Welcome to the Treasury Select Committee on Tuesday 9 September 2025. We are pleased to welcome the Financial Conduct Authority today for one of its regular sessions. We are going to focus particularly on the issue of motor finance, on which the FCA is going to be consulting, and a potential redress scheme. The FCA has been doing a lot of work on that; a lot of consumers out there are very concerned, and a lot of businesses are concerned about how it will impact them too. I am pleased to welcome Nikhil Rathi, who is the chief executive of the Financial Conduct Authority. He is joined by Ashley Alder, the chair of the FCA, Stephen Braviner Roman, the general counsel and chief risk officer, and Sheree Howard, an executive director for authorisations at the FCA. Welcome to you all. I mentioned motor finance at the top there, Mr Rathi. We have a big issue here. Do you want to summarise what harm consumers experience that they need redress for?

We have announced that we are going to consult on a compensation scheme for consumers, after the Supreme Court ruling at the beginning of August. That is because we believe there is evidence that there have been unfair relationships between lenders and their consumers, and commissions paid that were not adequately disclosed, consistent with the rules at the time. That means that a large number of consumers were not properly informed and perhaps did not get the fairest interest rate that they should have done for motor finance agreements.

Can you tell us roughly how many people would be affected by this? Most people buy cars through motor finance, so what is the scale of the redress that you will be looking at?

During the period that we are looking at, from 2007 through to just after 2020, there were around 30 million agreements. We will publish all the data in detail in the consultation. Not all of those will be eligible for compensation. One thing that we are looking at very closely is what the scope of the scheme would be. The discretionary commission arrangements that we are looking at are in the region of 14 million, and there will be a smaller number of non‑discretionary commission arrangements. That was a subject of the Supreme Court judgment in which it ruled in favour of the consumer, where there was very high commission and inadequate disclosure, so we will be looking at those cases too.

Can you briefly outline the timescale? You are drawing up a consultation. How long will that take, and when will people who are watching be able to contribute their views?

We moved very swiftly, within 48 hours of the Supreme Court ruling on 1 August. On the Sunday afternoon we put out a statement and said we would consult by early October for six weeks, so that we can set out the next steps on a scheme in time for when our pause on complaints is due to expire at the beginning of December. We certainly hope that compensation, where it is due, could start to be paid next year. We have to work through the operational details in the coming weeks.

You said early October. Do you actually have a date yet for when you are going to publish the consultation?

I cannot give you a precise date, but we are on track for early October.

You mentioned 30 million people potentially affected. What should consumers listening today do right now following the Supreme Court judgment?

We are putting in place a compensation scheme for consumers because lenders may have treated them unfairly, or not disclosed commission adequately. If you are concerned, you should contact your lender and complain now. You do not need to use a claims management company or a law firm, which may take up to 30% of any compensation that you are due. You should be very mindful of those contacting you, so fraudsters or those perpetrating scams, who seek your personal details. The scheme is not yet up and running. When it is, it will be free to use.

You mentioned that you do not have to use certain companies. Is there anything consumers should not do now or not rush into doing ahead of the consultation?

We have put out warnings around fraudsters who are seeking to contact consumers promising very vast sums of compensation and seeking their personal details. You should not respond to those. You should report those to the relevant authorities. That is the first thing I would say. Secondly, do not rush to sign up to a claims management company or law firm. We will be sending out the details soon, and the scheme we put in place will be free to use. I reiterate that point.

What timescale do you envisage before consumers begin to receive any actual cash in their pockets, if they get compensation?

This will all be subject to consultation, and a key component of that consultation will be operational details. A number of firms are engaging with us very constructively, and I know that they want to move quickly and put this issue behind them. We certainly hope that this can start moving next year. We will set out proposed deadlines in our consultation for the timetable of the scheme.

Mr Rathi, can I back up a minute and talk about the principles here? Over the last generation, we have had this change in the way that people buy a car, and they now basically have a trade-off between the size of the deposit and the size of the monthly payment. It is pretty obvious to most people that, if you put a bigger deposit, you have a lower monthly payment. We are talking here about what makes up that monthly payment and how the incentives for the provider of that finance package are being disclosed. You have started a second term, and one of the big challenges that you have been asked to take on—I fully endorse the Government imperative on that—is about the productivity of financial services and so on. What I am trying to understand is where consumer harm comes in here. Where is the consumer’s obligation in our system to ask questions? If they asked questions, would they have got the answers? If somebody was quite happy with the arrangement and clearly signed up to it, did not know anything about it and now are told, several years later, that they have the opportunity for compensation because they experienced harm, how is that right from the perspective of the lender? If you look at any other retail environment, the financial dynamics of what goes on behind the payment that a consumer pays are not disclosed and there is no obligation to disclose them. Are we not in danger here of going through another cycle, similar to PPI, of retrospectively saying that people have been harmed, when many were quite happy with the arrangement that they left the showroom with in the first place?

I will take that question in two parts: first, what harm has happened and, secondly, what the implications are for the future. The Supreme Court was very clear: this is not retrospective. This is about breaking the laws and regulations that were in place at the time, including the Consumer Credit Act, which is legislation passed by Parliament, and the rules on disclosure that were in iterative pieces of regulation. This is not retrospective; this is about whether lenders and dealers were complying with those laws. What is the harm? In the case that the Supreme Court upheld, the consumer had been told that their lending request was going to go to a panel of lenders and they would be offered the best deal. In fact, there was a tied relationship exclusive to one lender and their lending request was not offered to a panel of lenders. Tied to that, there was a very high commission payment from the lender to the dealer. In that case, the Supreme Court upheld the consumer’s case and said the commission plus interest should be repaid because the harm was that they had been misled in terms of the disclosures.

Can I probe you on that point specifically, around the quantification of the premium that exists? We are talking about you and the providers having to go back over—this is the point I mean about retrospective—arrangements going back potentially up to 20 years, looking at the financial underpinnings and dynamics of that. To calculate what the premium would have been, over the panel scenario you just set out, and to prove a detriment, is pretty difficult to do with any certainty, and yet it gives a lot of uncertainty to the lenders in terms of their provision of loss, surely.

The Supreme Court took a decision in that case that the remedy should be the commission plus interest at a commercial rate.

It is 3% a year, is it? Yes, that is your proposal.

We will consult on base rate plus 1%. Obviously there is a range of views as to what a commercial rate is, but that is what we have said we will consult on. That is a remedy that the Supreme Court decided for that case. We have said that that is the high watermark of a remedy. That was a very serious case and we have said that we will look at methodologies for harm that may lead to numbers below that, because each case is going to be fact-sensitive and there is a range of indicators of unfairness. We have to pay due account to what the Supreme Court has said, and will also, as required in a redress scheme, look at our own economic analysis of the harm, including, for example, if there was a discretionary commission arrangement, what marginally higher interest rate we think consumers were charged by virtue of those arrangements. We will set out that analysis. It will necessarily be the case that we will need to exercise a degree of regulatory judgment. On something of this scale, we are going to have to make some pragmatic and proportionate choices so that we are fair to all parties, including the consumers, where the law passed by Parliament has been broken, but also to make sure that there is a healthy, competitive market in the future and that we are fair to lenders. We think we can achieve both and we hope we can garner your support.

