The Financial Conduct Authority (FCA) has issued a reminder to motor finance firms as the regulator reviews the historical use of motor finance discretionary commission arrangements (DCA).
In a statement, the FCA noted: “We have observed firms taking different approaches to account for the potential impact of previous use of DCA on their financial resources. So, we are writing to firms to remind them they must maintain adequate financial resources at all times.
“While each firm will need to examine its own specific circumstances, we expect this would include planning for any additional operational costs from increased complaints and, where applicable, to meet the costs of resolving those complaints.”
According to the watchdog, firms should also continue to investigate the complaints they receive involving a DCA, consider the Information Commissioner’s Office guidance on responding appropriately to data subject access requests, and notify the FCA if they are involved in litigation relating to commissions that are or may be subject to appeal to the High Court or Court of Appeal.
Commenting on the statement, Darren Richards (pictured) of actuarial and redress consultancy OAC, pointed out: “[The] FCA update on motor firms’ financial resources is a reminder of the inherent complexities and potential scale of this review.
“The FCA explicitly notes that firms will need to begin planning to meet the costs of resolving consumer complaints which have increased due to public attention. It is evident that the review of these historical cases will be complex and time-consuming if the outcome of the FCA’s review and any legal challenges conclude with firms having to redress their customers.”
Meanwhile, it was also highlighted that while firms have cooperated with the FCA, many have struggled to provide the necessary data in a prompt manner.
“Reasons for this include data being stored on multiple systems and/or being spread between lenders and brokers,” the FCA said. “In some older cases, firms have not retained all relevant records… We will set out next steps by September 24, 2024 at the latest, and, as we have indicated previously, if necessary, we will extend our review and the complaint pause currently in place.”
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