FCA warns motor finance firms to hold financial resources for probe

12th April 2024

The Financial Conduct Authority (FCA) has issued a letter to motor finance firms reminding them to maintain adequate financial resources as a probe into the market continues.

The FCA is currently reviewing the historical use of motor finance discretionary commission arrangements (DCA). The regulator says that it has observed firms taking different approaches to account for the potential impact of previous use of DCA on their financial resources.

While each firm will need to examine its own specific circumstances, the FCA says that it expects this would include planning for any additional operational costs from increased complaints and, where applicable, to meet the costs of resolving those complaints.

The review continues to investigate the complaints they receive involving the commission arrangements..Firms involved in the review have engaged constructively. However, many firms are struggling to promptly provide the data the FCA needs. Reasons for this include data being stored on multiple systems and/or being spread between lenders and brokers. In some older cases, firms have not retained all relevant records.

On 3rd April 2024, Barclays commenced judicial review proceedings of the Financial Ombudsman Service’s decision to uphold a complaint relating to DCAs.

The regulator recognises that this work has generated some uncertainty and wants to provide certainty to consumers and firms as soon as possible. However, that relies on receiving comprehensive data promptly from a range of firms, and potentially, the speed and outcome of any litigation.