Dear CEO | Release Date: 19th August 2022
To read a longer summary of this Dear CEO letter, click here.
To access the original FCA document, click here.
Short Summary
The Financial Conduct Authority (FCA) has issued a directive for all firms involved with Buy Now Pay Later (BNPL) agreements to review their financial promotions to ensure they comply with existing regulatory requirements. This directive applies to both FCA-authorised and unauthorised firms, including merchants and social media influencers involved in promoting BNPL agreements.
The BNPL agreements in question are unregulated and exempt, typically involving borrower-lender-supplier agreements for fixed sum credit repayable within 12 months, provided without interest or charges. While these firms may not require FCA authorisation, their financial promotions must still adhere to regulations outlined in section 3 of the Consumer Credit sourcebook (CONC) and section 21 of the Financial Services and Markets Act 2001 (FSMA).
The FCA has raised concerns about some BNPL promotions not being balanced, overly emphasising the benefits without clearly presenting potential risks such as debt accumulation and consequences of missed payments. These promotions, often found on websites and social media, may also play on consumer impulses, potentially leading to poor financial decisions.
Authorised firms must ensure their promotions for BNPL products are clear, fair, and not misleading, as specified by CONC 3. Unauthorised lenders and merchants must have their promotions approved by an authorised firm to avoid criminal offences, with specific attention to ensuring promotions do not mislead consumers about the benefits and risks associated with BNPL products.
Key Take-aways for Affected Readers:
Firms involved in BNPL agreements must rigorously review and possibly revise their financial promotions to meet FCA standards, ensuring all communications are balanced, transparent, and provide a fair representation of the product. Authorised firms should verify that their promotions comply with CONC 3, and unauthorised firms must seek approval from authorised entities before issuing promotions. The FCA will actively monitor compliance and may enforce penalties for non-compliance, highlighting the importance of adhering to regulatory expectations to prevent legal repercussions and ensure consumer protection.