Buy now, regulate later

SNEAK PEEK

— Labour gets thinking on Buy Now, Pay Later regulation.

— Fintechs argue fraud payments legislation is unsuited to their needs.

— FCA looks into treatment of vulnerable customers.

Good morning readers! We hope you had a lovely weekend. To ease you into what will likely be yet another grey morning, we’ve got a lot of fun in this morning’s newsletter. Below we have the latest Labour thinking on the ever-elusive Buy Now, Pay Later, EU-U.K. finreg discussions, and the pulse on the U.K. fintech scene. 

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DRIVING THE DAY

LOAN LOVE-IN: MFS U.K.hears that Labour advisors have been using recent City events to chat with Buy Now Pay Later bosses to monitor the mood on the party’s plans to regulate the sector. Although we have heard these are casual chats over drinks at crowded London booze-ups, advisors are seeing if BNPL companies are happy with draft proposals, with one being overheard saying that nothing has been decided on yet. 

Don’t rock the boat: The fear in government and Labour is that if rules are too strict then BNPL companies will just pack up and leave the U.K., which is a weird priority considering consumer protections are pretty important — especially in a cost of living crisis where people are using the credit to buy everything from furniture to food. Even weirder when you contemplate that lending giant Klarna has said publicly it wants the sector to be regulated. The FCA, which will be responsible for regulating BNPL companies, is also pushing for the government to hurry up and sort it.

Side note: It’s now over three years since Chris Woolard — former interim chief exec at the FCA and now a partner at EY — produced a review saying there was an “urgent need” to regulate BNPL.

Delays: The Treasury published draft legislation to regulate BNPL last June, but has since kicked the can down the road as it is not “an election winner” and it doesn’t want to “to restrict the number of BNPL products on offer,” according to insiders who spoke to The Sun. Jeremy Hunt then admitted to ITV in January that introducing regulations was taking “longer than we would have liked.” In other words: It ain’t gonna happen before the election. 

The plan: Labour pledged in November to regulate BNPL, essentially giving customers the same protections they have with credit cards. In the party’s January Financial Services white paper, Labour said it still intends to regulate the sector, but by the sounds those plans are yet to be finalized until the Shadow Treasury shoots the proverbial with the BNPL big hitters.

MFS U.K.’s takeaway: With Klarna & co, it’s got to be a case of when, not if, regulation will come. The Tories can easily keep kicking the can down the road given the U.K. is counting down to an election. But if a Labour government gets in when that happens, putting some rules into the unregulated credit space will surely be a priority.

WHAT’S ON

Tuesday, the Chancellor will face the Economic Affairs Committee in the Annual Scrutiny Session, 3 p.m. FCA publishes annual business plan.

Wednesday, the Treasury Committee questions bank bosses on increased profits, 10:15 a.m. The Office for National Statistics releases statistics for Consumer Price Inflation and Producer Price Inflation for February 2024, 7 a.m.

Thursday, the Bank of England releases its Monetary Policy Summary and the minutes of the Monetary Policy Committee’s hearing, 12 p.m. The BoE also publishes its Agents’ Summary of Business for 2024 Q1, 12 p.m. The Peterson Institute for International Economics will host an online review on revitalizing bank mergers, 5:30 p.m. UK Finance holds M&A conference, 9 a.m.

**A message from Nationwide: Unlike the banks, Nationwide Building Society is owned by its members, not shareholders. That’s anyone who banks, saves or has a mortgage with us. Which means we can always focus on what’s best for them. It’s our fundamental difference and what makes us a good way to bank.**

BREXIT

MARK YOUR CALENDARS FOR U.K.-EU FORUM IN MAY: It’s over to Brussels for the second installment of the EU-U.K. financial-services forum — and the date is now set for May 22. 

Recap: The two sides have only just started speaking again after financial services discussions were held up for years by tensions over the Northern Ireland border.

MMFs: The first regulatory forum took place in London in October, and the Brits raised concerns about the EU’s relaxed approach to wobbly money market funds. With no progress on the EU side, it will likely come up again, as well as broader concerns about risks stashed in shadow banking.

Tricky T+1: But this time round, securities settlement may be the thorniest issue as both sides are wary of being left in the dust, and the possible disruption to trades. Charlie Geffen’s report looking at whether the U.K. should try and catch up with the U.S. or wait around for the EU is expected very soon. 

Elections: The forum is a place for technical discussion — so politicians aren’t involved. But with EU elections coming up in June and the U.K. heading for a national ballot, likely in the Fall, civil servants can chat through the risks, yet they won’t have much of a mandate.

Top technocrats: This will be the first time the two most senior civil servants — the Treasury’s Gwyneth Nurse and the European Commission’s John Berrigan — attend in person, after Berrigan had to call off a physical appearance due to illness in the Fall. 

