FCA tells motor finance firms to maintain their funding levels

The Financial Conduct Authority (FCA) wrote to motor finance firms on Friday, stressing that they must maintain adequate financial resources at all times.

The communication came amid the regulator’s ongoing review of historical motor finance discretionary commission arrangements (DCA), revealing varying approaches among firms in accounting for the potential impact of past DCA use on their financial resources.

As a result, the FCA said it was reminding firms of the necessity to uphold adequate financial reserves.

Each firm was urged to assess its unique circumstances, accounting for potential additional operational expenses stemming from heightened complaint volumes and, where applicable, to cover the costs associated with resolving such complaints.

Amid the ongoing review, firms were advised to continue investigating complaints involving a DCA to ensure prompt resolution if the pause on complaint handling is lifted.

They were also encouraged to adhere to the Information Commissioner’s Office guidance on addressing data subject access requests, including confirming the involvement of a DCA in consumer agreements upon request.

Furthermore, firms are instructed to notify the FCA if engaged in litigation related to motor finance commissions subject to, or likely to be subject to, appeal to the High Court or Court of Appeal.

While firms involved in the review had cooperated constructively, the FCA said many were encountering challenges in promptly supplying necessary data, attributed to disparate data storage systems and incomplete record retention in some cases.

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

“We recognise this work has generated some uncertainty. We want 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.”

The FCA said it would set out next steps by 24 September at the latest, and, as indicated previously, it would extend its review and the complaint pause currently in place if needed.

Reporting by Josh White for Sharecast.com.