Latest news with #FinancialOmbudsmanService
Finextra
10 hours ago
- Business
- Finextra
Preparing for BNPL regulation: What firms need to do now: By Ben O'Brien
The arrival of formal regulation for Buy Now, Pay Later (BNPL) products is no longer a question of if, but when. With the Treasury's May 2025 consultation response, the direction is this: by mid-2026, third-party BNPL lenders will fall within the scope of the Financial Conduct Authority (FCA). This change brings with it a full set of regulatory requirements—covering affordability, creditworthiness, redress, disclosures, and governance. While many firms are familiar with the general framework, the pace and detail of implementation demand serious attention. Risk leaders now face a critical window to build a strategy that aligns commercial goals with regulatory readiness. Scope of the new BNPL regime From mid-2026, third-party BNPL providers must be authorised by the FCA and comply with its rules on affordability, creditworthiness, consumer duty, complaints, disclosures, and more: Mandatory, proportionate affordability and creditworthiness checks Firms must demonstrate verifiable checks at the point of decisioning, aligned to individual circumstances, not just product type. Firms must demonstrate verifiable checks at the point of decisioning, aligned to individual circumstances, not just product type. Access to the Financial Ombudsman Service (FOS) BNPL customers can now escalate complaints to FOS, increasing the importance of auditable redress processes and timely resolution. BNPL customers can now escalate complaints to FOS, increasing the importance of auditable redress processes and timely resolution. Tailored disclosure requirements for digital-first products The FCA will introduce a bespoke regime focused on real-world comprehension — not just information delivery. Firms will need to test and evidence understanding. The FCA will introduce a bespoke regime focused on real-world comprehension — not just information delivery. Firms will need to test and evidence understanding. Extension of Section 75 protections to BNPL agreements Providers will be jointly liable for qualifying claims, requiring clear merchant oversight, governance controls, and capital planning to manage new exposure. While third-party BNPL is the initial focus, merchant-offered BNPL products remain outside the perimeter for now. This exemption, based on Article 60F(2) of the Regulated Activities Order, is under review and could be revisited if scale or harm increases. What this means for compliance and risk leaders The FCA isn't looking for surface-level compliance. It expects firms to demonstrate that processes are working and that consumers are genuinely protected. Affordability frameworks must evolve Checks must be proportionate and verifiable, with models recalibrated to reflect customer circumstances. Even low-value lending must evidence the potential for harm reduction. Complaint handling will need to be FOS-ready This includes robust audit trails, clear redress pathways, MI reporting on themes, and training on FOS processes. Joint liability introduces new exposure Providers must enhance governance around merchant partnerships, define liability clearly in contracts, and plan for potential claims in their capital models. Joined-up governance is essential Effective programmes will require close collaboration across credit, compliance, legal, product, and ops teams—with clear ownership under SM&CR. Disclosures must reflect real-world understanding It's not just about format. The FCA expects firms to test, monitor, and evidence comprehension—particularly for vulnerable customers. Making best use of the Temporary Permissions Regime The FCA will launch a Temporary Permissions Regime (TPR) to support the transition. Providers must be ready to act quickly when the window opens. Prepare for registration Ensure that internal records, model documentation, and business models are clearly aligned with regulatory expectations. Conduct a readiness assessment Review decisioning processes, affordability checks, complaints management, and financial crime controls. Plan for dual-track execution Meet TPR requirements while simultaneously building toward full authorisation. Engage early with the FCA Establish open communication lines to reduce ambiguity and show proactivity. Plan for contingencies Prepare wind-down plans, customer messaging, and backup procedures in case of registration delays or rejections. Innovation and consumer protection can coexist The decision to exclude some legacy Consumer Credit Act requirements reflects the unique nature of BNPL: short-term, interest-free, and often accessed via digital channels. This creates space for a more relevant, user-centric approach to disclosures but it also raises the bar. Risk and compliance