Navigating Consumer Duty in asset finance

Addressing commission disclosure and the evolving regulatory landscape

The FCA’s Consumer Duty has already begun to reshape the financial services sector, and recent debates around commission disclosure have added another layer of complexity for asset finance firms.

Coupled with speculation over the FCA’s potential removal of the Consumer Duty Champion requirement, some may interpret these changes as a softening of regulatory scrutiny. However, this is far from the case. Instead, firms must recognise that the fundamental obligations to deliver and evidence good outcomes remain as critical as ever.

Commission disclosure: a spotlight on transparency

Recent discussions about commission disclosure have brought the need for pricing transparency into sharp focus. The FCA’s position is clear: customers must understand how pricing decisions, including commissions, impact the value they receive. For asset finance firms, where commission arrangements can influence rates and terms, this poses specific challenges:

• Demonstrating fair value: Firms must provide clear and evidence-based justifications that their commission structures deliver fair value to consumers. This is particularly important where intermediaries are involved, and commissions could be perceived as eroding the overall benefit to the customer.
• Managing conflicts of interest: The FCA has highlighted the need to address conflicts of interest, ensuring that commission arrangements do not incentivise behaviours that could lead to poor customer outcomes. Firms must show how these risks are mitigated through governance and oversight.
• Clear communication with customers: Customers need to understand how commissions affect their agreements. Firms should review their documentation and sales processes to ensure that all charges, fees, and commissions are transparently communicated in plain language.

The Consumer Duty champion: more than a title

Reports suggesting the FCA may drop the requirement for firms to appoint a Consumer Duty Champion at board level have raised questions about the regulator’s long-term stance. However, this change (if enacted) should be seen as symbolic rather than substantive. Removing the need for a named champion is a “sacrificial lamb” to streamline implementation, but it does not reduce the obligation of firms to embed Consumer Duty principles across their operations.

Firms must remain vigilant and continue to:

• Embed responsibility at board Level: The FCA expects Consumer Duty outcomes to be a regular feature in board reports, with senior management remaining accountable for compliance.
• Evidence good outcomes: Reporting on customer outcomes and demonstrating adherence to the Duty will continue to be a priority for the regulator.
• Prioritise a culture of accountability: Even without a named champion, the FCA expects firms to adopt a whole-organisation approach to ensure Consumer Duty is embedded in decision-making and daily operations.

The path forward: challenges and opportunities

Despite these changes, the core principles of Consumer Duty remain unchanged. Firms in the asset finance sector must focus on delivering good outcomes while addressing specific challenges like commission disclosure, fair value, and customer understanding. At the same time, there are opportunities to innovate and stand out:

1. Leveraging technology for transparency: Tools that automate commission disclosures and track pricing transparency can streamline compliance while improving customer trust.
2. Enhancing governance and oversight: Firms that invest in robust systems to evidence fair value and manage conflicts of interest will be better positioned to adapt to evolving regulations.
3. Building customer trust: Transparent communication about pricing and commissions strengthens customer relationships, creating a competitive advantage in a crowded market.

The regulatory horizon: no room for complacency

While the FCA’s potential removal of the Consumer Duty Champion role may appear to ease the regulatory burden, it does not signal a retreat from scrutiny. Instead, firms must view this as a shift in focus, with greater emphasis on tangible outcomes rather than symbolic gestures.

Consumer Duty continues to require firms to deliver fair, transparent, and accountable practices, and the asset finance sector is no exception. Whether through commission disclosure, pricing transparency, or vulnerability management, firms must embrace these changes as an opportunity to build trust and foster sustainable growth.

The obligations may evolve, but the FCA’s message is clear: good outcomes for consumers are not optional; they are the foundation of a fair and effective financial services market.