‘Buy now pay later’ firms face FCA crackdown after Woolard review

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‘Buy now, pay later’ firms such as Klarna will face tighter regulation from the City watchdog following a review of the unsecured credit market.

Sky News has learnt that a report to be published on Tuesday by the former Financial Conduct Authority (FCA) interim chief executive Chris Woolard will recommend that the sector be formally brought under the regulator's scrutiny.

The recommendation will come more than four months after Mr Woolard was commissioned by the FCA board to undertake the review, amid concerns over the number of shoppers buying products that they were unable to afford.

His review is understood to call for an expansion of the FCA's regulatory perimeter to encompass companies such as Klarna and Clearpay, which have seen their customer numbers surge during the pandemic.

The buy now, pay later (BNPL) sector has faced growing criticism of the approach it takes to consumers who fall behind with repayments, with the coronavirus crisis substantially exacerbating the problem.

While BNPL firms do not themselves provide direct credit facilities to consumers, concerns have risen about their rapidly growing scale.

The Treasury is understood to be supportive of Mr Woolard's key recommendation to bring the sector within the FCA's regulatory remit.

The FCA declined to comment, but a spokesman for Klarna said that as a licensed bank, it was "very comfortable operating in a regulated environment and wholeheartedly supports further regulation of the buy now pay later sector in the UK".

"We agree that regulation has not kept pace with new products and changes in consumer behaviour and it is now essential that regulation is modern and fit for purpose, reflecting both the digital nature of transactions and evolving consumer preferences."

Klarna has become one of the world's most valuable fintech companies, and is expected to float on a public exchange in the next couple of years.