After an eventful few days at the beginning of August, we received judgment from the UK Supreme Court on the major law case (The Hopcraft/Johnson case).
The Court was examining the legality of lenders paying car dealers undisclosed fees when they broker car loans for consumers, which I referenced in my previous article.
The Supreme Court’s decisive finding was that motor dealers do not owe customers a fiduciary duty in relation to their role as a credit broker arranging finance.
In allowing the appeals, and as there was no fiduciary duty arising, the Supreme Court concluded that the customers had no claim against the lenders in bribery or for breach of fiduciary duty.
However, the judgement did raise the issue of unfair relationship linked to non-disclosure of commission and the size of that commission.
The discussion about unfair relationships and disclosure of commission has potential wider implications for financial services
The judgement was followed by an FCA announcement regarding a consultation on a redress scheme. The FCA is intending to consult on how a range of factors must be assessed together when deciding on whether the relationship between the lender and consumer was unfair.
The FCA intends to publish its consultation paper in early October and expects a redress scheme to be operational in 2026.
Our expectations are that the work done leading up to the consultation and during the consultation period will enable the FCA to publish a relatively short implementation period, with firms being expected to commence redress payments in the first half of 2026.
While the judgment has most impact on the motor finance sector, the discussion about unfair relationships and disclosure of commission has potential wider implications for financial services. We will return to this situation in future articles as the impact of the judgement and the FCA redress position become clearer.
What is of immediate notice is the level of consultations and reviews we are seeing being driven by the FCA at the moment. This activity seems closely linked to the Government’s growth agenda specific to financial services and the FCA’s drive to simplify regulatory requirements.
Phase 1 of the reforms are focused on efficiency drivers such as the approval process for senior managers
One key example is the Senior Managers and Certification regime with the issue of CP25/21 in July setting out proposed reforms of the regime. The reforms’ aims are around boosting competitiveness and supporting growth while preserving the regime’s benefits such as the continued importance of accountability and standards of conduct.
The reaction so far, that we have seen, has been generally positive. This seems to be because Phase 1 of the reforms are focused on efficiency drivers such as the approval process for senior managers, removing overlap in certification roles and streamlining the annual certification process.
There is also the proposal to raise the threshold at which a core firm would become enhanced due to their size linked to revenue or assets under management.
In Phase 2, the FCA is looking to be more radical. It is intending to work closely with the Treasury as it consults on legislative changes to make additional changes to the regime, including:
- What should replace the certification regime.
- The number of senior managers subject to approval.
In essence, the Treasury and the FCA consider the certification regime is overly bureaucratic. It will be interesting to see just how far they are prepared to go.
For instance, it would be surprising if they removed the need for financial advisers and investment managers to be certified and assessed as fit and proper at the time of taking the role and then on annual basis thereafter given their largely customer facing role.
It is perhaps more likely that they will seek to streamline the significant management function where this is potentially duplicative of senior manager roles.
The regulator is keen to test how firms are meeting Consumer Duty expectations and delivering good customer outcomes
There also seems to be a desire to simplify the number of senior manager roles. Allied to that will be a review of the use of prescribed responsibilities and whether they add value in terms of being able to clearly see where accountability sits.
In recent months, our supervisory work – including skilled person reviews – has made it clear that senior management accountability remains a top priority for the regulator when it comes to conduct and governance.
The FCA’s summer announcement of a review into Model Portfolio Services, flagged earlier this year in its Dear CEO letter and following its scrutiny of ongoing advice charges, underlines the point.
With MPS continuing to grow rapidly, the regulator is keen to test how firms are meeting Consumer Duty expectations and delivering good customer outcomes. There’s plenty for firms to grapple with in the months ahead.
Simon Collins is managing director, regulatory, at Konexo, a division of Eversheds Sutherland
