Understanding Deferred Payment Credit (DPC) and FCA Regulation

The Importance of FCA Regulation for DPC

Deferred Payment Credit (DPC), commonly known as Buy Now Pay Later (BNPL), will fall under Financial Conduct Authority (FCA) regulation from 15 July 2026. From this date, DPC lenders must either be authorised or have temporary permission. They must comply with the FCA’s suite of rules, guidance, and principles.

The final rules have now been published. These rules clarify when agreements will be regulated. Specifically, they will be regulated when:

• The lender and the supplier of goods or services are not the same authorised firm.

• There is an arrangement between a merchant and a lender, making the lender the legal supplier of goods and services to the customer.

  
  

However, agreements will not be regulated if they are used to finance insurance premiums, fund employee borrowing, are provided by social landlords to their tenants, or are entered into before regulation day.

Preparing for FCA Authorisation

While the temporary permission (TP) regime opens on 15 May, firms should not delay in starting their journey towards applying for BNPL FCA Authorisation. Some elements of the DPC regime will not apply to firms within the TP regime, provided they hold temporary permission. Nevertheless, firms must actively prepare for full regulatory compliance now.

Governance Arrangements

This preparation includes developing and embedding governance arrangements. The Senior Managers and Certification Regime (SMCR) is essential. It ensures that the necessary structures, values, and behaviours are demonstrably in place by the date of authorisation.

These arrangements are critical for demonstrating that the firm is “ready, willing, and organised” to meet the FCA’s threshold conditions and ongoing regulatory requirements once authorisation is applied for and granted.

FCA's Expectations for DPC Lenders

In the lead-up to the final rules, the FCA made its expectations for DPC lenders very clear. They expect firms to:

• Provide information to consumers that helps them make effective, timely, and informed decisions, both before entering into an agreement and throughout its duration.

• Lend responsibly and affordably.

• Support customers facing financial difficulties.

  
  

Compliance with FCA Rules

There is a wide range of FCA rules and regulations that new firms must implement quickly to prepare for full authorisation. This includes most elements of CONC, the Consumer Duty, and SM&CR, including the Conduct Rules.

New DPC lenders aiming for authorisation should plan for SM&CR readiness by:

• Mapping senior management and control responsibilities.

• Preparing Statements of Responsibilities and governance documentation.

• Ensuring systems are in place for certification and fitness assessments.

• Training staff on the Conduct Rules.

  
  

Once fully authorised, firms must also comply with the Consumer Duty obligations. These obligations are designed to ensure fair outcomes for retail customers. The Duty complements other provisions, such as affordability and creditworthiness rules under CONC, and importantly raises the required standard of treatment.

The Role of Consumer Duty

As the FCA emphasises the Consumer Duty as part of a proportionate, outcomes-oriented regime for DPC, lenders must demonstrate that their information, communications, and support are designed and delivered to enable customers to make timely, informed decisions that lead to positive outcomes.

New Rules for DPC Lenders

There are important new rules that DPC lenders should be aware of. A new rule at CONC 7.20.1R states that when borrowers miss a payment, the firm must notify them about the missed payment, any unpaid charges, and provide sufficient information for the borrower to understand which agreement the missed payment relates to, the consequences of the missed payment, and what the borrower should do next.

Embedding Changes in Practice

Importantly, preparation involves embedding these changes in practice, not just publishing them in documentation. For organisations new to regulation, this can be a daunting process.

How We Can Assist You

We can help you with our bespoke assistance with BNPL authorisation. Contact robert.bell@rbcompliance.co.uk for more information.

We also offer a range of support to help firms new to FCA regulation start the authorisation process and embed compliance regulations. Our services include FCA Application templates and bespoke support for the authorisation process. The Consumer Duty and SMCR are complex and multifaceted regimes; we offer free webinars as well as a variety of templates and guides.

In conclusion, understanding the implications of FCA regulation on Deferred Payment Credit is crucial for lenders. By preparing now and ensuring compliance with the new rules, firms can navigate the complexities of regulation with confidence.