Bite-size: FCA publishes detailed operational guidance for motor finance compensation scheme
On 11 June 2026, the FCA published ‘Further information for firms on the Motor Finance Compensation Scheme,’ a 20-page technical document responding directly to queries raised by firms since the publication of Policy Statement PS26/3 in March 2026.
The document covers eight substantive areas: scope and application, the role of the Financial Ombudsman Service (FOS), relevant arrangements and exceptions, brokers and representatives, consumer communications and scheme steps, liability, redress calculations, and supervision and reporting. It is presented as a practical working document, based on questions the FCA has received from firms, and aimed at a broad audience across lenders, brokers, and debt purchasers. It carries immediate operational significance and must be read alongside the ongoing legal challenge to the scheme; the FCA has stated it may need to update the document as those proceedings continue and firms should monitor FCA announcements closely.
The document also addresses the definition of ‘motor vehicle’ for scheme purposes. The scheme adopts the definition in section 185 of the Road Traffic Act 1988, covering any mechanically propelled vehicle intended or adapted for use on roads to which the public has access. The FCA notes that courts have consistently interpreted this definition broadly and that the breadth of the statutory definition reflects its view of the appropriate scope of the scheme. The scheme applies by reference to the existence of a regulated credit agreement for a motor vehicle and an applicable commission fact pattern, rather than the subjective purpose for which the vehicle was acquired or the type of borrower, provided the borrower is an individual, an unincorporated association, or a partnership with up to three partners within the Consumer Credit Act protections. Lenders must take their own legal advice on whether any financed vehicle falls within the definition; the FCA has not provided a prescriptive list of included or excluded vehicle types.
The guidance resolves a number of practical ambiguities that have emerged during implementation. On scope, it confirms that paused motor finance complaints are now bound by the scheme rules under CONRED 5 and 6, and that firms are not expected to handle non-scheme elements of such complaints under DISP from 1 June 2026; however, complaints about agreements outside the scheme's scope must be handled within DISP timelines from that date.
On redress calculations, where commission amounts are unavailable, firms may reconstruct data using contemporaneous records or, where reconstruction is not possible, must use the default median values set out in Table 10, Chapter 12 of PS26/3, with any methodology applied consistently, documented, and auditable.
In relation to liability, the document clarifies that the "no better deal" rebuttal is available only in high commission or certain tied arrangement cases and requires contemporaneous evidence of alternative available APRs, or evidence that the broker's internal processes ensured a lower APR was not obtainable elsewhere under CONRED 5.3.22R(3) and 6.3.22R(3).
The FCA states it will scrutinise capital reductions such as dividend payments, engage external auditors directly where necessary, and has confirmed it is enhancing gateway monitoring to prevent phoenixing, with applicants that do not engage appropriately facing refusal of authorisation.
Firms face several specific operational requirements arising from this guidance. All firms must nominate a senior management function (SMF) holder with overall responsibility for oversight of scheme delivery and compliance, submitted via RegData under CONRED 5.9.3R(2) and 6.9.3R(2). Brokers must respond to reasonable data requests from lenders within one month, as set out in paragraph 6.24 of PS26/3, and lenders must report challenges in lender-broker cooperation to the FCA promptly under Principle 11.
On redress firms must provide a clear illustration of calculation methodology in all provisional redress decisions and final redress determinations, including compensatory interest and any set-off for undisputed arrears, as required by CONRED 5 Annex 2.1R(4) and 6 Annex 2.1R(4). Firms must also give consumers a minimum of six months to accept a redress determination and must take exceptional circumstances into account before imposing any deadline under CONRED 5.4.40R and 6.4.40R. The FCA warns explicitly that lenders and debt purchasers cannot deduct administrative or other costs from redress payable to consumers and that set-off is limited to undisputed arrears or default sums under CONRED 5.4.24R and 6.4.24R. For joint agreements, the consent of all parties must be obtained before redress is paid or a case closed, unless there has been a valid assignment of the right to complain and receive redress.
The document sits within a wider supervisory context in which the FCA has been candid about its expectations and its appetite to act. The FCA states it will use data to identify phoenixing and other ‘polluter behaviours,’ and that where firms fail to prevent harm it may require reviews of high-risk business, strengthened controls, or direct payment of redress. The guidance also clarifies the interaction between the scheme and prior remediation programmes: where interest has already been refunded, it is not treated as a loss for scheme purposes and lenders must reflect earlier remediation in their redress calculations to avoid double-counting under the APR adjustment component of the hybrid remedy. For firms operating within a group structure, the FCA has reiterated that capital must be held in the UK, that group stakeholders must understand the full potential impact on the regulated entity, and that the FCA will intervene where it identifies actions that appear to be an attempt to avoid potential future liabilities.
Key takeaway
Nominate your SMF now. All firms must have a named SMF with overall responsibility for scheme delivery and compliance, registered via RegData. Where more than one SMF is required due to divisional complexity, additional details must be emailed to MotorFinanceSupervision@fca.org.uk with a clear rationale.
Audit your redress calculation methodology. Commission reconstruction approaches must be consistent, documented, and auditable. Where data cannot be reconstructed, the default median values in PS26/3 Table 10 apply. No methodology may systematically disadvantage consumers relative to the median approach.
Lender-broker data exchange is a compliance obligation, not a best endeavour. Lenders must request missing commission and disclosure data from brokers under CONRED 5.2.25R and 6.2.25R. Brokers must respond within one month. Firms experiencing difficulties must report them to the FCA promptly, not treat them as an excuse for delay.
Capital adequacy is under active supervisory scrutiny. Firms must assess adequacy on a forward-looking basis, reflect all potential redress liabilities in financial statements, and notify the FCA immediately if adequate resources may not be available within 12 months under SUP 15. Dividend payments and other capital reductions require prior assessment of their impact on redress capacity.
Uncertainty in the legal challenge does not reduce operational obligations. The FCA has stated it may update this guidance as the Tribunal proceedings continue. Firms must monitor FCA announcements closely and treat the current scheme rules as operative unless directed otherwise.