I think that I unfairly curtailed the second part of your answer, which was linked to the broader implications of this judgment. Over the last generation, we have seen that if you make many financial investments, you pay the fee transparently up front so that it is not lost in many of those commission-based things. What is your assessment of the wider implications for financial services of any outstanding and enduring ambiguities around the way that such transactions take place? We need to eliminate any legacy ambiguities so that, when people look at investing in financial services companies in the UK, they do not feel that there is some enduring uncertainty between what the Supreme Court says and what our very respected regulator says.

The Supreme Court has provided important clarity and, indeed, has indicated that there is significant weight on the regulatory approach in terms of how these issues are considered. The issue we were dealing with, up until the Supreme Court judgment, is that there were thousands of cases going through the courts. County courts were taking a different view. The Court of Appeal took a particular view. The Supreme Court overturned significant components of the Court of Appeal judgment in relation to the interpretation of the Consumer Credit Act in particular. We now also have the consumer duty in place, which is forward-looking and outcomes-based, and we have seen improvements in practices. I have also said that we do not see any other significant redress issue on the radar. We are very keen to move as quickly as possible in this situation, so we can get it dealt with and everyone can move forward with confidence for the future. You will have seen, in the equity markets at least, the reaction to our statement on that Sunday afternoon in August and then when the markets opened on Monday. It was a generally positive reaction and we are monitoring the motor finance market closely. It continues to function well. There was growth in lending in the most recent data, so we think we can sustain this for the future. To your point about ambiguity, there are some things where I do not think that there is ambiguity. You should not tell a consumer one thing and do something else. That was the law in force at the time. You should not tell a consumer that you are going to offer their request to a panel of lenders and then only offer it to one who is paying you a very high commission. That was never ambiguous. That was straightforward misconduct, which the Supreme Court has judged, and needs to be dealt with.

In a situation at that time, if the consumer had asked about the arrangements, what would have happened to them in terms of the information they would have got?

Maybe I can ask Stephen, our general counsel, to fill in the gaps there.

The rules in place at the time, throughout the relevant period, would have required the broker to proactively disclose the information. The situations we are talking about now are that the broker did not do that and did not reveal that information. We did not have a rule that said, “If you do not proactively disclose the information that you are meant to proactively disclose, this is what you do if you are subsequently asked.” It is a slightly hypothetical question to answer. Why would a consumer have asked that question in those circumstances?

Presumably if they were dissatisfied with the financial settlement of the distribution between the deposit and the payment.

They may have asked, “Why is this so?”, but it is hard to imagine a consumer saying, “You have told me this is from a panel of lenders. Do you have a tied arrangement?” How many consumers would know that that existed as a thing?

In the end, a consumer makes a decision about whether the settlement of the distribution of the deposit and the monthly payment is acceptable to them or not. I am concerned that, if we do not reinforce the consumer’s responsibility somewhere in our system, we are going to continually have this situation where the consumer takes no responsibility for transacting a purchase for themselves. It is always that the burden is too far the other way, from what we are seeing. I have taken out five or six over the last 15 years. I do not consider that I have been harmed. If I go through the process, I will give the money away. A lot of consumers would have gone through a system where they made a decision. If they did not like it, they could clear off.

We have been clear that, if you are happy with your deal and in the same position that you were, then there is no need to complain and no need to put the firm through the bother of giving you the money so you can give it away. There is no need to complain if you are happy with the deal. The Supreme Court was clear. The Supreme Court has been clear in previous cases as well. Unfair relationships are not just about the asymmetry of information, because, as you say, in all financial relationships there is inevitably an asymmetry that exists. That is not enough to be an unfair relationship. That is not what we are getting at here. Something extra has gone on in these cases, such as the example that Nikhil gave.

Can I pick you up there, Mr Braviner Roman? You said that there is no need to complain. I am not sure whether you are pre-empting the consultation, because there are two options, are there not? There are many options, but one is that consumers have to make a complaint. The other is that companies have to find the consumer.

I was just replying to the question. If a consumer is happy and content with their commission arrangements and the finance that they paid—they agreed to pay £500 a month, and are happy with that and not worried about how it was made up—we are not forcing people to complain. We are not encouraging people to complain who feel happy with their deal. That was the point I was trying to make, rather than pre-empting.

I am just being clear about whether you were revealing something there.

I will start with you, Mr Rathi. To clarify what the Supreme Court said, and maybe to slightly counter a point made by Mr Glen, consumers generally shop around for a number of financial products. I think I saw evidence from Consumer Voice about how consumers will, more often than not, shop around for car insurance, home insurance and mortgages. When it asked whether they shopped around for car finance, most often they did not. That was because they understood that the dealer that was often offering them the deal was acting, I guess, in a neutral way. I know that the Supreme Court did not find that. It did not find that there was a fiduciary duty on the lender, but it said that there could be some occasions in which there is an unfair relationship. Could I clarify that you have the same understanding? It is three parts. One is about the non-disclosure of the commission arrangement. One is about the adequacy of the consumer knowledge. Would they be able to work out some complex financial arrangement? The third element was about the level of commission in the first place. Can I clarify that that is your understanding, as the FCA?

We really appreciated the fact that the Supreme Court allowed us to intervene. We published our submissions to the Supreme Court. You are correct that there were those three factors that we suggested to it, which it also incorporated in its judgment. It also considered the nature of the commission, so the degree to which it was discretionary or non-discretionary. The sophistication of the consumer may also play a part. There is a rounded judgment that needs to be made around what an unfair relationship constitutes. Going back to this question of unfair relationship and Mr Glen’s point, Parliament is going to have a chance to look at this. The Treasury started a review of the Consumer Credit Act in 2022. It has been going for quite some time. We, like others, would like clarity on that legislative process. This derives from statute and what the Supreme Court has determined is what is in law. There will be a chance—to your point, Mr Glen—to consider that when the legislation is reviewed.

As you said, there is clarity between there being a fiduciary duty on the lender, which was dismissed, and there being an unfair relationship. The next question comes on to the extent to which we think the number of cases that were in the system were on this basis of an unfair relationship. There has been an impression, certainly given by the media in the aftermath of the judgment, that because two of the three points were ruled out, maybe roughly two-thirds of the cases disappeared with it. Do you have any sense of what degree of cases going through the court system were on this basis of unfair relationship versus the other two points?

On exactly what was going through the courts, some were on that basis and some were on a different basis. I could not give you exact numbers of what was going through the courts on a particular basis. If you look across, the Supreme Court was quite clear on the factors that it would consider might imply—not necessarily fully—an unfair relationship. It was quite clear that the non-disclosure per se was not necessarily indicative of an unfair relationship. It was the actual underlying factors. For example, was there a discretionary element that could have impacted the interest rate of the arrangement? Was the commission high as a percentage of either the total cost of credit and/or the loan that the customer took out? There were a variety of underlying circumstances. Coming back to your question around the numbers, it will be very fact-specific according to the arrangements that were in place at the time. We are quite clear that there were a number of discretionary agreements. Mr Rathi has already said that there were 14 million discretionary arrangements. Not all of those would be eligible because some of them, for example, had zero commission.

It sounds like you do not have a firm idea. It is just, at the moment, an estimate based on overall number of cases and your best guess at what proportion of them might fall under this category.

We have been doing detailed analysis. Lenders have given us lots of information and we have been analysing that. That forms a core part of our analysis to go into the scheme, which will form part of the cost-benefit analysis, which will be independently reviewed by the cost-benefit analysis panel and then open for review and questioning as part of the consultation process.

