David Morrey:
Welcome to the Grant Thornton Risk and Regulation Unravelled podcast, our monthly review of emerging financial services regulatory developments. I’m joined by my colleague Ben Farmer. This episode is in two halves: we’ll start with the “bad news” – regulatory harms and challenges – and finish with the “good news” on growth and competition.
Ben Farmer:
Let’s begin with motor finance, which remains a hot topic. The FCA is launching a £1 million campaign of radio and online advertising. The aim is to raise awareness of the potential redress scheme and, importantly, to let consumers know they don’t need to use a claims management company or law firm to make a motor finance compensation claim. Research shows 79% of motor finance customers are aware they may be owed compensation, but 41% didn’t know they could claim directly. Using claims management firms could cost customers around 30% of their compensation, so the FCA wants to remind people they can claim easily via the Ombudsman or the redress scheme.
David Morrey:
We haven’t seen the adverts yet, but apparently the FCA will be working with online influencers to get the message out. Interestingly, some influencers have recently appeared in court to plead not guilty to making unregulated financial promotions. The FCA is clearly keen to work with those who haven’t run afoul of regulations.
Ben Farmer:
There’s also a joint statement from the FCA and the Solicitor Regulation Authority warning law firms and claims managers about poor practices in marketing, failing to advise customers about free alternatives, and potentially misleading information about compensation claims. As a result, the FCA has required claims management companies to remove or amend nearly 400 motor finance commission promotions this year.
David Morrey:
We’ll be back next month to discuss the consultation on the redress scheme. What else is happening?
Ben Farmer:
There’s a lot going on in general insurance. First, on motor total loss claims: the FCA found that some insurers made automatic deductions for assumed pre-existing damage without evidence, resulting in underpayments. The FCA intervened, and insurers are now revisiting historic claims. So far, £129 million in redress has been paid to almost 150,000 customers, with an estimated total of £200 million to be paid to 270,000 customers. Insurers will contact affected customers directly, so there’s no need to use a claims management company.
David Morrey:
That’s a good example of consumer duty driving improvements in claims handling.
Ben Farmer:
There’s also a “super complaint” from the consumer rights body Which? about the retail home and travel insurance market. The complaint alleges that insurers don’t treat customers fairly at the point of claim, unreasonably reject claims, and take too long to pay. Which? argues that the root cause is poor product sales and a lack of enforcement of FCA rules. The FCA has identified these issues before but hasn’t always addressed them. Which? has published a detailed document with evidence, case studies, and customer testimonials.
David Morrey:
Historically, such complaints have led to industry-wide investigations and new rules, but recently the FCA has been more focused on thematic reviews rather than systemic action. It will be interesting to see how the FCA responds.
Ben Farmer:
Finally, there’s an ongoing market study into the pure protection market – life insurance and mortgage protection. The FCA’s update report is more about defining market players and terms than proposing remedies. They’re seeking feedback and will publish consumer research findings in November, with an interim report expected at the end of the year.
David Morrey:
That covers the “harms” side. Let’s move to the “growth” agenda.
Ben Farmer:
The big development is the FCA’s Consultation Paper 25/25 on crypto assets. Following the HMT consultation, the FCA proposes to bring crypto brokers and issuers into the regulatory framework, largely by applying existing rules rather than creating new ones. The principle is “same risk, same regulatory outcome.” Most existing rules and guidance will apply to crypto asset firms as they do to traditional finance firms. There’s ongoing discussion about whether the consumer duty and product governance rules should apply in full or in part.
David Morrey:
The cost-benefit analysis in the consultation is extensive, reflecting the FCA’s commitment to rigorous rulemaking. The actual rule changes are minimal, mostly updating definitions rather than adding new rules. Feedback on consumer duty and product governance is sought, with further proposals expected in November.
Ben Farmer:
Another growth-related development is the HMT consultation on folding the Payment Systems Regulator into the FCA. The FCA will take over PSR’s responsibilities, with a new executive director for payments and digital finance. This isn’t a major deregulatory move, but it streamlines oversight.
David Morrey:
Kate Collier, the FCA’s chief economist, recently highlighted that financial services productivity in the UK has been flat for a decade, partly due to insufficient risk-taking. The regulator aims to recalibrate its approach to risk to spur growth.
Ben Farmer:
The FCA has also announced data reporting changes for 11,000 firms, moving some returns to an annual cycle. For banks, some older returns have been cut, saving time and resources.
David Morrey:
There’s also a proposal to allow firms to set their own contactless payment limits, rather than sticking to the £100 cap, provided the risk is low. Interestingly, contactless fraud rates are lower than for other card payments.
Ben Farmer:
To wrap up, the FCA’s handbook now shows the most viewed sections, with principles and financial promotions topping the list.
David Morrey:
Thank you for joining us. We’ll be back next month to review further developments.
