What’s the difference between regulated and unregulated finance?
3 min
There are a whole range of Retail Finance options to choose from for your business. However, these can ultimately be grouped into two categories: regulated and unregulated finance.
Unregulated finance
The word ‘unregulated’ might be ringing some alarm bells. However, most of the common finance options we see at checkouts such as Klarna and PayPal plans come under this umbrella.
Unregulated finance refers to credit options with a duration of 12 months or less. For example, ‘Buy Now, Pay Later’, ‘Pay in 6 Months’ or ‘Pay in 3’ are all unregulated by the Financial Conduct Authority.
Obviously, finance providers offering these options still need to comply by legal guidance pertinent to their sector, as well as any trading standard practices that may apply to them. However, if things should go wrong, the FCA wouldn’t have any jurisdiction to intervene and would instead suggest other channels of mediation.
Regulated finance
This refers to finance offerings over 12 months. Longer-term finance, whether its interest bearing or interest free, is governed by the Financial Conduct Authority.
This means that any finance providers and merchant partners offering finance need to adhere to strict guidelines around financial promotions, treating customers fairly, and risk and compliance.
Which is best for my business?
If you want to offer customers a competitive range of finance options, you’d ideally want both options available. For example, maybe customers only want 3 or 6 month options, while others might prefer to spread the cost for longer (say, up to 60 months).
If you’re concerned about any negative impact on your customers as a result of offering unregulated finance, choose a finance provider like Zopa who is already licensed by the Financial Conduct Authority. We follow FCA guidance across both our regulated and unregulated finance journeys, ensuring customers are always treated fairly and can access safe and responsible lending offers.