teams should work with product, legal, and design leads to ensure communications are: Integrated into real customer journeys Mobile-friendly and accessible Prompted by user behaviour Supported by outcome-based testing and complaints data Those who treat disclosures as a compliance task may struggle. Those who invest in relevance and usability will have stronger customer engagement and defensibility. Merchant carve-out and the risk of market distortion The decision to exclude merchant-led BNPL from the regulatory scope has sparked debate. Without oversight, merchant-offered credit could create competitive asymmetry and raise consumer protection concerns. Risk leaders should: Monitor merchant product developments and prepare for potential perimeter expansion Review all third-party merchant partnerships for regulatory dependencies Revisit financial promotions and credit broking arrangements, particularly where merchants promote BNPL products without broking permissions Regulatory costs and anticipated market impact The Treasury's impact assessment estimates: An Equivalent Annual Net Direct Cost to Business (EANDCB) of £2.3 million A Net Present Value of -£20.1 million over the assessment period over the assessment period Authorisation application fees: £5,000 to £25,000 Annual supervision fees: £10,000 to £50,000 Technology upgrades: £500,000 to £2 million per provider for systems supporting affordability, reporting, and complaints per provider for systems supporting affordability, reporting, and complaints Section 75 exposure: Estimated at 0.5% to 1.2% of transaction values With the UK's BNPL market valued at £20 billion annually, sector-wide exposure to Section 75 alone could exceed £100 million. Consolidation is expected. Government modelling suggests 20–30% of providers may exit the market post-regulation. But with global BNPL volumes growing rapidly, those who remain stand to benefit from a stronger, more trusted marketplace. How leading firms are responding Some providers have already started adjusting: Klarna Following regulatory scrutiny in Sweden, Klarna UK introduced income verification, real-time spend tracking, and risk-based onboarding. Monzo Flex Built affordability into product design from the outset, with integrated credit reporting and real-time tracking. PayPal Adopted a cross-functional compliance strategy with specialist teams, training, and documentation of governance processes. The clock is ticking and the gap between those who prepare and those who delay will widen fast. For risk leaders, this is a chance to go beyond baseline compliance, strengthening frameworks, improving customer outcomes, and shaping the future of BNPL in a regulated environment.
The Sun
3 days ago
- Business
- The Sun
Huge change to compensation rules plotted by financial ombudsman after spike in complaints
A HUGE change to compensation rules is being plotted by the financial ombudsman after a spike in complaints. The Financial Ombudsman Service (FOS) is proposing to change the interest rate applied to the compensation awarded to consumers, to tie it to the Bank of England base rate. 1 If someone is found to have lost out because of their financial firm's errors, the ombudsman can order the business to pay compensation, plus interest. There are different types of interest businesses can be directed to pay, and one of these compensates consumers for being 'deprived' of money (not having it available to use) such as when it finds a claim has been wrongly turned down by a financial firm. The ombudsman can currently direct businesses to pay 8% interest on top of the compensation for the period their customer was out of pocket. It can also tell a business to pay 8% interest if it does not pay compensation on time. But the service said feedback suggests the interest rate 'could be better aligned with, and reflect, market conditions'. For new complaints submitted to the service, it is recommending changing the interest rate so it tracks against the Bank of England's average base rate plus one percentage point. The base rate would be calculated as an average rate over the period that the money was due until the date redress payment is made. The consultation is gathering feedback on this recommendation as well as other potential options and proposals for implementation. The Bank of England base rate currently sits at 4.25%, its lowest level in two years. Economists have speculated that two more reductions could happen this year. James Dipple-Johnstone, interim chief ombudsman at the FOS, said the service welcomes feedback 'on whether our proposed new interest rate strikes the right balance between simplicity, fairness and proportionality". The consultation will run until July 2 and the service said further proposals around its service will be brought forward in the summer.