There were 14.6 million discretionary commission arrangement agreements between 2007 and 2020. There will be a smaller number of non-discretionary. A very significant portion of those, we think, probably breached the law when it came to disclosure and, by extension, unfair relationships. We will, when we put in place the scheme, expect firms to go one level down and get more granular about it. There will be a process that needs to be gone through. We will make sure that there is an appeals process as well for consumers who feel that they are not treated fairly by their lender. It is a very significant proportion, and that is how you get to potentially some significant numbers for redress. One point I would make is that it is not our scheme that creates this liability for lenders. This liability is there now the Supreme Court has ruled and the legal judgments are out there. We are trying to find a mechanism that can address this liability as efficiently and fairly as possible to ensure orderliness for consumers and orderliness in the market going forward.

I understand that. The reason I am probing is that I have been engaging with some of the more reputable legal firms. They have told me that the vast majority of cases they were pursuing through the courts were on this basis of unfair relationship. They are concerned that overall estimates that have been put out there so far are underestimating the problem, perhaps because the engagement so far has primarily been with lenders rather than the legal teams that have taken these cases through the courts. I understand the concerns about some of the unscrupulous activities of claims management companies and the reluctance to engage with datasets that they might have, which might be very large indeed. There have been some people who have led these cases through the courts and exposed the lenders’ practices. They tell me that they do not feel like they have been very well engaged with by the FCA so far. Could you tell me a bit about the engagement you have had with some of the legal firms that have brought to light these practices?

Before, and particularly after, the Supreme Court judgment, we have engaged with a number of groups, consumer groups and law firms. We have spoken to particular law firms to gain their insight. We have spoken to lenders’ and brokers’ associations as well. So we have engaged across the gamut of stakeholders who are interested in this issue to hear their different perspectives. We are continuing to do so, both in the few weeks before the consultation launches and during the consultation. We have engaged. We have heard their perspective. We will be driven by the evidence. The number of discretionary commission arrangements that Mr Rathi referred to is a number and a fact. There are about 14.6 million or so of them. They will not all be unfair. They will not all be subject to someone bringing a complaint. But that gives you a boundary for some of the numbers. If you then think about the commission arrangements, if you go to the absolute maximum, again as Mr Rathi said, that gives you a way to try and figure out what kind of number you may be thinking about. One of the suggestions being made is that people do not recognise the numbers or cannot understand how we get there. It is taking some of these published facts, as it were. Then you overlay some assessments as to how many people will bring complaints, what redress administration cost we will have to think about and all those things. The numbers are an element of external factual matters and some regulatory judgment. We have engaged with the firms from that perspective.

You have engaged with some, but I know that HD Law, for example, which won the Supreme Court case alongside Sentinel, says that it has been trying to make contact with you but has had next to zero engagement with the FCA. It has datasets, which it has shown me, of all the cases that it is running through the court, which I think would be of big interest to the FCA. I would appreciate it if you could maybe reach out to them. I know I am taking up a lot more time, but there are two more critical factors. The compensation level estimate that is out there in the public domain at the moment is around £950. On the data that I have seen, the average payouts that they were getting out through the courts were about £1,800 on the cases that they have progressed so far. Does that sound unusual to you, or is that average, taking into account the much wider set of claims that might be in the system, for instance, through claims management companies, which is dragging the average down? Could you give me insight on how you came to that number of £950?

We will consult openly. We have been engaging very openly all the way through this process, recognising that there have been legal proceedings under way. Any interested party will be free to participate in our consultation. Certainly over the weekend after the hearing we spoke to a number of law firms. We have also taken action where we disagree with claims made. Some of the CMCs and law firms are putting out high-pressured advertising suggesting to consumers they may get £4,500 and numbers such as that.

Would you accept that the person who won the Supreme Court case is not one of those?

In that case, as the Supreme Court said, there was a very high commission and also inaccurate information provided to that individual. The Supreme Court ruled, but there were also two cases where the Supreme Court said no. The point I am making is that we will be firm and assertive across the range of regulated actors here where we believe that communications to consumers are not fair and accurate. We have intervened in around 400 promotions by claims management companies, asking for them to be removed or amended, since 2024. We have asked 171 to change since the Supreme Court judgment itself. We do not agree with some of those very large estimates. It is important for me to be transparent about that with you. Yes, we think that the average is likely to be hundreds, not thousands, in redress. I said that the weekend after the judgment, because it is important for us to be transparent with consumers. A particular law firm may have a particular portfolio of cases that has resulted in the average you described, but we are looking at the broad brush of several million agreements. It perhaps will not surprise this Committee that some of those law firms think we have underestimated. A number of the lenders put out statements thinking we have overestimated.

You are caught by both sides.

We will explain to you, when we come out of the consultation, the basis of our thinking here. We will be pragmatic, proportionate and fair to all sides.

This is my final question. Whether or not a consumer was aware of the arrangement, whether it was buried in a deep agreement or whether they had the ability to understand the arrangement, that would be case by case. When it comes to the level of commission, it was shockingly high in the case that won in the Supreme Court. I think that it was around about 56% or something. Do you have an impression of how frequent that level of commission would be? Are you now using that as an anchor figure for the consultation around what you would regard as a high commission?

We have information and data that is giving us a view. Based on the data and information we have, that is a particular tail case. We are not seeing very significant numbers at that level. We are taking a view of the data and information. As I said, we have already said that it will be open to full public view. I am thinking around what level we think would be appropriate. Mr Rathi has already said that part of our work is to look at the economic analysis as well to ascertain where we can see breaks in the data where the amount of commission might be causing a higher cost of lending, so where the customer is paying more for lending as a result of the commission rate. That was more of a tail case. I am not saying there are none. There is a small proportion out there, but it is small relative to the 30 million agreements that there were over the entire period.

Ms Howard is our resident actuary, so it is great to have her on this project.

We like people who like numbers, so you are very welcome.

The particular mechanism of how consumers access the scheme is one of the things that we are thinking deeply about now. As you rightly say, there are pros and cons. An opt-out scheme, which sometimes is thought to be more consumer‑friendly, takes the burden off consumers. The firms have to write to consumers and assume that they are in the scheme until the consumer opts out, as the name suggests. That has less burden on the consumer and more burden on the firm. The risks with that, from our perspective, are that this is not an issue where we are looking back over the last 12 months or two years. This is going back to 2007. With the number of people who will have moved, changed names and done all sorts of things, the ability of firms to accurately identify people will be an issue. Putting the burden entirely on the firms and assuming that silence from the consumer means they are still there and part of the scheme at least runs risks of putting a lot of burden on the firms and a lot of nugatory cost, because there is no consumer ready to receive the money, however much it is. The flip side, of the opt-in, is obviously that it puts some more burden on to a consumer. One thing that we are very conscious of is that many consumers in this space have already gone to the trouble of complaining. The FOS, at the last count in February this year, had 60,000 claims on its books. That is 60,000 consumers who have already gone to the trouble of complaining about this issue, broadly speaking. We do not have the full details of the 60,000 complaints, but, broadly speaking, a pure opt-in requiring them to, as it were, forget they have done that and start again does not seem fair either. We are looking at those pros and cons, and thinking about the right way to balance them. One thing that we are conscious of is that the firms have a good deal of information and can access other sources of information going back to the 2007 period. We think that it is right, even if we were to go with an opt-in element, that firms do have some obligations in terms of contacting consumers and helping them with their claim.

