RegTech (Regulatory Technology) is a term used to describe the use of technology to help financial institutions comply with regulatory requirements. The UK government has introduced draft legislation aimed at regulating buy now, pay later (BNPL) firms, which have previously operated with little oversight. In the case of BNPL (Buy Now Pay Later) providers, RegTech is becoming an increasingly important area of focus due to the increasing regulatory scrutiny on this sector.
BNPL providers are essentially offering consumers a loan to make purchases, which means that they are subject to many of the same regulations that traditional lenders must follow. However, because BNPL providers are often newer and more innovative than traditional lenders, they may not have the same level of experience or resources when it comes to compliance.
RegTech solutions can help BNPL providers to ensure that they are complying with all relevant regulations and requirements. For example, RegTech solutions can help BNPL providers to verify the identity of their customers, monitor transactions for potential fraud or money laundering, and ensure that they are providing clear and accurate disclosures to customers about the terms of their loans.
In addition to helping BNPL providers comply with existing regulations, RegTech can also help these companies to stay up to date with changing regulatory requirements. As regulators continue to focus on the BNPL sector, it is likely that new regulations and requirements will be introduced, and RegTech solutions can help BNPL providers to quickly adapt to these changes.
Overall, RegTech is a rising need for BNPL providers because it can help these companies to manage their compliance risks more effectively, reduce their regulatory costs, and ensure that they are providing a safe and transparent service to their customers.
However, as the sector continues to grow, regulators are increasingly looking to provide greater protections for consumers. Currencycloud, a provider of international payment solutions, noted that BNPL firms have operated in a regulatory grey area, but this is changing as regulators seek to introduce legislation to cover the sector. Although the exemption that allowed BNPL firms to operate without authorization from the Financial Conduct Authority (FCA) has given consumers more flexibility in making payments, regulators are concerned about reports of consumers falling into high levels of debt. The UK government is exploring regulations that would put BNPL firms under the full remit of the FCA and give the regulator the power to withdraw firms’ authorization to operate in the UK. The US Consumer Finance Protection Bureau has also expressed concerns about the lack of protections offered by BNPL firms compared to credit card companies. Currencycloud advises that FinTechs operating in this sector must not only keep up with the new regulations, but also comply with payments regulations across all jurisdictions.
