Buy Now Pay Later Regulation in the UK: What BNPL Firms Must Do Now

The Current Regulatory Position

Buy now pay later (BNPL) lending by third-party providers became FCA-regulated on 15 July 2026. The FCA calls these agreements deferred payment credit. From that date, a lender must hold full FCA authorisation or temporary permission to enter new BNPL agreements, and the FCA's creditworthiness, disclosure, complaints and Consumer Duty rules apply. This guide explains what was exempt before, what applies now and what firms must do. For the authorisation route, see our FCA consumer credit authorisation guide.

Before 15 July 2026, BNPL relied on the exemption in Article 60F of the Regulated Activities Order (RAO) for interest-free credit repayable in 12 or fewer instalments within 12 months. The exemption was designed for traditional retail credit but was used by BNPL platforms at scale. The new legislation removed it for third-party lenders.

Until regulation day, BNPL customers had no right to complain to the Financial Ombudsman Service and lenders were not subject to FCA affordability rules. That gap has now closed for third-party BNPL. Agreements entered into before 15 July 2026 remain outside regulation and can continue to be serviced.

What Now Applies

Following the Woolard Review (2021), HM Treasury consultations and the FCA's policy statement PS26/1, the key elements of the framework are:

FCA authorisation: Third-party BNPL lenders need FCA authorisation for the relevant consumer credit activities, or temporary permission while their application is decided. Firms with neither cannot enter new BNPL agreements, and doing so is a criminal offence. Authorisation requires meeting the threshold conditions, including adequate financial resources, fit and proper management and effective compliance arrangements.

Affordability assessments: The FCA's existing creditworthiness rules apply to BNPL, including agreements under £50. Checks must be proportionate to the value and duration of the credit, but the core requirement to assess sustainable affordability applies in full.

Information before the agreement: Lenders must give key product information before an agreement is made, with further detail in an additional product information document, and must say whether they will or may check a credit reference agency.

Financial promotions: BNPL advertising and marketing is subject to the FCA's financial promotions regime. This means all promotions must be fair, clear and not misleading, with adequate risk warnings and transparent disclosure of the terms and costs of credit.

Consumer Duty: Authorised BNPL firms are subject to the Consumer Duty (Principle 12), requiring them to deliver good outcomes across products and services, price and value, consumer understanding and consumer support.

FOS access: The Financial Ombudsman Service's compulsory jurisdiction now covers regulated BNPL lending, so customers can take unresolved complaints to the ombudsman. It does not cover complaints about agreements made before regulation day.

A Tailored Regime

The regime is designed for short, interest-free credit. Rather than the full Consumer Credit Act 1974 disclosure rules, the FCA set BNPL-specific information requirements in its own rules, and most CONC conduct rules apply. The core protections, namely affordability assessment, Ombudsman access, financial promotions rules and the Consumer Duty, apply in full.

Impact on Different Business Models

BNPL providers that also hold customer balances or run payment accounts need separate payment permission, such as authorised payment institution status.

Pure-play BNPL platforms (e.g., firms operating as intermediaries between merchants and consumers, providing interest-free instalment plans at checkout): These firms face the most significant compliance impact. They now need full authorisation or temporary permission, and temporary permission firms must apply for full authorisation within six months of 15 July 2026.

Retailers offering in-house credit: Merchants that offer a third-party lender's BNPL as a payment option at checkout remain exempt from the credit broking rules. Retailers that provide their own interest-free instalment credit should take advice on whether their arrangement falls within the new regime.

Banks and authorised lenders: Firms that already hold FCA consumer credit authorisation and offer BNPL-type products may face fewer changes, but will need to ensure their existing compliance frameworks cover the specific characteristics of BNPL products (short duration, lower values, online checkout integration).

What BNPL Lenders Must Do Now

For firms in the temporary permissions regime, the priority is a complete authorisation application within the six-month window. Key steps include:

Gap analysis: Conduct a comprehensive assessment of the gap between your current operating model and the expected regulatory requirements. Focus on affordability assessment capability, financial promotions compliance, complaints handling and management information.

Compliance framework design: Design your target compliance framework, including policies for creditworthiness assessment, vulnerable customer identification, complaints handling and financial promotions approval. Align with PS26/1, CONC and the Consumer Duty.

Data and technology: Assess whether your existing data infrastructure can support regulatory requirements. Affordability assessments require access to income and expenditure data: whether through credit reference agencies, open banking or customer-declared information. Invest in the technology needed to conduct assessments at scale without degrading the customer experience.

Financial resources: FCA authorisation requires firms to hold adequate financial resources. Conduct financial projections to determine the capital, liquidity and operational resources needed to meet regulatory expectations while maintaining commercial viability.

Board and governance: Establish governance arrangements that meet FCA expectations, including designated Senior Management Function holders, a compliance monitoring programme and board-level oversight of conduct risk and customer outcomes.

Reporting: Fully authorised firms must provide product sales data on their BNPL lending to the FCA. Build the data capture into your systems now.

Market Implications

Regulation is expected to reshape the UK market:

• Consolidation: smaller BNPL firms that cannot absorb the cost of FCA authorisation and ongoing compliance may exit the market or be acquired by larger, already-regulated firms
• Pricing changes: the cost of compliance (affordability assessments, regulatory capital, FOS levies) may lead some firms to introduce charges or modify their merchant commission models
• Merchant relationships: merchants that offer BNPL at checkout should check that their BNPL partner holds authorisation or temporary permission, and should take care with any financial promotions for credit products
• Consumer behaviour: affordability assessments may reduce approval rates, particularly for consumers with limited credit histories or existing high levels of indebtedness. This is arguably the intended policy outcome

Regulatory Outlook

Regulation day has passed. The FCA's temporary permissions register lists the firms that registered in time, and those firms must apply for full authorisation by mid-January 2027. Firms that missed temporary permission registration cannot enter new BNPL agreements until they are authorised. The FCA's early supervisory focus is on affordability, clear information and support for customers in financial difficulty.