Our work has covered 38, but there may be two or three more than that.

I have to be careful not to disclose something that might be market sensitive in terms of the potential liabilities. Each firm has a responsibility to disclose its own estimate of liabilities. In a typical year, there are around 650,000 motor finance agreements in the new car space. You can look at the kinds of firms that are active in selling new cars. There are some very big players and very big manufacturers who have tied lenders in that space. I think that it is approximately 1.8 million used car agreements, where there are some larger players, but the market is a bit more dispersed.

After the Court of Appeal judgment, there was significant shift in practices and in disclosure in the market. We said in our statement that we think that that is an improvement. We have the consumer duty in place. We would always encourage consumers to shop around and, if they are entering a financial agreement, make sure they understand the terms that they are entering into. We think that the practices we are dealing with in this scheme are practices of the past, and we all want to put this behind us as soon as possible in as fair a way as possible.

One lesson we learned from the PPI experience, where 34 million consumers received an average of £1,000, is the importance of a consumer awareness campaign. We will run a consumer awareness campaign. I will ask Sheree to talk about the guidance we will put in place for firms.

From the perspective of the scheme, we will put very stringent rules in place around what we will expect firms to do by when. From that perspective, it will be proactively supervised to make sure that they are adhering to that. As Mr Rathi said, there will be a very strong awareness campaign. We have been clear in our statement on 3 August that, regardless of whether we end up in opt-in, opt-out or whatever combination that might be, we will require firms as much as possible to make sure that consumers are aware that they may be eligible and of how they should be able to access the scheme.

We are going to be robust in our supervision and enforcement of the scheme. I should say that there are a number of firms that are now proactively co-operating with us and working hard with us to identify the data and find solutions. They want to move this on and deal with their consumers fairly. We want to encourage that kind of conduct right across the market. I would not say that it is 100% co-operation at the moment. We hope we get there. We will be very proactive in our supervision and enforcement. As you know, there are limitations on what we can say about individual firms. This is an interesting case study where we would like consumers to be as well informed as possible where we have concerns and where they have to make financial decisions. You are well aware of the debates that have happened in the recent year or so about the degree to which the FCA should be transparent or not about individual firms. I think that this is going to be an interesting situation for this Committee and for us.

We have been very clear—again, a lesson from the past—that, from our perspective, consumers should have an independent referral mechanism. We have been working closely with the FOS as we think through the nature of the scheme. We are anticipating that consumers will still have the right to refer to the FOS if they are not happy with what their lender says. Once a scheme is in place, the FOS will be bound by the scheme.

We are very mindful that we took the exceptional decision at the beginning of 2024 to pause the handling of complaints. In this discussion around proportionality that Mr Glen has raised, we absolutely must be proportionate to make sure that the market works well in the future, but we need to be proportionate to consumers too. The point you are making is that some consumers have been waiting quite a long time, notwithstanding that they have exercised their rights to make complaints. Now that the Supreme Court has ruled—and we had to wait until there was clarity on the law—we want this to happen as quickly as possible. We certainly would like a critical mass of these complaints dealt with during the course of next year. Then, hopefully, we do not have one of these situations again in the future. To secure that, we obviously go through a consultation. We will have to make rules. We hope that we can garner your support. As you know, all our rules are subject to judicial review, and there may well be parties that seek to delay this. We hope that that will not be the case, because we will propose a robust scheme to get this sorted.

We are going to set out proposed deadlines in the consultation, so I do not want to get ahead of ourselves there, but we will be talking months.

Picking up on the lessons of previous schemes, we are intending to have an end date by which complaints will have to have been in and firms have dealt with them, so that it does not drag on for the reasons that Mr Rathi has said, both from the consumers’ and from the firms’ perspectives.

Mr Rathi, in response to Ms McEvoy, it sounds like some firms are playing hardball with you and not perhaps wanting to co-operate. Is that the case?

There is a range of co-operation, and I am talking here about lenders and claims management companies. These are all regulated firms. Obviously, the Solicitors Regulation Authority deals with law firms as well. There is a range of co-operation.

Can you name some of the ones that are arguing with you the most?

I always want to be transparent and open with this Committee. We have to respect that there are various legal restrictions on us.

You are here in front of a Select Committee.

I am here in Parliament, so maybe I can take that offline with you and the Clerk in a private session.

Under privilege, you could say something now, if there are companies that are arguing very hard with you about the whole premise of a redress scheme.

I totally understand the question. Maybe we can suggest a private session with the Committee, and then you can make a judgment as to whether you would like that evidence to be public.

I appreciate that in any other environment you would not be naming firms that are arguing very hard against or for a different redress scheme than maybe you would want to introduce, but we are in Parliament, in a Committee. You are sitting here and you can speak under parliamentary privilege if there are any particular companies that are trying to or threatening to delay the compensation that many of our constituents will be due.

There are firms that you can see in the public domain that are raising questions about any redress scheme we put in place. Mr Dean mentioned that he has been talking to some law firms, so I think that that is in the public domain.

Yes, but that is talking to some law firms or some people. If there are one or two that are particularly digging in, with perhaps deep pockets, taking on the regulator, which could have an impact on our constituents getting compensation, it would be very helpful if we could know that now and they know that they are under scrutiny too. We may want to call them in to talk to them about it.

I appreciate the sentiment, Chair. I would also say that, as you know, firms can challenge us if we wish to speak publicly about them. That is the legal system we have, and it is important we respect that. Of course, we want to make sure you are fully informed. I think that the best way to do that would be to brief you privately where we have those concerns, and then the Committee can consider that in the round, considering the legal issues that we have to navigate, which you are very familiar with—we had a very lively debate about it—and the broader public interest that we are all seeking to serve. I think that we are going to find quite a few of those situations arising.

We may want to adjourn at the end of this meeting and have a five-minute private conversation to see where we take that. We will leave that there for now, because it is important that we know where there are issues.

I have one more point on the construction of the redress scheme. One core principle is about market integrity. I totally understand: we do not want the market to collapse and consumers to lose out as a result. A lot of those big fears have subsided because the fiduciary duty and the bribery claims have gone away. I understand that, I think, to help you understand this, you did a diagnostics report via EY. Is that correct? Is that a report that you are going to be publishing at any time, or is it something that the Committee can get sight of? Is it still relevant since the Supreme Court judgment?

We will be publishing in our cost-benefit analysis the details from the skilled person’s review that provide the evidential basis for the scheme. We have also been doing work on market impact and how this market is functioning. I mentioned earlier that we continue to see good, healthy levels of lending in the market, and terms of finance broadly similar to where they were a year ago. We are looking at the capital markets as well. Equity markets broadly responded positively. That is important because they provide capital and funding to lenders in this market. We will set out the full range of that analysis in our consultation and make that available to the Committee for scrutiny.

Does that include the report? I believe that the diagnostic report commissioned is quite an expensive one, and it would be quite critical to your understanding of the market. Is that right?

We would not disclose every single lender’s data to us that was covered by the skilled person’s report. We take all the data that the firms have given us and look at it in the round. We will provide the overall assessments, drawing on that evidence, which underpins our judgment that the tests for a redress scheme are met. That data is going to inform our cost and benefit analysis. There will be a range of scenarios and we will make that all public. We will set out our recommended approach, but of course there is no absolutely perfect answer here. There are judgments we have to make and we will try to provide data on different scenarios too, so we can have an open consultation, including with this Committee.

