Financial Conduct Authority blamed for car finance crisis

One of the most senior former regulators in Britain has blamed the Financial Conduct Authority for the crisis shaking the motor finance industry, saying the lack of clarity in its rulebook was to blame.
Sir Howard Davies, the former chairman of the FCA’s predecessor body, the Financial Services Authority, said he was disappointed by the role of the FCA, adding that the crisis “has caused a lot of anxiety”.
Many credit providers have suspended lending on new and used cars as they scramble to adjust their processes in the light of the Court of Appeal judgment on Friday, which set a much higher bar for disclosure of commissions.
Shares in providers ranging from Lloyds Banking Group and Close Brothers have tumbled on shareholder fears that the credit providers will have to pay out much higher compensation to car-buyers than had been thought. Santander UK delayed its results this week to calculate its liability.
Davies, who was giving evidence to a Lords committee on financial regulation, said: “I’m disappointed there has not been enough regulatory clarity on the rulebook that has meant the court has been able to step in with its own interpretation.
“My general experience is that if the regulator is very clear about the expectations on firms, then the courts are usually very reluctant to substitute their judgment for that of the regulator within a statutory context.”
“The courts normally back off,” he added. “The fact that the Court of Appeal had not done so in this case “suggests to me that there isn’t enough clarity in the FCA rulebook”.
The parties in the Court of Appeal case are now seeking leave to take the case to the Supreme Court, so the uncertainty could last months, analysts say.
Davies, who was chairman of NatWest Group until April and is a former deputy governor of the Bank of England, said the consumer protection regime, including the newly introduced consumer duty on firms, was causing “extreme nervousness” among overseas investors “because they don’t quite know what it means”.
The role of the Financial Ombudsman Service, whose judgments “sometimes go well beyond what the FCA recommended”, alongside the Court of Appeal ruling, was causing anxiety among investors in financial firms.
An FCA spokesman said: “The court decision on motor finance did not relate to our rules, but the longstanding legal principle of fiduciary duty.”