October 9, 2025

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by: kiran

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Tags: "Regulation"

Redress and Reflection: What the FCA’s Motor Finance Scheme Means for Insurers

The FCA has published Consultation Paper CP25/27, setting out plans for a sector-wide redress scheme for motor finance customers. This follows recent court rulings finding that undisclosed commissions and exclusive lender-broker ties often created “unfair relationships.” With up to £8.2 billion in compensation at stake, the FCA aims to deliver consistent outcomes for consumers and closure for firms.
While motor finance is the immediate focus, this consultation sends a wider message, particularly for insurance firms navigating commission structures, conflicts of interest, and Consumer Duty obligations.

1. Purpose and Scope

  •  Applies to motor finance agreements from April 2007 to November 2024 where a commission was paid.
  • Covers cases involving discretionary commission, high commissions, or tied lender arrangements that were not adequately disclosed.
  • Lenders, not brokers, will fund redress — with an estimated 14 million agreements affected.

2. Triggers for Redress

Redress will be due where commission arrangements are deemed unfair or inadequately disclosed, including:

  • Discretionary Commission Arrangements – banned in 2021.
  • High Commissions – where commission equals or exceeds 35% of the cost of credit and 10% of the loan amount.
  • Exclusive Ties – between a broker and a single lender If disclosure was insufficient, the loan will be presumed unfair.

3. How the Scheme Will Operate

  • Existing complaints will be reviewed automatically unless consumers opt out.
  • Other customers will be contacted by lenders within six months, with a further six months to opt in.
  • Average redress expected: approximately £700 per agreement.
  • The FCA will oversee delivery and the Financial Ombudsman Service will handle disputed outcomes.

4. Cross-Sector Lessons for Insurance Firms

Transparency
Hidden or excessive commissions risk regulatory intervention. Firms must disclose remuneration structures clearly to avoid misleading customers.

Fair Value
Ensure all pricing, fees, and commissions are aligned with the benefits delivered.

Evidence
Maintain robust records of disclosures. The absence of proof will count against firms in any FCA review.

Complaints
Strengthen complaints systems to detect recurring themes — especially those linked to product value or remuneration.

5. Next Steps for the FCA

  • Consultation Period – closes mid-November 2025.
  • Policy Statement – expected in H1 2026, with final rules to follow.
  • Implementation – rules added to the CONRED Sourcebook, making participation mandatory.
  • Launch – lenders to begin contacting affected customers once rules are finalised, with redress payments from 2026.
  • Supervision – FCA to monitor delivery and run a public awareness campaign to deter claims management firms from exploiting consumers.

6. What Insurance Firms Should Do Now

This consultation offers a timely opportunity for firms in the insurance sector to stress-test their frameworks before similar scrutiny arises.

Review Commission Models
Assess all commission and remuneration structures for fairness and value. Pay close attention to premium finance, tied-agent relationships, and affinity partnerships.

Strengthen Governance
Make Consumer Duty and commission oversight standing Board and committee agenda items. Use management information to show how risks are identified and mitigated.

Upgrade Customer Communications
Audit sales and disclosure materials across all channels. Test with real customers to ensure commission and fee transparency.

Enhance Complaint Handling
Develop proactive systems that flag recurring issues early — with escalation routes to senior management and the Board.

Embed Fair Value Assessments
Revisit product governance and pricing strategies to evidence that customers consistently receive fair value.

Prepare for Regulatory Scrutiny
Expect the FCA to test commission models in other sectors. Be ready to evidence compliance with Consumer Duty and fair value requirements.

How Padda Consulting Can Help

We help firms translate regulatory expectations into practical, proportionate action.

  • Commission & Remuneration Reviews – Independent analysis of commission structures and premium finance arrangements to enhance fairness and transparency.
  • Board & Senior Management Briefings – Tailored sessions outlining CP25/27 insights, parallels for insurance, and key questions Boards should be asking.
  • Conflict of Interest Frameworks – Practical controls and monitoring tools to manage tied arrangements and high commissions.
  • Complaints Handling Effectiveness Reviews – Testing processes for identifying and escalating systemic risks in line with FCA expectations.
  • Outcome Testing & MI Development – Designing management information and testing frameworks that demonstrate fair outcomes.
  • Training & Culture Change – Interactive workshops for compliance, distribution, and customer-facing teams to embed a culture of openness and fairness.

Conclusion
CP25/27 signals the FCA’s readiness to intervene decisively where consumers are misled. For insurance firms, now is the moment to ensure that commission structures, governance, and disclosure processes can withstand similar scrutiny.
If you’d like to discuss how Padda Consulting can support your firm in preparing for these expectations, please get in touch.