Navigating the road to Buy-Now, Pay-Later Regulation in the UK

As Klarna posts a $99 million loss, the UK sets its sights on stricter Buy-Now, Pay-Later (BNPL) regulation. While these results have been driven by several factors, including US consumers failing to repay, it is a stark reminder for the UK market of the risk with weak affordability checks and the importance of preventing foreseeable consumer harm. Firms must now prepare for Financial Conduct Authority (FCA) oversight, affordability rules, and a mid-2026 deadline. 

What has happened?

On 19 May 2025, HM Treasury published its response to the October 2024 consultation on the proposed regulation of BNPL products. The response details Treasury’s position on the proposed regulation and confirms the draft statutory instrument (SI), the Financial Services and Markets Act 2000 (Regulated Activities etc.) (Amendment) Order 2025, that will bring BNPL activity within scope of FCA regulation.

Once the SI is finalised, the FCA will have 12 months to draft rules before regulation, and the Temporary Permission Regime (TPR), come into effect. The regulatory commencement date is expected in mid-2026.

The aim of these reforms is to strengthen consumer protection and to bring greater consistency and oversight to the BNPL market. Firms currently operating on an unregulated basis will need to align with FCA expectations, particularly around the Consumer Duty and affordability requirements in CONC.

Who does this effect?

BNPL agreements offered by third-party lenders will become regulated. However, BNPL agreements provided directly by merchants for their own products will remain exempt.

Most merchants will not require credit broking permissions, but their financial promotions must be approved by a fully authorised person that has the correct permissions. TPR firms will not be permitted to approve promotions.

What are the key changes?  

1. Mandatory affordability checks: Providers will be required to conduct robust affordability assessments before offering credit. This is designed to reduce the risk of consumers borrowing beyond their means, and to introduce much-needed financial rigour to a sector that has been criticised for ease of access.
2. Enhanced consumer rights: Consumers will gain the right to escalate complaints to the Financial Ombudsman Service, bringing regulated BNPL products in line with other regulated forms of consumer credit.
3. Information requirements: The disclosure requirements that regulated credit agreements are subject to will not be extended to regulated BNPL loans, however the FCA will draft specific rules for disclosures relating to these products.

How can Thistle Initiatives support you?

At Thistle Initiatives, we work closely with firms across the consumer credit sector to ensure they are well-positioned for regulatory change.

Whether you are preparing for FCA authorisation and registration for the TPR, adapting your business model or reviewing your internal compliance framework, our team can provide expert support throughout the process. With our experience in regulatory strategy, gap analysis, and implementation, we’re here to help you navigate what comes next as a provider of BNPL credit agreements.

If you'd like to speak with our team about what these changes mean for your business, you can contact us at info@thistleinitiatives.co.uk

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