Buy Now Pay Later products will soon face stronger regulation. Here’s how providers can comply with the June deadline.
Buy-Now-Pay Later (BNPL) products are now included in the definition of a ‘credit contract’ following recent amendments to the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act).
BNPL providers will now need to comply with the NCCP Act, which already applies to other consumer credit providers. This will include being appropriately licensed by the Australian Securities and Investments Commission (ASIC) to continue offering BNPL products.
Key dates:
- 10 December 2024 – BNPL regulation passed and transitional arrangements commenced.
- 11 May 2025 – soft deadline set by ASIC for BNPL providers to submit their credit licence.
- 10 June 2025 – cut off for submitting a credit licence application.
- 11 June 2025 – BNPL providers that have not submitted a credit licence application must cease providing BNPL products caught by the reforms.
Read our recent article here on the BNPL reforms. In that article, we looked at the:
- Key aspects of the BNPL regulation.;
- Transitional arrangements for entities;.
- Responsible lending obligations which will apply to BNPL providers.; and
When the changes come into effect.
ASIC has also released their Information Sheet 285 (Info Sheet 285) providing guidance on the credit licensing requirements for BNPL providers.
What you need to do before 10 June 2025
BNPL providers must lodge a complete Australian credit licence application with ASIC before 10 June 2025. ASIC has also set a soft deadline to submit a complete application by 11 May, and from our experience, the earlier you lodge an application, the smoother the process will run. ASIC have limited resources and if applications are all received at once, it will create delays.
Submitting by the earlier May deadline means that if your application is for some reason rejected for lodgement, you still have some time before 10 June to complete and relodge the application.
| Tip
ASIC have published service standards for assessing licence applications. ASIC aims to assess and vary 70% of credit licence applications within 150 days of receiving a complete application and decide 90% of complete applications within 240 days. So, there is a 30% chance that an application will take over 150 days to be considered and a 10% chance that it could take over 240 days. Prepare your credit licence application well in advance as there are no shortcuts to speeding up the ASIC review process. |
Importantly, in Info Sheet 285, ASIC points out that to rely on the transitional arrangements you must submit a complete application. This means that you must provide ASIC with all the information they ask for in the application.
If you do not submit a completed application, then you risk having the application rejected for lodgement and will be required to submit another application or, more critically, if this occurs at the end of the transition period, then you risk not being able to continue to provide BNPL products until ASIC has assessed and granted a credit licence.
BNPL providers will have the benefit of continuing to operate under transitional arrangements until the licence application is granted, provided ASIC has received a ‘complete’ application before 10 June.
BNPL providers must also apply to become members of the Australian Financial Complaints Authority (AFCA).
This is not a substantial amount of time, so it is important that you remain proactive in submitting your licence application or variation.
Who will be caught by the new reforms
The good news for existing licensees is if you are already authorised to act as a credit provider, then you can also provide BNPL products under your licence without needing to apply for a variation.
A variation is only required for those licensees that are only authorised to act ‘other than as a credit provider’ and who are the credit provider under their previously exempt BNPL products.
The new reforms will only apply to BNPL products used:
- wholly or predominantly for personal, domestic or household purposes; or
- to purchase, renovate or improve residential property for investment purposes (i.e. consumer credit).
BNPL products used predominantly for business purposes will continue to be unregulated under the NCCP.
Preparing your application
Australian Credit Licensees need to demonstrate that they will be able to comply with the general conduct obligations and have the organisational competency needed for the credit services they intend to provide.
As a licensee, you will be responsible for the credit services that you provide. You must ensure that you are complying with the credit laws, especially the responsible lending and disclosure obligations.
Additionally, ASIC considers whether the licence applicant, or other key decision makers in the business, are ‘fit and proper’ to engage in credit activities.
ASIC has the power to check on this during the licence application process. The extent to which ASIC does check depends on its assessment of the risk associated with the licence applicant’s business having regard to its size, scale and complexity of the services it offers.
Because ASIC can and does check, credit licence applicants need to prepare these business systems in advance.
A note on Responsible Managers
Critical to the success of a licence are the persons you put forward as the Responsible Managers. They are the people who will be responsible for the quality of the credit activities your business provides.