We may pick that up at the end as well. Mr Alder, you have had an easy ride so far. You are chair of the board. We have heard the tensions and discussions about what options there are. You, as a board, have to make a strategic decision about the form of a redress scheme. Can you give us a flavour of the sorts of discussions you are having and the key difficult issues that you are having to decide on as a board?

As you might imagine, it has been a focus of a large measure of concentration and, as you would expect also, quite a few meetings. In fact, we set up a sub-committee as a board to engage and discuss with the executive around how this developed. Getting back to the beginning, there were three phases. The first phase for the board was interacting on the pause. The pause was super important because, as Nikhil has emphasised, it suspended consumer rights, effectively, in a situation where there were contradictory or different court decisions. We obviously had a huge pile-up of cases with the FOS, and that was increasing. It certainly increased after some FOS decisions in early 2024, and we needed a period of time out to assess the situation. That was the first set of decisions from a board perspective. The second set was the question of the principles that we felt should apply to the whole process, and they were fairly clear. One was to resolve the whole situation in as orderly a way as possible and as quickly as possible, in the interest of both firms and consumers. That is a difficult balance in practice, but that is clearly the objective. We needed to be fair to consumers through the scheme, where harm has occurred. We wanted to make sure that the future motor finance market functioned well. Pretty importantly, as an organisation, we needed to demonstrate, within a febrile topic, that we had a grip, not least to quell untoward speculation around the size of redress, scope of a potential redress scheme and so on. That is why we were totally aligned, as a board, with the executive on the many frequent updates that we put out as an organisation to keep the market informed on our thinking. In fact, quite early on, we said that, given what we had learned, we were likely to put in place a scheme. Of course, that has now been confirmed. There will be a scheme. Coming to where we sit now, the key strategic and policy discussions revolve around what we will say in the consultation, given that we said there is going to be a scheme. The issue is that, given that the scheme is not mandatory for consumers, which Stephen emphasised earlier on, we want to ensure that the design of the scheme is pitched at a level that offers consumers a fair outcome and a better alternative, certainly for the vast majority, than, for example, court action, because there are many cases in the courts. Court action is very different from participating in a scheme, because court action implies delay and additional cost. We have the CMC environment, with a charge of up to 30%. Also, outcomes are uncertain, frankly, notwithstanding the Supreme Court case. The Supreme Court made a decision in favour of one consumer, but was very clear that that was highly fact-sensitive, so there is still a degree of uncertainty about court outcomes. So that is basically a scheme that is pitched to offer consumers an attractive choice, but calibrated to the level of harm. So far as firms are concerned, it is important that firms—and of course we have been working with firms—are able to quantify the overall cost, or the cost per firm, as soon as possible, to engage with the scheme and to move on quickly. That is very clear from interactions with firms. Frankly, they would want to put this behind them. It was really interesting, in the context of the Supreme Court decision. I think that a lot of analysts, on the whole, felt that this was time to move on, from a firm perspective, and engage with the scheme. It is a genuine consultation. Right now, we have decided to implement a scheme. We have not finally decided on the design of the scheme, and that is where the consultation is absolutely crucial. In this discussion so far, we have been through some of the categories of decisions or options that we need to look at. Certainly the discussion between the board and the executive team has been clear about one point: the consultation needs to be absolutely transparent on the potential alternatives we could look at, so far as the designers could see.

Opt-in or opt-out is obviously one of the big ones.

Yes, it needs to be absolutely transparent on these categories of decision, or the fundamentals of the scheme, and demonstrate our thinking around those options. If you go through the main categories, one is the scope of the scheme or, in other words, which contracts are caught by a scheme. That hinges, to a large degree, on that phrase, which was germane or central to the Supreme Court, which is “unfair relationship”. Are we talking about discretionary commission arrangements—DCAs? Yes. Are we talking about inadequate disclosure, very high commission and undisclosed ties? They are all factors, so there is a question around scope. There is a question around amount. Nikhil has mentioned the successful element of the Supreme Court case from the consumer’s perspective, and the high watermark of, effectively, refund of commission plus interest. On the other hand, under the legislation that binds us as an organisation to think around fair compensation, there is an economic loss component. We will be talking about how we think through the amount of compensation relevant to those contracts that fall within scope. Then there is opt-in or opt-out, which we have discussed as well, amount of interest and how far back we go, which is the 2007 forwards through to 2014 and now.

I have a couple more. I had a conversation with Mr Rathi about the firms. Are they lobbying the board as well?

No, not so far as I am aware. I have not been personally lobbied.

You must be relieved about that. On the appeals process, the FOS has been overwhelmed, and obviously there is new management, at chair and chief executive level. Are you having discussions on the board about how an appeals process will work to make sure that the whole system is not overwhelmed? I suppose getting the redress scheme right is the first step in that.

We are in close contact with the FOS, not least because we are in the throes of a reform discussion around the redress system. As I understand it, although Stephen might confirm this or correct me, if we put a scheme in place, at that point, if consumers then engage with the scheme or otherwise and go to the FOS, firms will be judged according to the rules of the scheme. It is a different function for the ombudsman service than that which is at large under the fair and reasonable test.

It will be able to streamline it, basically.

Yes.

Further to your questions, Chair, on these principles to do with retrospectivity, 2007 has been mentioned. I want to understand the board’s thinking, Mr Alder, on why you are going so far back. We do not have to keep our tax returns more than five years. There is usually a limit for civil claims. Now we are going back a very long period in time for these companies to harvest claims and to get people to dig out their paperwork from many years ago to put in a claim for something that perhaps they were not even aware was an issue and the car is long gone. I wondered whether you could talk a little bit about the FCA’s principle as far as retrospectivity is concerned.

This is a question that has been raised quite frequently. The first principle is that there is no doubt, going back to 2007, which is when the Financial Ombudsman Service jurisdiction started, that so far as the Supreme Court decision is concerned, Consumer Credit Act liability extended back to 2007. That is not retrospective; that is simply the fact that the court has clarified what the law was throughout this period. The second practical point is that, if we put in place a scheme that dates back to, say, 2014 and not 2007, there is no doubt at that point that we would need to lift the pause on complaints. That would give rise to a potential situation of many claims advancing within the FOS in that period and/or county court claims at that point, which for consumers would offer potentially less certainty than a scheme would. For firms, that could result in more cost, work and general inconvenience than simply a scheme that dates back to 2014. On the point on look-back time limits and suchlike, as I understand it the relevance of look-back time, as it were, only relates to whether there was deliberate concealment of a fact relevant to the contract. If there was deliberate concealment, for example, of commission arrangements, the limitation period would only start from the point at which that became apparent. Those are the factors, in principle, that we were looking at.

I guess that the principle then, you are saying, is narrowly confined to this particular issue, rather than across the financial services sector as a whole. You are perfectly within your rights, late in the day, when you were not even aware that there was a harm at the time, to go back as far as 2007 to complain about a financial service that you received. You are saying that the principle only applies to this particular line of claims.

