Financial Regulations Focus: Digital Currencies, Financial Services, and Consumer Lending - UK, February 2023 Update
UK Announces Regulation of Buy-Now Pay-Later Products and Cryptoassets
The UK government has announced plans to regulate Buy-Now Pay-Later (BNPL) products and cryptoassets, marking a significant shift in the financial sector.
BNPL Regulation
Starting from July 2026, BNPL products will become fully regulated credit under the Financial Conduct Authority (FCA) [1][2][3]. This move follows a government decision to classify BNPL as Deferred Payment Credit (DPC), thereby bringing BNPL loans into the consumer credit regulatory framework [1][5].
Key proposed regulatory changes include affordability checks, consumer protections, a temporary permissions regime, extension of Section 75 protections, and the application of the Consumer Duty [1][2][3][4][5]. These reforms aim to protect consumers from potential harm and problem debt associated with BNPL products [3].
Cryptoasset Regulation
HM Treasury intends to create a number of new regulated or designated activities tailored to the cryptoasset market, including operating a cryptoasset trading venue, dealing in cryptoassets as principal or agent, arranging deals in cryptoassets, operating a cryptoasset lending platform, and payment activities relating to cryptoassets [6].
The FCA will not approve an application where the applicant has an underdeveloped Anti-Money Laundering (AML) framework or a weak governance structure [7]. The government will introduce legislation giving effect to the planned cryptoasset financial promotions regime as soon as parliamentary time allows [7].
BNPL Consultation
On 14 February 2023, HM Treasury published a final consultation proposing legislative changes to bring BNPL products into scope of the UK Consumer Credit Act 1974 and FCA regulation [8]. The consultation confirms the government's proposed approach to the regulatory controls that would apply to agreements that are brought into regulation [8].
Cryptoasset Consultation
On 1 February 2023, HM Treasury published a consultation paper on the UK regulatory approach to cryptoassets, with comments due by 30 April 2023 [9]. HM Treasury also set out its proposed requirements for a market abuse regime in the proposed crypto regulatory framework and issued a call for evidence relating to decentralised finance, certain other cryptoasset activities, and sustainability in the context of regulating cryptoassets [9].
The FCA published a statement on 6 February 2023, confirming it will publish its final rules for cryptoasset promotions once the relevant legislation has been made [10]. The FCA expects applicants to provide a comprehensive and accurate description of their products and services, establish policies and systems to manage and mitigate risks, and have a correct understanding of the risks associated with cryptoasset products [11].
Sources:
[1] FCA Press Release: Buy Now Pay Later Products to be Regulated
[2] FCA Consultation Paper: Buy Now Pay Later Products
[3] FCA Policy Statement: Regulating Certain Types of Cryptoasset Financial Promotions
[4] HM Treasury Press Release: Regulating Buy Now Pay Later Products
[5] HM Treasury Policy Statement: Regulating Buy Now Pay Later Products
[6] HM Treasury Policy Paper: Cryptoassets: Approach to Regulation
[7] FCA Statement: Cryptoasset Regulation
[8] HM Treasury Final Consultation: Regulation of Buy Now Pay Later Products
[9] HM Treasury Consultation Paper: UK Regulatory Approach to Cryptoassets
[10] FCA Statement: Cryptoasset Promotions
[11] FCA Feedback Statement: Applications Made by Cryptoasset Businesses for Registration
The UK government's plan to regulate Buy-Now Pay-Later (BNPL) products starting from July 2026 will fall under the Financial Conduct Authority (FCA), marking a significant move towards the regulation of fintech in the financial sector. In the cryptoasset market, the UK intends to create a number of new regulated activities, including operating a cryptoasset trading venue, dealing in cryptoassets, and operating a cryptoasset lending platform, as part of the fintech sector's digital finance landscape.
