Changes are coming for Buy Now Pay Later firms operating in the DIFC

On 7 November 2022, the DFSA issued Consultation Paper 146 setting out proposed changes affecting the presently unregulated Buy Now Pay Later (BNPL) sector. The DFSA has invited comments on its proposals, the short window for which will close on 7 December 2022. 

Here we set out the key points for interested parties to be mindful of when providing credit as a BNPL firm in or from the DIFC.

In other jurisdictions, the provision of credit often falls outside of the financial services scope as there is separate consumer credit legislation. This is not the case in DIFC. In August 2022, the DFSA published an explanation paper describing how BNPL worked and the concerns it had in relation to these types of products.

Feedback to that paper from industry was that the current DFSA Providing Credit regime would not capture them. This was predicated largely on the business models having no, or reduced, interest or charges payable by the customer to the provider.
The DFSA is now unequivocal in that it intends for BNPL to be captured within the Providing Credit regime. This means regulation is coming.

Fundamentally, the DFSA is maintaining its stance that credit can only be provided to Retail Clients under very limited circumstances. This means that any BNPL firm licensed by the DFSA under the proposed regime would be unable to provide credit to Retail Clients.

The DFSA has posed only one question in relation to BNPL – should the existing definition of Providing Credit be expanded to include those offering BNPL products and services? If you are a BNPL firm currently operating in the DIFC, or you are looking to establish in the DIFC, then it is important to understand this material change to the regulatory perimeter and the potential impact on your business model…and perhaps have your say…

We at Clarity Solutions are available to help you understand the prospective changes and frame any responses you might like to make. Please reach out to us either by using our Contact Us page on our website, or by emailing us directly at [email protected].