If I could help, I think the answer to the question is yes, but I will put it in my own words to make sure that we are not at cross purposes. You are absolutely right; normally speaking, if you bring a civil claim or a claim in the FOS, there are time limits that apply. Six years is the claim limit for bringing a claim in the county court; if you wait seven or eight years and then turn up at the county court or turn up at the FOS, you are out of time. That is still the case now. If the time limits have properly expired for individuals, our scheme does not revive the claims. We cannot perform magic in our scheme. The statute is clear that within the scheme you can only cover cases that could properly go to the courts. It is an alternative to that route. We cannot revive cases. Cases that are properly timed out will be most cases, leaving aside this circumstance, because in most cases there is not concealment of the facts. People do know what they are transacting, so you cannot just change your mind and then sue somebody 10 years later. The difference in these cases, as the chair has described, is that the time limits for the courts have a “stop the clock”, as it were, if there has been deliberate concealment. There is Supreme Court authority that a failure to disclose—it was in the context of PPI, but it is a similar issue—insurance, or commission arrangements, does stop the clock. The going back to 2007 issue is, again, a specific consequence of primary legislation and of Supreme Court judgments, where, in certain circumstances, the six years do not run. It is specific to issues of concealment, rather than issues of motor finance.

I am trying to make this clear for my constituents. There is another precedent that this scheme might potentially set, which is around the frequency of scams. People are getting scammed on the internet so much. There is so much financial crime that now comes through scams. Often, people who are scammed in that way will resort to using a claims management company or a no win, no fee lawyer to help them with their claim. Are you trying to send a message with this scheme that they should not do that, but should use the avenues that are open to them through the FOS, for example, or are you saying that it is only in the case of this financial issue of motor finance that you should not use lawyers and claims management companies?

In relation to individuals who are receiving fraudulent contact, as Mr Rathi said, they should be contacting the correct authorities, in so far as they want to bring claims against the fraudster, as it were. If it is a claim that can be brought to the Financial Ombudsman Service, generally speaking you do not need to use a CMC or a law firm for those claims. The construct of the Financial Ombudsman Service is intended to be—

Across the board, and not just motor finance.

Exactly, accessible for individuals. Generally speaking, there is no need to use CMCs. That is not to say that in certain circumstances they may not be a legitimate choice and have a role to play, but generally speaking, no.

I have one final macro question, if I may, to Mr Rathi. In her Mansion House speech, the Chancellor used some fairly strong language about rules and red tape in financial services being a boot on the neck of business. You have previously told Parliament that you are looking to it to set you a clear steer in terms of what level of risk we are prepared to take. Now, I got a very interesting answer to a parliamentary question yesterday, which I asked to the Economic Secretary—the new Economic Secretary, Lucy Rigby, replied, because I asked for an update.

She is on the ball.

Yes, late of this parish. The new Economic Secretary replied, and it was about an update on what had happened since the Mansion House speech in terms of deregulation. The phrase she used was very striking. It was, “The Government is not aiming to deregulate.” I just wondered, Mr Rathi, whether you feel that you are getting mixed signals, not only from Parliament, but also from Government, in terms of the expectations for change further to the Mansion House speech.

I was at the Mansion House dinner. I did not hear that statement in the speech itself. It may have happened at the briefing outside, but I did not hear it myself in the hall. We work really constructively with the Government. We recognise the imperative of the growth agenda. We have been actively involved in the Leeds reforms, and the Edinburgh reforms before them. We set out 50 proposals to the Prime Minister. We have been moving at an incredible pace. You may ask me later about mortgages, the advice guidance boundary, and a number of the other areas that we are working on. There is always going to be a tension, which we have talked about in the context of mortgages, between how far you open up the market, open up accessibility and relax affordability standards, versus the potential consequences for a small number of people. I will not exaggerate it, but a small number of constituents may fall into distress over the cycle as you do that, while there is a benefit to hundreds of thousands who may get access to a home they might not otherwise have done. The point I have been making is that we can make these foundational reforms if we can build as much consensus as possible around the overall risk framework, in terms of both the appetite we want and how we prioritise our resources, and if that then endures over time. The challenge we face is that we put in place measures at a particular moment in time, because of the particular context we are working in, and in a couple of years’ time it suddenly changes. That is why I have drawn attention to the mortgage charter, because that was two years ago, with largely cross-party support, which we enabled with a desire to stop repossessions. The point I am making is this: if we liberalise the affordability standards and there is distress in the next interest rate cycle—whenever that might come, since I cannot predict it—and if at that point we try to change the system again, to the point Mr Glen made earlier, how can firms have confidence to offer these products? That complicates the matter. It complicates the matter for capital providers as well. I am not saying we get mixed messages. What I am saying is this: let us have a good debate about it, try to get as much consensus as possible, and see whether we can make that endure. We can then really drive some of the changes for the benefit of the economy and for consumers.

You talked about the businesses that have to put risk capital to work in this regulated context. I just want to ask you, Mr Rathi, about this issue around retrospectivity, because one of the things that they find difficult is that potentially—and it is not the case in this particular situation—something that they thought was legal at the time is later found by the FOS, for example, not to be the right thing to have done. Is that a fair criticism that we sometimes hear from businesses in this sector?

I am sceptical about that criticism. I have made that point here in front of the Committee. One of my observations sitting in this seat, as I have for the last few years, is that some of the firms that are most vocal about making that claim are the most reticent to test their argument in court. The courts are there to protect not just consumers; they are there to protect firms as well. If firms believe that any part of the regulatory system is applying the law retrospectively—and they are often advised by some of the most distinguished legal professionals in the country—they are able to test that in court. The Supreme Court was very clear in this case. This was about the laws and regulations in force at the time. We do not look to apply things retrospectively. There are issues with respect to the FOS that we are working together on, in terms of how we make sure there is good alignment and good understanding of our rules—for example, with respect to the consumer duty. How do we have early warnings where there are big issues crystallising, so we can step in to avoid a large systemic issue crystallising in the market? I am afraid, notwithstanding all of the representations you have received, that I do not have a huge amount of sympathy with that retrospectivity argument.

I know I ask you about this every time, but have you made any changes to the way you are regulating the crypto-sector since we last spoke to you? I appreciate that there are big changes happening across the Atlantic, and I wonder whether that is affecting thinking at the FCA.

Yes, we have made changes. There is a road map for digital assets, including in relation to crypto-assets and stablecoins. We are putting in place—subject to the legislation being adopted in Parliament that the Treasury is putting forward—a range of regulations around custody, around disclosures and around how these crypto-assets can be issued. We have shifted position in a measured way to allow retail access to crypto-ETNs—exchange-traded notes—with appropriate disclosures. We moved a year or so ago to allow professionals in. We were probably one of the largest markets in the world that had still not allowed retail in, so we have allowed that in a measured way, but we have been very clear that—and this is a message that we have reiterated here and to your constituents—if you put money in these products you must be ready to lose everything. These are high risk, and you should not expect to be able to get access to the compensation scheme if things go wrong, because there is a very high level of risk in this market. We also say, though, that there are benefits here. We can see that there are benefits of the use of distributed ledger technology. Actually, in our digital security sandbox, we are working with a number of firms to see where there could be positive use cases here. We want to be innovation‑minded, but clear-eyed about the risks.

There are still some things to discuss on motor finance.

We touched last time on market integrity and the potential for firm failure. Most of the fears that there will be widespread firm failure as a result of this have subsided, but there might still be some at the margins. I am not sure whether you are aware of any particularly at-risk firms or not. If that was to happen, could you explain to the Committee what protections there would be for consumers in terms of the compensation scheme? Would their ability to claim compensation cease at that point if this compensation package sank a firm?

We are monitoring it closely. We are not aware of any situations as acute as you describe. Motor finance is not covered by the Financial Services Compensation Scheme.