FRAUD

U.K. FINTECHS BEMOAN NEW FRAUD LEGISLATION: Last week, City Minister Bim Afolami announced new legislation designed to prevent fraud, by giving banks more time to process transactions if they suspect foul play. But fintechs fear the move will contradict their USP: smoother, fast payments. 

Unintended consequences: The new powers give the firms the permission to delay fund transfers, rather than require them to do so. But the fintech industry, which counts challenger banks, fears it may become a de-facto risk mitigation tool that slows a high volume of payments. 

Adam Jackson, Director of Policy at Innovate Finance, said the new legislation should be seen as “an additional tool to combat fraud” but it “should not become a default risk option that leads to widespread unnecessary friction or delays in faster payments.”

Not the only one about: In October, the payment regulator’s fraud reimbursement scheme becomes compulsory. This means that banks and payment firms will have to reimburse customers up to £415,000 if they’re victims of push payment fraud. The banking industry thinks this number is too large, especially when they argue the fraud stems from online platforms like Meta. Fintechs also believe it could have a damaging impact on the U.K. industry. 

One of the reasons … they want the legislation changed is because they want social media companies to take on more responsibility. 78% of fraud cases originate online, and three quarters of this comes through social media, according to figures published by UK Finance. In a letter to the Chancellor last summer, the body claimed that half of digital payment scams originate on a Meta site, which includes Instagram, Facebook & Whatsapp. 

Prevention not cure: Fintech bodies like Innovate Finance want regulators to do more to force social media companies to stop fraud at its source. One thing they’re pushing Ofcom for (with the Online Safety Act coming up) is making Facebook Marketplace have a verified payment system built-in, which would make fraudulent payments less likely. Currently, unlike, say eBay, or Depop, it doesn’t.

Innovate Finance’s Jackson said: “Online marketplaces such as Facebook’s currently have no obligation to provide a built-in payment feature which means it is up to buyers and sellers to arrange payments. We have proposed to Ofcom that in implementing the Online Safety Act they require online marketplaces to introduce secure payment services, so that sellers have to verify their identity with a regulated payment provider.”

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RETAIL FINANCE

FCA PROBES FIRMS’ TREATMENT OF VULNERABLE PEOPLE: The FCA announced on Friday that it will review financial firms’ treatment of vulnerable customers as part of its Consumer Duty supervision and oversight. 

Deep dive: The review will look broadly at how firms treat customers, including older customers, in vulnerable circumstances. The regulator will look at firms’ understanding of customer needs, the skills and capability of their staff, product and service design, communications and customer service and whether these “support the fair treatment of customers in a vulnerable position.” The FCA will also look at the outcomes consumers in vulnerable circumstances receive and whether they’re as good as the outcomes of other consumers.  

What and when: The FCA will kick off its review imminently, so firms should expect to be contacted shortly. The regulator will share its findings by the end of 2024. The review comes 9 months after the FCA’s flagship consumer protection rules were introduced last July. Closed book — or legacy — products will come under Consumer Duty regulations this Summer. 

The FCA said: “Under the Consumer Duty, firms should act to deliver good outcomes for all customers, including those with characteristics of vulnerability. This [review] will enable us to understand whether those consumers most susceptible to harm are receiving good outcomes.”

BANKS

NOT-VERY-SUPPORTING FACTOR: SMEs are having a terrible time of it and a proposed rule that would make it more expensive for banks to lend to them is salt in the wound, according to the Federation of Small Businesses (FSB).

Temperature check: The FSB said in a report today that small businesses are hampered by late payments and have downbeat prospects about 2024. As the group questions how to improve growth, one of the big issues making things more challenging is the potential removal of the “SME supporting factor” — which allows banks to hold less capital when lending to small businesses — as the U.K. PRA implements Basel 3.1 bank capital rules.

Sayonara, supporting factor: The PRA has proposed removing the lighter capital provision inherited from the EU, meaning British banks would have to hold more capital when they lend to small businesses — which banks and SMEs argue will make credit more expensive. The PRA appears to be in listening mode and there’s a good chance it’ll water down its removal plans (read our story here).

Save our supporting factor: Martin McTague, FSB’s national chair, said the removal of the supporting factor would be a “threat” to financing options for small firms. “If it is abolished, banks will have one more reason not to lend to smaller firms, which we believe will reduce the availability of finance overall, and push up rates,” he said.

WHAT WE’RE READING

British American Tobacco is set to keep its London listing despite noise about moving to New York, reports the FT.

Bloomberg details the economic woes of Rishi Sunak, similar to those of the Tory party before Labour’s 1997 landslide win.

The Sunday Times writes about the impact a Tik Tok ban would have on British businesses.

Thanks to: Fiona Maxwell and Izabella Kaminska.

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