In a letter dated 17 January 2025, Nikhil Rathi (Chief Executive of the FCA) responded in detail to questions raised by the Rt. Hon Lord Forsyth of Drumlean in his capacity as Chair of the Financial Services Regulation Committee of the House of Lords (the Committee) in respect of the ongoing issues surrounding motor finance commission.
In his letter, Mr Rathi provides an outline of the history behind FCA’s regulation of the motor finance industry (inherited as it was from the Office of Fair Trading in 2014) and explains the framework underpinning the provisions in the FCA handbook relating to both consumer credit specifically (in CONC) and financial services more widely (specifically the Principles for Businesses). He also highlighted that such regulatory rules sit alongside additional duties which might arise under equity or common law in each individual case (as emphasised by the Court of Appeal).
In answer to the first of Lord Forsyth’s questions, Mr Rathi has:
- set out each of the CONC provisions relevant to the disclosure obligations of credit brokers;
- explained the relevance of the Consumer Duty and each of Principles 6, 7 and 8 to the ongoing court cases regarding the disclosure of motor finance commissions; and
- the relevance of the unfair agreement provisions in s.140A of the Consumer Credit Act 1974.
As to the specific question of whether the FCA sought legal advice in connection with (i) its decision to ban discretionary commission arrangements in 2021 and (ii) the application of the rules identified in answer to the first question Mr Rathi stated that:
- his understanding is that the particular concern of the Committee is the extent to which the FCA sought legal advice on the relevance of disinterested or fiduciary duties when drafting or amending these rules; and
- as the recent decision in Johnson & others was the first time a higher court made detailed findings as to the existence and reach of disinterested duties and fiduciary duties for motor dealers acting as credit brokers, FCA had not previously sought specific legal advice on these issues.
He finished by reassuring Lord Forsyth that FCA would carefully consider the need to update its rules and guidance following the publication of the pending Supreme Court judgement.