.

Enforcement by the FCA comes after it held a roundtable with BNPL suppliers to discuss concerns about financial promotion, as well as the scope of upcoming regulation, and urged firms to do more to support borrowers in financial difficulty.

The watchdog also fired a warning shot to firms in August regarding financial marketing rules, telling firms that advertising must not mislead customers.