FCA Regulatory Update - October 2026

FCA Regulatory Update: Motor Finance Redress, Consumer Credit Act Reform and AI Cyber Risks

Motor finance redress, non-financial misconduct, Consumer Credit Act reform and AI-driven cyber risks are key areas of focus for FCA-regulated firms. For consumer credit lenders, brokers and other financial services businesses, these developments raise practical questions about governance, accountability and the effectiveness of compliance controls. This regulatory update explores the implications for firms and the steps senior management should consider when preparing for regulatory change.

Motor Finance Redress Scheme

The scheme is being implemented but remains partially suspended following a legal challenge, and the FCA has started telling firms what good implementation looks like.

The scheme was confirmed in PS26/3 on 30 March 2026. It covers motor finance agreements entered into between 6 April 2007 and 1 November 2024 where commission was payable by the lender to the broker, subject to eligibility criteria and exclusions.

The legal challenge means that the FCA’s current position is that firms must continue complying with all rules that have not been suspended. They have published feedback on firms’ implementation plans, identifying examples of good and poor practice.

The FCA found that most firms understood the broad requirements however many plans were too high-level to demonstrate how the scheme would actually work in practice. They highlight the need for firms to be able to demonstrate:

·       How relevant agreements will be identified.

·       How customers will move through the process.

·       Where decisions and judgement will be required.

·       Who is accountable.

·       How controls operate.

·       How exceptions will be handled.

·       How third parties will be overseen.

·       How redress will be calculated and validated.

·       How payments will be controlled.

·       How quality assurance will identify and correct errors.

The overarching message is don’t tell the FCA what you intend to do, instead show them how it will work. For example, they found weaker plans simply stated that firms would use calculators or automated systems, without explaining how these systems would be tested and validated.

Non-Financial Misconduct

Bullying, harassment, violence, offensive or insulting behaviour and behaviour that causes distress that is connected to the workplace now falls into the scope of the Conduct Rules. Such behaviour may now breach Conduct Rule 1 (Integrity) or Conduct Rule 2 (Acting with due skill, care and diligence).

At a minimum, firms should now have in place appropriate updated policies and procedures, including processes for raising and investigating concerns. The changes should be clearly communicated to Conduct Rules staff.

A reminder that firms no longer need to submit nil REP008 returns if there’s nothing to report. The task will be automatically removed after the submission due date with no late fees.

Consumer Credit Act Reform

The Financial Services and Markets Bill is now in the House of Lords. It is now moving from consultation and policy development, with the Government having announced its policy approach in May 2026, with the intention of modernising the 1974 Act and moving much of the detailed regime into FCA rules.

For lenders and brokers, the eventual changes could be significant, with the Government aiming to modernise a regime that is more than 50 years old and move key requirements from primary legislation into FCA rules and guidance. The stated objectives include clearer information for consumers, greater flexibility for firms, and support of innovation.

The reforms require legislation, and the Government says they will be taken forward when Parliamentary time allows. The FCA will then need to consult on the requirements that move into its regulatory framework.

The eventual shift into FCA rule will mean firms need to pay closer attention to CONC, FCA guidance and the Consumer Duty, as it is likely that there will be greater emphasis on clear and useful information rather than highly prescribed statutory formats. Areas such as cancellation, withdrawal, termination and early settlement are being considered as part of the wider reform programme.

Cyber / AI Update

The FCA have reviewed how frontier AI may affect cyber resilience, governance and vulnerability management for firms. While these models can help firms identify and analyse their cyber vulnerabilities more quickly, they could also post a threat to firms’ safety and soundness, customers, market integrity and financial stability; potentially endangering all of the FCA’s main objectives.

The insights provided are aimed at ensuring that particularly small to medium-sized firms can learn from others and prepare for threats. The main themes include:

·       Vulnerability discovery is accelerating faster than firms’ ability to respond.

·       Frontier AI is becoming a test of organizational resilience, not just a tool.

·       The value of frontier AI depends on the firm’s operating environment.

·       Frontier AI is making foundational cyber and operational resilience more important.

·       Effective governance and human judgement remain critical.

Firms that track regulatory developments carefully are better positioned to protect their business and maintain compliance. A bespoke regulatory update, curated by our in-house experts gives your firm’s Senior Management a clear view of what’s changing and what’s coming next. Instead of reacting to reforms once they’re finalised, our detailed document enables financial services firms to gain an early understanding of the themes, proposals and supervisory priorities most relevant to their activities.

Contact Robert Bell to find out more.