FCA boss: Buy now, pay later regulation is a trade off
The chief executive of the Financial Conduct Authority (FCA) said the new clamp down on buy now, pay later (BNPL) regulation would be a “trade off” as he faced a grilling from MPs.
Nikhil Rathi, who was reappointed as the regulator’s boss in April, told the Treasury Committee the crackdown would have “beneficiaries and downside risks.”
“We do see there are benefits of buy now, pay later… at the same time… I’ve seen cases of single mothers who have used BNPL for baby food, for nappies and found themselves in great difficulty including having bailiffs coming to their door.”
He said these consequences were a “very unfortunate outcome” of having the market unregulated.
“We have asked for this to be regulated for five years,” he said.
The fresh rules will require financial service providers to conduct affordability checks as part of efforts to make banking standards more consistent.
Borrowers will also be able to make complaints to the Financial Ombudsman allowing a faster process for refunds,
Meanwhile, providers will be required to conduct affordability checks of consumers, including assessing their income, spending and existing financial commitments to ensure they can harness new debts.
Rathi said the FCA’s latest Financial Lives survey revealed one in five UK adults had used BNPL at least once in the last year, with ten per cent failing to make at least one transaction.
The watchdog’s boss said regulation crackdown would involve a “social calculus” that observes the “broader question of tolerable failure” comparing those who are able to benefit from BNPL services and those who are vulnerable.
Lenders ‘have a point’ on APP frustrations
The hearing comes after Chair of the Treasury Committee Meg Hillier issued a letter to the social media giant Meta on Friday, raising concerns on financial influencers – dubbed finfluencers.
Hillier raised concerns at the speed Meta takes to remove damaging content from finfluencers, after the Financial Conduct Authority (FCA) named the Facebook and Instagram owner as the sector’s worst offender.
“I think they know what to do,” Rathi told the MPs.
“I don’t think they need guidance. There’s plenty of cases where they can get on and do it.”
Rathi said finfluencers’ cross-border operations make it difficult for the City regulator to direct accountability.
“We have to operate within our powers, we can’t force the tech firms… we rely on co-operation,” he told MPs.
The regulator’s chief also said lenders and building “have got a point when it comes to authorised push payment (APP) fraud”.
The banking industry has called for a broader effort to tackle APP fraud, that holds social media companies accountable, in addition to lenders.
The Payment System Regulator (PSR) introduced the reimbursement scheme for APP fraud in October 2024, which enforced sending and receiving payment service providers to split the reimbursement burden.
Shadow City minister Mark Garnier said in March: “The financial sector has invested heavily in fraud prevention, but banks cannot be expected to bear the entire costs of a shared problem.”