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Getting ready for the FCA assessment

New finance rules are on the way and here’s how to be compliant and prepared

Partner feature: Over the coming weeks, the Financial Conduct Authority (FCA) will be assessing the impact of its new rules introduced in January for motor finance. The regulator’s work will include lenders and retailers with a focus on commission models introduced to replace the ban on discretionary commission.

Included will be an evaluation of the impact of new commission models on interest rates for consumers and retailer commission earnings and an appraisal of lenders oversight of their dealer networks.  A key metric for the FCA in establishing the new rules was the goal of saving consumers £165m a year.

As well as their signposted plans, we should not overlook the regulator’s current consultation on a new Consumer Duty. Announced in mid-May, it would set clearer and higher expectations for firms’ standards of care towards consumers and is earmarked for launch in July next year.

All of this will take place against the backdrop of the Senior Managers Certification Regime (SMCR), which is now in place.

SMCR accountability

The SMCR ensures someone senior in every business is personally accountable for a retailer’s financial services activities. It should be a critical motivator in ensuring compliance and should not be underestimated.

Key areas for retailers to appraise are likely to include the commission model selected to replace the now banned discretionary commission model as highlighted by the FC, their operating processes and controls, training, record keeping, finance marketing, and promotions. Added to these is a business’ culture and the FCA’s expectation that customers’ needs should be at the heart of a business’ model. With plans for the new Consumer Duty, compliance with the spirit of the new FCA rules is every bit as essential as the letter or those rules. Arguably, its subjective nature makes it more challenging to create.

Change as a positive

A critical innovation MotoNovo delivered to support retailers’ in the move to the FCA rules new rules was our ground-breaking risk-based pricing model MotoRate. Multi-award winning and embraced widely by our dealers; it is providing performance and compliance gains.

  • Pure MotoRate agreement acceptance rate for June was 60% vs 51% non-MotoRate agreements.
  • Pure MotoRate dealers saw a 61% growth in the year-to-date A1 payouts YOY, whereas non-MotoRate dealers saw only seen a marginal increase of 7%.
  • A1 (highly creditworthy customer) proposals were up 29% year-to-date.

Crucially, MotoRate evidences good customer outcomes, courtesy of individually tailored interest rates.

So, as we look to the FCA assessment of its new rules, we understand that helping our retailers to succeed with finance in a compliant manner is good for both our businesses. As always, in an increasingly dynamic market, we are ready to stand side-by-side with the motor retailer community, collaborate and help shape the future.

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