Navigating the FCA’s new regulatory scrutiny of the BNPL market

Damien Burke, Head of Regulatory Practice at Broadstone, explains how FCA's final rules on BNPL, introduced in February 2026, impact the UK BNPL sector and elaborates on how to navigate FCA compliance, affordability checks, and a frictionless user experience.

The Buy Now, Pay Later (BNPL) sector has enjoyed substantial growth over the past few years.

The market has successfully positioned itself as a core part of the UK consumer credit market, particularly for younger borrowers, and has expanded from GBP 0.06 billion in 2017 to over GBP 13 billion in 2024. According to the regulator’s 2024 Financial Lives Survey, a fifth (20%) of UK consumers – equivalent to 10.9 million adults – said that they had used BNPL in the past year.

For many of these consumers, BNPL has become an attractive alternative to traditional credit products, offering a way to make purchases while spreading payments over time.

The Financial Conduct Authority’s (FCA) recent final rules on BNPL, introduced in February 2026, represent a key marker for a sector that is maturing rapidly.

The evolution of BNPL and the need for consumer protection

The rise of BNPL has been driven by a number of factors. Many younger consumers have faced rising living costs, reduced access to traditional forms of credit, and the increasing expense of short-term borrowing options like overdrafts.

In response, BNPL providers have stepped in to fill this gap, offering a product that many view as a low-cost, short-term alternative that is easily accessible and often directly integrated into customer journeys online.

However, the lack of clear regulatory guidelines has left both consumers and providers in a slightly uncertain situation.

As a result, the FCA’s intervention comes as no surprise. The application of the Consumer Duty to BNPL transactions will be a game-changer for the market, particularly in terms of improving transparency and safeguarding consumers.

Consumers will now be better informed about the risks associated with BNPL products, and more importantly, lenders will be required to conduct proportionate affordability checks to ensure that consumers can repay their debts without undue strain.

For a product that is often marketed as a budgeting tool rather than traditional credit, these regulatory measures are critical. They ensure that consumers fully understand their repayment obligations including when payments will be due, amounts, and what happens if they miss a payment, thus addressing potential pitfalls that may arise when BNPL is used irresponsibly.

Those consumers that do get into financial difficulty will be entitled to more support from lenders, including direction to free debt advice. If they feel they have been treated unfairly, borrowers will now be able to complain to the Financial Ombudsman Service.

By ensuring clearer information around the terms and conditions of BNPL transactions, the FCA aims to foster a more sustainable market that benefits both consumers and lenders over the long-term.

The industry challenge: operational transition

While the regulatory changes are undoubtedly positive for consumers, the implementation of the new rules poses a significant challenge for BNPL lenders.

Many of these providers will now need to transition to FCA-compliant systems and processes which will require substantial investment and adjustment. Lenders will need to update their underwriting systems, refine data handling procedures, and ensure that the customer journey remains as smooth and frictionless as it has been in the past.

Maintaining the simplicity and convenience that has made BNPL popular while complying with new regulations will be no small feat. The challenge lies not only in adapting systems but in ensuring that the regulatory changes do not diminish the user experience that has driven the rapid growth of BNPL services.

Lenders that have already operated under FCA guidelines may find the transition easier, but for those new to regulation, the authorisation process could be demanding and time-consuming.

The role of the temporary permissions regime

One of the most important features of the FCA’s new framework is the temporary permissions regime, which will allow companies to continue offering BNPL services while they work through the process of obtaining full authorisation. This transitional period will help to smooth the implementation of the new rules and ensure that there is minimal disruption to both consumers and providers.

For companies that have operated without oversight in the past, this temporary regime offers a much-needed safety net. It gives businesses time to adjust their operations and systems while still complying with the FCA’s basic standards. However, it is crucial that companies take full advantage of this period to ensure that they are well-prepared for the future, both from a regulatory compliance and a customer service perspective.

A positive future for BNPL?

Ultimately, the FCA’s intervention aims to create a more sustainable BNPL market – one that continues to serve consumers without exposing them to significant risks. BNPL, when used responsibly, can offer a legitimate and positive role in the financial ecosystem. However, without proper regulation, there is a danger that consumers may overextend themselves financially, leading to greater financial instability and hardship.

The new rules are an important step toward preventing such harms and ensuring that BNPL remains a viable option for consumers who understand the risks and can afford the repayments. By introducing clearer disclosures, affordability checks, and more robust consumer protections, the FCA is laying the foundation for a healthier and more transparent BNPL sector.

In the months and years ahead, the challenge for lenders will be balancing compliance with innovation. BNPL services will need to evolve in ways that meet regulatory requirements while maintaining the ease of use and accessibility that have driven their success. The key to this evolution will be collaboration – between regulators, lenders, and consumers – to ensure that BNPL continues to serve its purpose without undermining the financial stability of its users.

About the author

Damien Burke has over 25 years of experience working in banking and credit with specialisms covering credit risk analytics, compliance, and regulatory responsiveness within the banking sector. Damien joined Broadstone in 2025, deepening its existing consultancy services in banking and credit where it has provided credit risk and analytics support to clients ranging from top tier banks to high growth fintech lenders.

 

About Broadstone

Broadstone is a leading, independent UK consultancy delivering expert advice to employers, insurers, pension scheme trustees, and lenders. For over 40 years, Broadstone has been providing its clients with a wide range of specialist services with the team comprising over 750 expert consultants and administrators, including more than 85 actuaries, across twelve UK offices.