The U.K. Financial Conduct Authority has issued a warning to Buy Now Pay Later firms about financial promotions that potentially breach the FCA's rules. The Financial Services and Markets Act 2000 prohibits the communication of an "invitation or inducement to engage in investment activity" either in the U.K. or in a way that could have an effect in the U.K. Firms authorized in the U.K. are exempt from this Financial Promotion Restriction; however, they must still comply with the rules governing financial promotions when making any promotion or when approving a financial promotion of an unauthorized firm. All financial promotions must be fair, clear and not misleading.

The FCA is concerned about the promotion of unregulated BNPL agreements where the advert does not include a warning about the risks involved in BNPL products, and that only refer to the benefits. These financial promotions do not satisfy the FCA's rule that a balanced view must be included in all financial promotions (i.e., it must cover the benefits and the risks). The FCA is also concerned that the promotion of certain unregulated BNPL products is being carried out by unauthorized firms that have not sought or obtained the approval of their financial promotion by an authorized firm.

The FCA has written to the CEOs of several BNPL firms raising these concerns and warning the firms that it will act if corrective steps are not taken.

Earlier this year, the FCA secured changes to the contracts of four Buy Now, Pay Later firms —Clearypay, Klarna, Laybuy and Openpay. Certain terms, including contract cancellations, continuous payment authorities and right of set-off terms, were fairer and easier to understand.

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