With car retailing facing a maelstrom of challenges in the wake of the coronavirus pandemic, leading vehicle warranty supplier WMS Group is calling on the sector to bolster its ‘compliance culture’ following the FCA’s recent ban on discretionary commission.
Coming into force on 28th January 2021, the Financial Conduct Authority (FCA) banned the use of discretionary commission models in the motor finance market in a move aimed at saving car buyers £165 million-per-year and eliminating ‘conflicts of interest’ in the sector1. In addition, firms are now expected to disclose the nature of commission in their financial promotions, as well as when making a recommendation.
Describing the move as a ‘step forward for consumer protection’, the ban is likely to pave the way for greater transparency on how the sector sells a range of products to consumers, says Andy Shipp, Head of Governance and Compliance at WMS Group, which provides warranty cover and other finance and insurance (F&I) products to over 3,500 dealerships across the UK.
He states: “Many car retailers are still adjusting to the FCA new rules, which although is a step forward for consumer protection, does come at a time when the industry is contending with pandemic challenges. Fundamentally, the move represents the ‘direction of travel’ for the regulator. Over the coming years, as the FCA seeks to expand the ‘culture of compliance’ in car retailing, we’re likely to see further rules on transparency, best practice, and prioritising customer outcomes; not just in motor finance but also insurance products such as mechanical breakdown insurance, gap insurance, tyre and alloy wheel insurance, smart insurance, service plans.
“Therefore, we’re encouraging retailers and the wider industry to get ahead of the curve and expand the compliance culture within their businesses right now. Involving a ‘customer-first’ approach, this requires the sector to ask difficult questions around transparency and fairness like ‘are my salespeople fit for purpose?’ ‘can I confidently and clearly justify all the fees that I charge?’. This follows the FCA’s remit that consumers can be assured when they go into a dealership, they’ll get a fair deal for a fair price.”
One way that dealers can step up their compliance procedures in a cost-effective way is by working with an ‘FCA principal’ such as WMS Group, which can authorise retailers as Authorised Representative to sell insurance products. As part of the scheme, WMS Group audits all its dealer representatives, provides indemnity insurance and also updates them on the latest FCA legislation.
Andy adds: “While many dealers have limited FCA permission for credit broking, they require full permission to sell insurance products – which is something they may be considering following the FCA ban. However, it can be costly, time-consuming, and burdensome. The good news is using an FCA principal, which meet the highest compliance standards, is a cost-effective option for dealers worried about going through the onerous process of getting permission themselves.
“For instance, as an FCA principal, at WMS Group we have checks and balances in place when it comes to dealers selling our products – Authorised Representatives need to work within our thresholds to ensure no customer detriment financial or otherwise.
“By preparing for this step change now – through a holistic review of their policies and distribution chain – dealers can gain the competitive advantage and, ultimately, improve customer trust, retention and new profit centres.
Providing reliable extended warranty cover and other motoring protection to over 3,500 dealerships across the UK, WMS Group supplies a wide range of trusted solutions. As an FCA principal, WMS Group can authorise retailers as representatives to sell insurance products such as mechanical breakdown insurance, gap insurance, tyre and alloy wheel insurance, smart insurance, service plans.