Daily Mirror
21-05-2025
- Business
- Daily Mirror
Martin Lewis warns all Brits using 'Buy Now, Pay Later' ahead of major shakeup
Money-saving guru Martin Lewis has issued a stark warning to cash-strapped Brits lured in by 'Buy Now, Pay Later' products - following the government's decision to tighten regulation Cash-strapped shoppers are being urged to remain 'wary' of 'Buy Now, Pay Later' (BNPL) products ahead of huge reform. Whether you're ordering a Friday night takeaway, scrolling Zara for a new dress - or purchasing a new dishwasher after yours finally packed up - you will have probably noticed the option to postpone paying for your item. Lured in by not having to immediately take the financial hit of their shopping spree, BNPL companies have become seemingly ubiquitous over recent years. Sites like Klarna have now hit a staggering 100 million users, appealing to Brits who want to spread out their payments over several months, or even years. And while the service may be a much-needed lifeline for those struggling with their finances, consumer protection remains questionable. This week (Monday, May 19) the government introduced legislation in Parliament that seeks to regulate BNPL products under law - giving powers to the Financial Conduct Authority (FCA) to enforce the rules. However, the exact details of the legislation are yet to be confirmed, and the fresh regulation won't come into effect until 2026. Martin Lewis has therefore warned Brits enticed by BNPL products to remain wary of the financial impact it can have. "This isn't about knocking BNPL, it's about making it safer," Martin said. "BNPL can be useful, allowing those who need to spread payments for a budgeted, necessary purchase, such as a plumber, to do it interest-free. Yet it's been sold as a lifestyle choice, not a debt, and pushed for instinct buys or even takeaways. Too many are in trouble with multiple BNPL repayments, leading to debt-chasing and credit file damage." Buy Now Pay Later - what's changing While still under discussion, key changes put forward by the government include giving 'clear and accessible information about the risks involved'. This may make shoppers think twice before automatically option for a BNPL provider. Firms could also be obliged to run affordability checks on consumers to make sure they can actually afford repayments. "This would apply to items costing over £100 but not more than £30,000, as it does for credit cards currently," Martin's MSE website added. "It means the BNPL provider will be jointly liable with the retailer if anything goes wrong." Lastly, if you complain to a BNPL firm and don't receive a satisfactory response, you may soon be able to escalate your complaint to the Financial Ombudsman Service. This will make it easier for those rightfully entitled to a refund to make sure they get their money back. "Regulation will mean firms must be overt that it's a debt, have proper affordability rules, and will crucially let people go to the Financial Ombudsman Service if things go wrong," the money-saving guru explained. "Yet it's not coming in until 2026, so people should still maintain a level of wariness until then." Get the best deals and tips from Mirror Money Citizens Advice hailed the progress in implementing major reform, calling it a 'crucial step' towards protecting shoppers. "For too long, people have been exposed to unaffordable debt from a BNPL sector that has operated in a regulatory grey area," said Tom MacInnes, director of policy at Citizens Advice. "For some, this has had dire consequences. Many people are struggling to repay credit they can't afford, falling behind on essential bills and often needing emergency support, like food bank vouchers."
Business Mayor
17-05-2025
- Business
- Business Mayor
Insurers win relief on commercial policies from UK regulator
Stay informed with free updates Simply sign up to the UK financial regulation myFT Digest — delivered directly to your inbox. Britain's financial regulator is to create a new definition of insurance for big companies, bowing to insurers' calls for more of their commercial policies to be excluded from costly conduct and compliance rules. The Financial Conduct Authority on Wednesday announced plans to scrap existing rules that cause confusion among insurers, push up insurance costs for companies and restrict the availability of cover for smaller groups. The regulator said the move was part of a wider set of proposals to remove 'ineffective, outdated or duplicated regulation' for insurers as it responded to calls by Sir Keir Starmer's government to do more to support UK economic growth and competitiveness. 