’The recognition of widespread failings in the disclosure of discretionary commission arrangements highlights how remuneration structures can create long-tail liability exposures long after the practices themselves have ceased,’ says chief executive

The FCA’s proposed motor finance compensation scheme represents a ”significant regulatory and market event” for the professional indemnity (PI) insurance market.

That was according to Kate Albert, chief executive at Kova Professions, who was speaking after the FCA said yesterday (7 October 2025) that payouts on an expected 14 million ”unfair motor finance agreements” could start next year, under an industry-wide compensation scheme.

The FCA estimates people would receive around £700 per agreement, on average. Based on the number of consumers the FCA estimates could take part in the scheme, lenders could pay out £8.2bn in compensation.

“A compensation scheme is the best, most efficient way of getting compensation to those owed it and would make it simpler for those who would otherwise struggle to claim,” the regulator said.

Albert said that ”while the immediate impact is focused on motor finance lenders and brokers, the wider insurance market should view this as a clear signal of the FCA’s evolving stance on transparency and fairness in distribution”.

She added: ”The principles at play, particularly the presumption of consumer detriment where disclosure was incomplete, may have future relevance for discretionary or profit-based commission models within insurance intermediation.

”While any direct extension of these principles beyond motor finance remains speculative, the FCA’s approach underscores a regulatory environment increasingly intolerant of opaque incentives.”

Speaking about the PI market, Albert highlighted how remuneration structures can create long-tail liability exposures long after the practices themselves have ceased.

She continued: ”From a PI insurer’s perspective, the FCA’s proposed Motor Finance Compensation Scheme represents a significant regulatory and market event.

“The recognition of widespread failings in the disclosure of discretionary commission arrangements highlights how remuneration structures can create long-tail liability exposures long after the practices themselves have ceased.”

Scheme details

The FCA’s proposed scheme would cover motor finance agreements taken out between 6 April 2007 and 1 November 2024 where commission was payable by the lender to the broker.  

The regulator believes that without a scheme, many cases would go through the courts or the Financial Ombudsman Service, resulting in ”higher legal and administrative costs for firms and consumers, lengthy delays and uncertain outcomes for all involved”.    

Nikhil Rathi, chief executive at the FCA, said: ”Many motor finance lenders did not comply with the law or the rules.

”Now we have legal clarity, it’s time their customers get fair compensation. Our scheme aims to be simple for people to use and lenders to implement.”

However, Matthew Maxwell Scott, executive director of the Association of Consumer Support Organisations (ACSO), said that while the FCA’s proposals “should help ensure millions of people who were mis-sold motor finance will receive compensation”, ”it’s important that the consultation is given proper scrutiny as the numbers involved seem to be moving ever lower”.

He added: “Given that the consultation document itself is 360 pages long, it would be wrong to suggest that this is in any way a straightforward matter and so it is little wonder that many people have already chosen – and may continue to choose – professional support in making a claim.

“This raises concerns about the FCA’s attitude towards law firms and in particular towards the claims management companies it regulates. We wholeheartedly support any efforts to root out malpractice when it comes to consumer protections around appropriate advertising and pricing, including exit fees.

”However, the regulators need to acknowledge that there are many well-managed law firms and CMCs who act in line with their duties to the consumer and offer people a genuine choice if they don’t feel comfortable going it alone, which, as with other redress schemes, is often the case.”

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