Dear CEO | Release Date: 19th August 2022
To read a shorter summary of this Dear CEO letter, click here.
To access the original FCA document, click here.
Long Summary
The Financial Conduct Authority (FCA) has issued a directive to CEOs involved in the provision, promotion, and approval of Buy Now Pay Later (BNPL) financial agreements. This communication stresses the importance of adhering to regulatory requirements in the promotion of BNPL agreements, highlighting responsibilities across different stakeholders including FCA-authorised firms, unauthorised lenders, and merchants.
Regulation of BNPL Financial Promotions
BNPL agreements, particularly those that are unregulated and exempt under Article 60F(2) of the Regulated Activities Order, do not require FCA authorisation for the lenders. However, all financial promotions related to these agreements must comply with specific regulatory standards. These standards are outlined in section 3 of the Consumer Credit sourcebook (CONC) in the FCA Handbook, and section 21 of the Financial Services and Markets Act 2001 (FSMA), which defines what constitutes a financial promotion.
Legal Implications and Risks
Communicating or approving financial promotions for BNPL agreements without appropriate authorisation or adherence to regulatory requirements is a criminal offence under Section 25 of the FSMA, punishable by imprisonment, a fine, or both. The FCA has expressed concerns over promotions that fail to present a balanced view, overly emphasising benefits without clear, fair, and prominent indications of potential risks, such as the implications of missed payments and the accruing of charges.
Responsibilities of Authorised Firms
Authorised firms that issue or approve BNPL promotions must ensure these are clear, fair, and not misleading as per the rules set out in CONC 3. This includes:
- Ensuring promotions do not disproportionately highlight benefits over potential risks.
- Making sure the information is understandable and accessible to the targeted audience.
- Not obscuring important information or warnings.
Guidelines for Unauthorised Lenders and Merchants
Unauthorised lenders must obtain approval from an authorised firm for their BNPL promotions to avoid legal penalties. Similarly, unauthorised merchants promoting BNPL as a payment method must also seek such approval unless they qualify for specific exemptions under the Financial Promotion Order 2005.
Actions Required from Firms
- Review and Compliance: All firms involved with BNPL agreements must review their financial promotions to ensure full compliance with CONC 3 requirements.
- Board Engagement: The FCA expects these issues to be escalated to the Board level, ensuring that strategic decisions align with regulatory expectations and responsibilities.
- Proactive Engagement: Firms are urged to proactively engage with the guidelines and adjust their financial promotions accordingly.
Monitoring and Enforcement
The FCA intends to monitor the market closely for compliance. Non-compliance identified in financial promotions may lead to enforcement actions, including withdrawal of permissions, fines, and directives to withdraw or amend promotions. The FCA’s new Consumer Duty rules also require firms to prevent foreseeable harm to customers, emphasizing the need for clear and understandable customer communications.
Next Steps and Conclusion
Firms are advised to:
- Assess and align their financial promotions with the stipulated regulatory frameworks.
- Prepare for potential audits and reviews by the FCA, focusing on compliance with both existing regulations and the forthcoming Consumer Duty standards.
- Ensure that all promotional activities are pre-approved by authorised personnel to mitigate legal and reputational risks.
The FCA’s directive underscores the critical need for transparency and responsibility in the promotion of financial products, particularly in a time when consumers face increasing financial pressures. By adhering to these guidelines, firms will not only comply with legal requirements but also contribute to a fairer, more transparent financial marketplace.