'We have listened to industry and we are taking action — in doing so we will reduce regulatory costs and increase the competitiveness of the already world-leading UK insurance sector, while maintaining vital protections for smaller customers,' said Matt Brewis, FCA director of insurance. The updated definition for insurance 'contracts of commercial or other risks' will align the definition of larger businesses with the existing size thresholds determining which companies can appeal to the Financial Ombudsman Service. The regulator will continue to exclude certain types of insurance from its conduct rules, such as aviation and maritime policies. But these exclusions will not apply to retail consumers purchasing such cover, introducing a distinction between cover for container ships and canal boats or between jumbo jets and small private planes. Read More L&G appoints new asset management boss in drive for growth UK insurers writing policies for customers and risks located entirely overseas would also be excluded from conduct and compliance rules to avoid duplication and conflict with foreign countries' regulations, the FCA said. The FCA predicted the changes would 'encourage new entrants into the market' and said they 'should deliver benefits to commercial customers through enhanced competition and through new, innovative services'. The changes 'could lead to worse outcomes' for small and mid-sized companies whose insurance contracts were no longer covered by the conduct and compliance rules, the FCA said. But it added that they were judged to have 'sufficient resources to protect their own interests' and would still benefit from some of its high-level rules. Executives in the UK commercial insurance sector, which takes in about £95bn in annual premiums, have long called for changes to rules that they say too often impose the hefty compliance requirements of retail consumers on contracts for big corporate customers. 'A new definition of large commercial insurance customers is particularly welcome,' said Caroline Wagstaff, chief executive of the London Market Group, which represents businesses across the insurance industry. Recommended 'If applied consistently across the rule book, it will allow the regulator to focus on protecting the retail and SME consumers who really need it, while reducing unnecessary regulatory requirements for corporate clients,' she said. The FCA said the introduction two years ago of its consumer duty rules, which require companies to ensure customers receive a good outcome, meant it could scrap overlapping rules, including a requirement for insurers to review the value of their product every year. Read More Car insurance firms agree to crack down on 'poverty premium' Rolling back the scope of the consumer duty was a central plank in the lobbying agenda of the British Insurance Brokers' Association, which is holding its annual conference on Wednesday in Manchester.
Yahoo
12-05-2025
- Business
- Yahoo
NatWest customer offended by Pride flags told to bank online
A NatWest customer who complained about an LGBT Pride campaign at his local branch was told to bank online, documents show. The customer, known only as 'Mr J', went into NatWest last July and was upset by the Pride materials on display. He claimed that the paraphernalia distressed him both because of his disabilities and religious beliefs but NatWest refused to take them down. The bank pointed out most of the services he required could have been done online. Mr J escalated his complaint to the Financial Ombudsman Service (FOS) in November, alleging the bank had failed to make adjustments required by the Equality Act 2010. The Act prohibits discrimination on a number of personal characteristics. Investigators ruled in NatWest's favour, adding the bank offered 'multiple ways' for customers to carry out their banking which do not involve visiting a physical branch. Ombudsman Danielle Padden wrote: 'NatWest is a bank that has chosen to display Pride materials along with other paraphernalia at certain times of the year. As a service, we wouldn't be able to tell them not to do that, as they are entitled to celebrate and raise awareness of the communities they serve.' Ms Padden added: 'I'm not able to decide that NatWest have acted unfairly here. They have provided alternative methods of banking and are entitled to decide what materials they display in their branches at certain times of the year.' To challenge NatWest's right to display Pride materials in its branches, Mr J would have to take them to court, the ombudsman said. The FOS told Mr J that he could use ATM machines outside the branch or a Post Office nearby to avoid the paraphernalia, or that he could use telephone or online banking. Records shared by NatWest showed that most of the activities he visited the branch to do between July and August 2024 could have been done online. The bank said Mr J – who claimed he needed to visit the bank in-person – could appoint a third party to visit the branch while Pride materials are prominently displayed. In the bank's 2024 annual report, it says that it 'celebrates Pride across the UK', and was ranked number 45 in the Top 100 Employers in charity Stonewall's UK Workplace Equality Index. On its website, NatWest states that it aims to 'continue to deliver a better LGBT+ colleague and customer experience through continuously challenging the status quo.' The rainbow 'Pride' flag was created in San Francisco in the 1970s, and has been adopted by pro-LGBT supporters worldwide. In 2018, an updated version, known as the 'Progress Pride Flag' was designed by Daniel Quasar, with a chevron added to represent trans and non-binary people. It comes after students at the Oxford Union refused to mandate the annual flying of the Pride flag in the month of June. At a meeting of the Union's standing committee on May 5, president Anita Okunde said that the rule requiring the flying of the flag had mysteriously been removed. But a motion to restore the rule, and to allow presidents to waive it in cases of national mourning, was rejected by seven votes to four, with critics fearing it would open a 'Pandora's box' of demands for other flags to be flown. NatWest was contacted for comment. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