That is what happened to Mr Johnson, but the challenge here is that there are millions of cases and there are a range of fact patterns.

I was going to make that point. That is a potential fact pattern and very close to Mr Johnson, but I would not want you to think that that is what has happened to 30 million people with agreements, because that is not the case.

What may have happened in other agreements is that a discretionary commission arrangement was not disclosed, and the dealer had an incentive to sell a loan at a higher interest rate, because they were getting a commission for that. They may have disclosed, “There may be commission,” or something like that, but not been fully transparent about it. There are going to be many different fact patterns here, which is what makes this quite a complicated thing to work through.

Again, sorry to sound pedantic, but they may have been in some cases. I do not know whether you have had car finance recently, but the broker will use all sorts of phrases. The broker may just say, “This is the deal. This is what I can get you.” There may be an implication that it is the best deal. They may literally say, “This is the very best deal that I can get you.” It would be wrong for us to sit here and say that the facts that you are describing are anything other than a potential situation, but there will be a whole range, a whole gamut, from what you are describing through to slightly vaguer and looser, through to complete honesty. There will be some brokers who have said, “Actually, I have a tied arrangement, so the first one I have to offer you is from X and Y bank, and here is the deal. Do you want to think about that?” I do not want to sit here and say what you are describing is the situation for everybody.

That is broadly accurate, yes.

One of the key issues here, of course, is data and who has the data. There are quite a lot of discussions in Government and in businesses about what you are actually allowed to hold. Ms Howard and Mr Braviner Roman, you have been talking to firms about what data they hold. How long are they expected to hold data on these car finance loans?

You are absolutely right; we have been engaging with firms to ascertain what they have. Obviously, the further back you go, the sparser the data gets. It is a bit of a mixed picture, but while it is a mixed picture, there is an ability across quite a high proportion to get reasonable data. As we referenced earlier in this session, firms can work with third parties, such as credit reference agencies or others, to try to supplement that data.

How long are they expected to hold data? It is personal data, so there must be some rules about how long they are expected to hold it. The DWP, for example, destroys our records a year after we die, which has caused problems when there have been problems with pensions. There are rules in public and in the law.

Our requirement is six years after the end of the agreement.

It goes back to 2007, as Dame Harriett was saying.

Exactly, so our requirement is to hold it for six years after the end of the agreement. For the past year we have required firms not to disclose any records.

Not to destroy anything.

Yes, so that six years is extending it now. Our requirement is to hold it for that period. Our requirement is not to destroy it at the end of that period. Some firms do in fact have pretty strong records going back for the full period, that they have retained for their own purposes. Some firms, it is fair to say, do not have a complete record going back to 2007. That is the point they are making to us. We do believe that there are other sources of information that firms are using now, in fact, to find consumers and to connect consumers to agreements, such as the credit rating agencies, which do have records going back into this period. We think it is a combination of the records the firms are required to have, the records the firms do in fact have, plus the other sources of material information that they can readily access.

It is quite a minefield. You have touched on the companies that have been complaining. Is data one of the issues that is coming up with those who are reluctant to participate or concerned about a redress scheme?

Yes. Where a firm says to us that it does not have the data, we are not just going to take that at face value. We will look at it very forensically, as you have heard from my colleagues. A very large number of firms have actually been very co-operative and have been working with us on practical solutions here. To Dame Harriett’s question earlier, we want to be intensely practical here. The reality is that we have not created this liability. This legal liability exists for contracts from 2007, so how do you address it?

I want to touch on that. You have been reluctant to name firms. We have had colleagues of yours in here talking about the challenges of finfluencers. Meta was named as a firm that has not been playing ball with the FCA in taking down people who are giving unregulated financial advice. You were willing to name Meta, but not any of the firms that may be causing difficulties as you try to draw up the redress scheme. Why the difference?

I would like to be as being as open as possible with the Committee. We are in the process of a pre-engagement before a consultation. There will be a consultation. We will put in rules. We expect compliance with the rules. If those rules are not complied with, we will be assertive in our supervision and in our enforcement. There are a few stages to run here. Firms do have rights. They can be as assertive as they like with us if they wish to challenge us legally.

You are the regulator. You have a lot of the whip hand. Are you frightened of naming these companies in public?

I respect the legal framework we have. As you know, it was our view that there should be a degree of greater flexibility for us where there is a public interest, particularly in enforcement cases. We got to where we got to on that, and we will work within the framework we have.

Okay. Well, you have said that. All of this could be seen as a failure in regulation that led to the need for the Supreme Court to get involved in the first place. What do you have to say to that?

The issue that the Supreme Court got involved in was interpretation of statute, with the courts taking different views as it worked its way through. We do not decide what the Court of Appeal says. It came to a particular view about the interpretation of common law and the Consumer Credit Act, and the Supreme Court took a different view. The Court of Appeal took that because the county courts were coming to different conclusions. If you look at what the Supreme Court said, because there was some suggestion that the regulation was not clear, it actually said that since 2010, both with the OFT guidance and subsequently with the FCA—and it was before my time—there were rules in place. On the claim that the rules around disclosure were changing or were not clear, if you read the judgment it explained the court’s position on that.

I am going to ask the final question on this subject, and then I want to move on to something else. That point about the divergence between the legal process and the different stages of it, and your, as the regulator, guidance to the industry, potentially has a chilling effect on the way that firms operate. Is there anything you can suggest going forward that can maximise confidence in you as a regulator preventing what we have seen in this particular instance from happening in other domains, where you have that long legal process and journey, driven by a series of complaints, that creates a market outcome that we all think must not be positive for the financial services sector?

I would accept some of that, and I would not accept some of it. If a firm or its dealers or agents have not been honest with their customers, that is not a chilling effect that has been created by the regulatory system or by the legal system. Let us be clear about that.

With respect, Mr Rathi, the ambiguity between that legal journey and your position until that legal journey concluded is what I am talking about. You and Mr Braviner Roman have been at pains to explain that financial services firms did not do the right thing by the consumer. That is uncontested. What I am trying to get at is the fact that, if you are in financial services and you want to develop products and take things to market, what you want is an unambiguous situation regarding your responsibility. All I am trying to say is, “How do we avoid scenarios like this happening again?” It seems that you are saying to me that, if firms do the right thing by the law, they will be fine, but what I am saying is that that interpretation of the law seems to take a very long time and can have a long halo effect, if you like, over their behaviours.

We do think the consumer duty helps us here, because we hope that we get ahead of these issues in the future. As I have talked about publicly, in the banking sector we have certainly seen an improvement in trust levels from consumers in banks two years after the duty, which is a positive outcome all around. We operate within the reality of our legal construct. What we were dealing with here was common law, statute, then regulation, and then the passage through the courts system. You can consider, for example—and some other jurisdictions have this—a rapid process to go to the highest court, or to a very senior court, where there is an issue of ambiguity or lack of clarity. There are urgency procedures. For example, on business interruption, when there was significant dispute as to whether insurers were complying with the contracts that they had written for small businesses—you were the Minister at the time—we applied for urgency to leapfrog the process and get to the Supreme Court as quickly as possible, because this was literally existential for thousands of small businesses in your and your colleagues’ constituencies. That leapfrog and urgency process is only granted very exceptionally by the Supreme Court. That might be one avenue to consider.