Responsible Managers must have:
- Two years problem-free experience in the types of credit activities they will oversee; and
- Completed a credit industry qualification to at least the Certificate IV level or hold another general relevant higher level qualification (e.g. a diploma or university degree);
Info Sheet 285 does not provide any guidance on Responsible Managers and whether BNPL licence applicants can rely on the experience they have gained while BNPL has been unregulated. In the past, ASIC issued transitional guidance that dealt with Responsible Managers and being able to rely on unregulated experience. However, it is currently unclear how ASIC will assess Responsible Managers for BNPL.
This is because, if relying on ASIC’s published guidance, it states that ASIC does not recognise experience that has been gained in an unlicensed environment (i.e. the person has been providing credit services that require a licence, but neither they nor their employer are licensed) or by providing exempt credit services where this experience is not similar to the experience that would have been gained in a regulated business providing such credit services.
How to prepare a complete application
For ASIC to accept a complete application, you must complete the online licence application (CL01 for new applicants and CL03 for licence variations).
The online application will ask you a range of questions including:
- Who are each of the people involved in managing the credit business? These people are called your ‘fit and proper’ people.
- Identifying the people whose knowledge and skills demonstrate that the licence applicant is competent to engage in credit activities. These people are known as your Responsible Managers.
- Details of your compliance arrangements with the general conduct obligations. ASIC expects that licence applicants will have developed their business systems and arrangements before starting the application.
A business description must also be submitted with the online application. This describes the licence applicant’s credit business and how it will be operated.
In addition, fit and proper person proofs are required for all applications. This requires licence applicants to demonstrate that its ‘officers’ and the ‘officers’ of its controller are fit and proper. You must also provide recent criminal history checks for each of these persons (note also that ASIC has access to obtain bankruptcy checks for each of these persons as they cannot grant a licence unless these officers are ‘fit and proper’).
The online application, business description and other supporting documents are lodged together to commence the application assessment process. An Application Fee ranging from $1,798 to $4,624 incl. GST is payable to ASIC at this time. The fee depends on the authorisations sought and whether the applicant is an individual or a body corporate.
Upon receiving the application, ASIC undertakes a pre-lodgement check to see whether the application is complete and checking all supporting documents are acceptable for lodgement. If it does not pass this check, the application will be rejected and the licence applicant will need to re-apply once they have compiled all the required information. ASIC will hold the licence application fee for the next application.
ASIC assesses the risk associated with the business and the complexity of the proposed services and the market in which the licence applicant proposes to operate. Depending on the outcome of this assessment, ASIC may ask for more information about the proposed services or any issues of interest to it.
Once the application is under assessment ASIC may ask to see further documents demonstrating the licence applicant’s procedures to manage Representatives, Training, Financial Hardship, Responsible Lending, Dispute Resolution, Compliance, Risk Management or Conflicts of Interest.
The key things that ASIC looks for are:
- whether the nominated Responsible Managers have the qualifications and experience necessary to provide the credit services which the licence applicant seeks to be authorised to provide
- whether the nominated Responsible Managers, and the people involved in managing and controlling the credit business, are fit and proper people
- whether the applicant has the appropriate business systems in place to manage the provision of those services.
Once ASIC is satisfied with these matters, it issues a draft credit licence. This needs to be carefully checked to ensure that the necessary authorisations have been provided and that no inappropriate conditions have been imposed.
Licence applicants must then provide ASIC with specific information about their professional indemnity insurance (unless an exemption applies). Seek the services of a specialist broker as the insurance must comply with ASIC’s prescribed requirements (RG 210).
The licence applicant then confirms that the licence conditions are acceptable, there have been no material changes in any of the information provided to ASIC in, or in connection with, the licence application, and ASIC grants the final credit licence.
How we can help
Hamilton Locke has extensive experience assisting credit providers with their licence applications and building out compliance frameworks. Here’s how we can help:
- Assistance with the licence application, liaising with ASIC and providing technical and legal advice throughout the process;
- Reviewing BNPL agreements, responsible lending and financial hardship arrangements
- Our market leading compliance products help credit licensees establish their compliance framework
- Our colleagues at Source can provide ongoing compliance support.
For more information, please contact Jaime Lumsden, Michele Levine, Sónia Cruz or Ruth Fesseha.
