Discretionary commission arrangements: the data challenge

business man in a car
The FCA’s review of discretionary commission arrangements (DCAs) has highlighted motor finance firms’ challenges in collecting and providing accurate data. Justin Cooper discusses recent comments from the regulator and ombudsman – and what firms need to consider now.

On 12 April, the Financial Conduct Authority (FCA) issued a statement with an update on its skilled person review of historical motor finance commission arrangements and sales across several firms. It said it was clear that many firms are struggling to provide the data they need to and must maintain adequate financial resources at all times, as outlined by the regulator.

The FCA found a variety of reasons why firms were having trouble providing the correct data. Primarily, this is due to data being stored on multiple systems, being spread between lenders and brokers, and firms not retaining the relevant records. It's clear that many of these firms lack access to the required data.

All firms need to consider the data they might need to meet the regulator’s demands. The FCA will announce its next steps by 24 September 2024, so it's important that firms act now.

Processing high levels of complaints

Perhaps the biggest challenge arising from the historical motor finance commission’s findings is how firms are handling the high volume of complaints.

On 9 May, the Financial Ombudsman Service (FOS) issued a statement to say that it had around 20,000 open complaints concerning car finance commission.

Firms are also dealing with an unprecedented amount of customer queries. In turn, many firms are unprepared and unable to correctly process their customers' concerns in a timely manner.

Firms need to assess their internal functions to ensure they can systematically handle this increase in complaints.

car on road stock photo
What are the data implications of the FCA's review into historical motor finance commissioning?
Motor finance under scrutiny: getting your data ready
Read this article

Building a DCA-focused function

Processing complaints and preparing for the outcome of the FCA’s review effectively requires a dedicated and knowledgeable team.

Developing a strong team, incorporating third parties with the right expertise where necessary, is essential.

Once firms establish the correct people and skills, it will become easier to support the process in a pragmatic and timely manner, and without impacting on business as usual (BAU).

10 things to consider now

1 Start thinking about the complaints and potential redress process now. Depending on the size of your potential exposure, prepare a detailed project work plan, identifying tasks, milestones, role and responsibilities. How much can you automate to save costs?

2 Are you capturing complaints in such a way that you can use the data as efficiently as possible in the future? Have you considered a complaints portal?

3 Identify your population of DCAs issued, and its various cohorts, during the relevant period.

4 Consider the data you will need, both structured and unstructured. Do you have access to all of this now? How much lies within legacy systems?

5 The FCA has a general principle that records should be retained “for as long as is relevant for the purposes for which they are made” (Senior Management Arrangements, Systems and Controls sourcebook (SYSC), paragraph 9.1.5). Have you identified any data gaps – such as, data which may have been destroyed – and how this might impact an assessment process?

6 Establish a comprehensive document library of relevant documents stored in a logical order.

7 Consider the format in which the data should be stored to enable calculation of redress, if required.

8 Perform Extract Transform Load (ETL) of the data into a data cube. The cube should be cleaned and quality checked as fit for purpose.

9 Have you identified the people and skills to support from within the firm? Can they support this process in a pragmatic and timely manner without impacting BAU?

10 Identify third parties to provide any outsourced support.

The September 2024 deadline for the FCA to announce next steps is fast approaching so it's imperative that firms use this time wisely to have their information and capability ready, if and when required.

For more insight and guidance, get in touch with Justin Cooper.

photograph of a motor show
Lessons for motor finance firms from the high-cost short term credit sector.
Motor finance: lessons in redress from HCSTC sector
Read this article