Last week, the Financial Conduct Authority (FCA) issued an important update on its proposed Motor Finance Compensation Scheme, signalling that the industry is now moving firmly from policy discussion to operational delivery.
For many motor finance firms, the message is clear: preparation needs to start now.
With final rules expected later this month and compensation payments anticipated from mid-2026 onwards, firms will have a relatively short window to put the necessary operational, data and customer processes in place.
What’s Changed in the Latest FCA Update?
The FCA’s latest announcement introduces several developments that will shape how firms prepare for the scheme.
Key updates include:
- Final rules expected in March 2026 through a formal policy statement and handbook updates.
- The current complaints handling pause will be lifted on 31 May 2026, allowing the scheme to begin rolling out.
- Firms will have an implementation period of three months, with up to five months allowed for firms with older agreements that require more complex preparation.
- Compensation payments are expected to begin from mid-2026 onwards, once firms have operationalised their processes.
- Customers who have already complained will automatically be assessed within the scheme, removing the previous opt-in/opt-out process.
- Consumers will be able to accept redress offers immediately, rather than waiting for a final determination.
- Firms will not be required to write to customers by letter; instead, they can use a range of communication channels provided appropriate fraud safeguards are in place.
While these updates provide helpful clarity, they also highlight the scale of the operational challenge ahead.
What This Means for Motor Finance Firms
For most firms, the real work will lie in identifying affected agreements and delivering redress at scale.
Unlike many regulatory changes that affect future lending practices, this scheme looks backwards across historic agreements, meaning firms may need to assess customers across:
- Active agreements
- Settled agreements
- Written off balances
- Sold or securitised portfolios
- Legacy agreements held on older platforms
In practice, that means pulling together data from multiple systems, archives and third-party sources, often spanning many years.
For many organisations, the biggest challenge won’t be the policy itself, it will be the data and operational complexity behind it.
The Operational Challenge Ahead
Once affected customers are identified, firms will need to stand up processes capable of handling potentially large volumes of cases.
Key areas firms should be considering now include:
-
Data identification and remediation
Firms will need to identify affected customers across multiple data repositories, reconcile historic records and resolve gaps or inconsistencies.
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Operational workflows
Existing collections, recoveries and complaints processes may need to be adapted to handle exceptions, investigations and redress calculations.
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Customer communication strategies
With greater flexibility around communication channels, firms must design approaches that are clear, accessible and secure.
-
Case management and complaint handling
Systems and processes must be able to track and manage potentially large volumes of cases while ensuring fair outcomes.
Put simply, to do this well and mitigate regulatory risk is a significant operational programme.
Preparing for the Implementation Window
Although the final rules are still to come, firms can begin preparing now by focusing on a few key areas:
- Reviewing the FCA’s proposed policy statement and expected handbook changes
- Mapping where relevant agreement and customer data sits across systems
- Assessing operational readiness to handle large case volumes
- Designing an implementation roadmap aligned to the three-to-five-month preparation window
Starting this work early will make the eventual transition far smoother once the final rules are published.
Where Firms May Need Additional Support
Programmes of this scale often require a mix of regulatory interpretation, operational design and technical expertise.
Arum can support firms across several areas, including:
- Helping firms interpret the FCA’s policy statement and handbook updates and translate them into practical operational requirements
- Supporting the initial identification and validation of affected customers and agreements, including across active, completed, written off and sold portfolios
- Assisting with data reconciliation and remediation across multiple systems
- Supporting the development and implementation roadmap to comply with the FCA’s three-to-five-month window
- Designing exception management processes within collections or recoveries workflows
- Developing customer communication strategies and case management approaches to handle large claim volumes
- Providing assurance or QA around redress calculation approaches and payment processes
The goal should not be to simply meet minimum regulatory requirements, but to ensure firms can deliver the scheme efficiently, fairly and with confidence.
Final Thought
With up to 14 million motor finance agreements due compensation totalling £8.2 billion the coming months will require careful planning across data, operations, customer communications and governance. Those that start preparing now will be far better positioned when the final rules arrive and when customers begin to expect answers.
To speak to one of our experts
About the Author
Katie Harris, Senior Consultant
Katie has over 20 years of experience in collections and recoveries. She has led innovative projects spanning system selection, configuration, and business readiness, with a particular passion for elevating customer experience and designing streamlined internal processes that benefit both customers and employees.