Wednesday 01 April 2026 4:05 pm | Updated: Thursday 02 April 2026 10:41 am

KBRA Comments on FCA Finalising Motor Finance Compensation Scheme; No Change to UK Auto ABS Outlook

The Financial Conduct Authority (FCA) has finalised its compensation scheme for discretionary commission arrangements in UK motor finance, providing greater clarity on the potential scale of redress. In its August 2025 commentary on the implications of motor finance litigation for UK auto ABS, KBRA highlighted the FCA’s earlier estimate of total sector costs ranging from GBP9 billion to GBP18 billion (see Motor Finance Litigation: Potential Implications for UK Auto ABS). The final framework is more limited in scope, with the FCA now estimating GBP7.5 billion in redress, assuming a 75% consumer response rate, and total costs to firms of GBP9.1 billion. The rules also introduce tighter eligibility criteria and reduce non-redress costs.

For UK auto ABS, the key analytical focus remains unchanged. Refunds and compensation are expected to be borne by lenders or servicers rather than securitisation vehicles. As a result, the primary risk to ABS continues to be operational, particularly where redress administration, high complaint volumes, or balance sheet pressure could disrupt servicing. As previously noted by KBRA, borrower setoff risk, potential enforcement challenges, and the strength of structural protections—such as indemnities, repurchase provisions, and setoff exclusions—remain key considerations.

That said, the final rules reduce uncertainty around potential outcomes and reinforce the need to assess legacy exposure on an originator-by-originator basis. The FCA also cautioned against applying aggregate averages uniformly across firms and noted that certain captive finance arrangements may fall outside the scope of the framework where clear manufacturer-dealer links can be demonstrated.

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KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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