The Financial Conduct Authority (FCA) announced on 15 October 2019 that it plans to ban discretionary commission models where the amount received by the broker is linked to the interest rate of the loan and which the broker has the power (under the agreement with the lender) to set or adjust.

This is designed to eliminate the harm to customers caused by discretionary commission models (by having to potentially pay higher interest rates) and foster greater price competition between lenders (who should, as a result of the ban, have greater control over the prices customers pay).

The FCA’s proposals are set out in consultation paper CP19/28. The consultation closes on 15 January 2020 and the FCA expects to publish any final rules at the beginning of Q2 2020.

The FCA estimates the changes would save customers GBP165 million a year but does not expect this to result in significant unintended consequences for brokers or lenders. The FCA noted that since it published its final findings from its motor finance review, some firms have moved, or intend to move, away from using discretionary commission models in recognition of the harm they cause. The FCA’s full cost benefit analysis is set out in annex 2 to the consultation paper.