On 14 February 2023, the Treasury finally published its delayed consultation on draft legislation to bring BNPL within the regulatory perimeter. The legislation follows the general approach set out by the Treasury last summer to bringing BNPL within the regulatory perimeter. You can read more detail about the Treasury's approach to BNPL regulation in our alert from July 2022.
There are, however, some key updates in the Treasury's final policy position from its thinking from last summer on the scope of regulation. Most notably, in welcome news for the merchant community, the Treasury has decided to limit the scope of BNPL regulation to agreements that are offered by third-party lenders. This is a change from the Treasury's previous position, when it was minded to extend the scope of regulation to capture agreements which are provided directly by merchants online or at a distance. The Treasury has now come to the view, after further engagement with stakeholders, that imposition of BNPL regulation on merchants in this manner would be disproportionate relative to the lack of consumer harm.
In further welcome news, the Treasury intends to put in place a transition period from the point at which the amending legislation is made. During this period, firms will be able to familiarise themselves with the new regime once the FCA has finalised its rules, and to make the necessary changes to their business models ahead of "regulation day" (the day on which regulation commences). A temporary permissions regime (TPR) will allow firms to continue to operate until they are fully authorised. Currently unauthorised firms will need to register with the FCA for entry into the TPR before regulation day. Third-party lenders who are already authorised for entering into a regulated credit agreement as lender, and domestic premises suppliers who are authorised for credit broking, will not need to register for the TPR as they will be able to rely on their existing permissions. The FCA's forthcoming consultation on its proposed rules will provide more detail on how the TPR will work in practice.
Only agreements made on or after regulation day will be regulated. Unregulated exempt agreements taken out prior to regulation day will continue to be exempt.
Responses to the consultation are due by 11 April 2023. Once the Treasury has considered feedback to this consultation, it will consider any necessary changes to the draft legislation and intends to publish a consultation response which will set out the anticipated key milestones for regulation. Following that, the Treasury will lay legislation when Parliamentary time allows, with the ambition that this will be during 2023. There remains an opportunity to shape the Treasury's approach to BNPL regulation - as has been clear from the evolution of its position, the Treasury has maintained an open-minded approach to stakeholder engagement, and has shown a willingness to change its position in response to feedback and evidence from the BNPL and merchant communities, particularly in relation to the unintended consequences of its policy position.
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