FirstRand guidance doesn't include revision in UK motor probe

FirstRand guidance doesn't include revision in UK motor probe

The UK Supreme Court’s August 2025 ruling in Johnson v FirstRandclarified that motor vehicle dealers do not owe fiduciary duties to customers when arranging finance, limiting liability for lenders in most cases. However, the Financial Conduct Authority (FCA) has since proposed an industry-wide redress scheme to address unfair commission practices, estimating costs between £9bn and £18bn. Despite these developments, FirstRand's guidance to shareholders as of June 2025 does not include a revised provision for potential liabilities arising from the FCA's scheme.

The bank's internal data indicates that agreements with commissions exceeding 55% of the cost of credit—similar to the Johnson case— accounted for only 4% of total agreements over 18 years. FirstRand has maintained that its initial R3.3bn provision for litigation remains adequate, noting that the Supreme Court emphasized case-specific assessments of unfairness under the Consumer Credit Act. The group has also criticized the FCA's proposed redress scheme as disproportionate, arguing it could undermine the UK motor finance sector's viability.

Moody's estimates FirstRand's potential exposure at up to R13bn based on market share assumptions, but the bank has not adjusted its guidance to reflect this. The FCA's consultation on the redress scheme, expected to launch in October 2025, will determine the final scope and methodology for identifying eligible claims. Until then, FirstRand's financial planning remains anchored to its current provisions, with management expressing confidence that the final outcome will align with proportionate redress.

This approach underscores the uncertainty surrounding regulatory action, as the FCA retains discretion to define "unfair" arrangements while the Supreme Court has raised the legal threshold for individual claims. Investors will need to monitor both the FCA's consultation and FirstRand's ongoing dialogue with regulators for further clarity.