I agree. Ultimately, it comes down to predictability and speed. You need to be predictable, and if there is any ambiguity, it needs to be resolved as quickly as possible. In dealing with this particular case, the Supreme Court actually moved very, very quickly. It dealt with the case and the hearing quickly, and issued its judgment quickly. There are legitimate questions about how long it takes to get to that point for individuals. The kind of process that the chief executive has mentioned is one solution.

There is also a question of how long it takes to review legislation. As I said, the Treasury started reviewing this Consumer Credit Act in 2022.

I have to say, that is a fair cop.

On buy now, pay later, we asked for it five years ago.

Sometimes we legislate badly and we are not very good at reviewing it. We will take that.

I want to move on to liquidity in the London market. The FCA did an occasional paper in May this year, which looked at the corporate bond market and said that it was remaining liquid. I want to look at the equities market, because a lot of people criticise the equities market for not being liquid enough in London, and people cite this around their decisions of where to list and so on. I have been looking into this over the summer, and I understand that only 15% of share trades actually attract stamp duty. In fact, there has been a massive increase. In January 2018—a long time ago—when I started as a Minister, nearly half of the trades on the public exchanges were done on lit venues. It is now less than 25%. You see a massive amount of trading on the stock market done through rather opaque methods, through periodic auctions. This is not a bad thing, in the sense that it is happening across Europe, but we are now doing more dark trading than lit trading. What this means is that there is a lack of transparency around who is trading what, and what economic exchanges are happening. This lack of liquidity and openness in share trading is having an effect, some in the City are suggesting, around the desirability of listing on the London market. I just wondered whether you recognise this massive change in periodic auctions—it was 0.5% in January 2018; it is now 5.2%—and the use of these dark trading elements, which avoids stamp duty. That may be a good thing, but does it not contribute to a negative overall effect on the way that London is functioning in terms of its liquidity?

That is a huge set of questions there.

I wanted to get them all out, so you can respond in one go.

There are many different drivers of liquidity. First of all, there is the demand side, so the extent to which our pension funds, our retail investors and others who control pots of savings are interested in investing in our equities. As we think about the UK market, that is one distinction, for example, vis-à-vis the US market, where they have these large pools of capital, and even markets such as Sweden, relative to their size. That is a foundational question and an underlying issue, which then a lot of the other points you raise flow from. Secondly, there has been a shift in the investment management industry towards index products, ETF-based products and passive products. That is a shift that is global. In the United States, some of the most traded securities are index ETFs. That will necessarily concentrate trading at particular times of the day, around auctions, because that is where the pricing happens.

Yes, at the end of the day.

The counter to that is that these are very often very low‑cost products, and enable mass market participation at costs that people might not otherwise be able to secure if they were doing everything by themselves. That, again, is a global phenomenon and has affected the way institutions invest as well. Third is technological innovation and speed. Dame Harriett asked us about growth and competitiveness. There has been a lot of innovation in trading technology, and a lot of different types of venue have arisen. There is a dramatic increase in speed, not just in equities, but across other securities as well. What should we as a regulator do? We have sought to be positive and proactive about enabling innovation, provided that the markets remain clean. We do monitor for market integrity. Our market cleanliness stats in the UK remain pretty good, and we publish those every year. This question of splitting across venues is something that is now the case in the United States. It is the case in Europe as well. It is a feature of the market. On transparency, we are moving forward in the fixed-income markets with a fixed-income consolidated tape. We hope to say significantly more about that in the near future. There is a very lively discussion in the industry, with different views, around an equities consolidated tape, and whether we should bring more transparency to the transactions in equity markets. The exchange has one view and its clients have another view around that. We are actively debating and discussing that at the FCA in terms of what we do next, once we have moved forward with the fixed income. That is one step that could improve some of the transparency you have been talking about.

All I am saying, Mr Rathi, is that for the last seven years that I have been engaged in this there have been active consultations. I do not think this is a particularly partisan issue. A third Economic Secretary was appointed last week. There were several under the previous Government. Consultations were undertaken. Lord Hill did his review on listings. Every action has been activated, if you like, on both Governments’ behalf, and yet we still have this evolving problem with liquidity in London. I do accept what you have said around the trends that are happening across global markets, but what I am trying to get at, as a British MP, is that, in London, we are certainly not moving in the right direction. It might need us to take some bold steps to actually open up the transparency around what is being traded where, so that we can increase that liquidity to move to what the Government want, and all parties will want, which is a better functioning and listing operating environment in London.

You can get into lots of technical debates around liquidity. I am sure some of the trading venues would say to you that when you compare to the US, abstract a lot of the ephemeral high-frequency trading and look at the core liquidity of some US stocks relative to UK stocks, you do not actually see that fundamental difference. We of course do have stamp duty. Any friction will have an impact.

But it does not, though, does it? Some 85% of trades are not paying stamp duty, because they are using devices that do not attract it. That is not really a relevant factor.

Well, we also have this construct in the UK of CfDs, and betting and gambling, which is not subject to tax. There is something distinct here. The point I was going to make is that you will also hear the argument around transparency—we got this on the fixed-income side when we were looking at this—that if you go too far the people who are responsible for doing large block trades, or who have significant deal sizes they want to get away, and who do not want to disclose their interest to the market because that might undermine their commercial position, will be scared away from the market. That is why, for example, in the area of Government bond trading, we are very careful about how we calibrate the transparency threshold, to make sure that the market works not just for the smallest participants, but for the largest participants too, so that people cannot front-run them and trade ahead of them. That is why this is a contested area, I would say. The equities consolidated tape may be one avenue that supports this, but even that needs to be architected quite carefully, because what you do not want to do is scare away some of the big institutional participants.

Mr Alder, what was your experience in Hong Kong?

To an extent, it is quite a nostalgic question, because this question about lit markets, dark markets or dark trading goes back 10‑plus years. There was a very heavy focus on this in the first part of the last decade. The difference now is certainly those overarching factors that Nikhil has pointed to, whether it is passive funds or the demand side. There is obviously a heavier focus from our perspective and the Government’s perspective on the demand side—pension schemes and so on, and mobilising domestic savings for productive investment as a theme. On top of all of that, we have had the rise of private markets. Ten years ago, there was a debate around lit markets and dark trading and, among other things, around dark trading impacting on liquidity, because you can assume that the spreads will be higher in dark markets. Now the issue is—and it is a global issue—the degree to which it is acceptable or expected that retail, either directly or indirectly, participates in private markets, in an environment where private markets, including private equity or private infrastructure and so on are themselves signalling a wish to open up to retail. You can see that if you look at BlackRock’s last CEO letter. It was under the heading of “democratisation of finance”. All I am saying is that we have an additional significant element to the way in which markets interact with the public at large, as well as impacts on liquidity in traditional lit markets. We have the private alternative. It is not totally on point—this is around the equity consolidated tape discussion, which Nikhil pointed to—but, more broadly and strategically, it is a legitimate topic to get our arms around from a policy perspective.

That is very welcome. I just feel like this issue of the liquidity and desirability of listing on London is something that all Governments have tried very hard to resolve. In truth, I do not think we have yet resolved it. In the context of the macro changes and this Government’s welcome initiatives on some of this, in terms of getting more activity, we have to create the right rules and transparency to facilitate that.

The point I would make—as I have watched this debate over several years—is that very often people home in on one regulatory question, as if it is going to be the magic answer to this.

I am just trying to find answers.

It is very rarely the case; there is a system-wide question here. When you look at liquidity and at some of the fastest growing markets in the world, in India and China, they have tens of millions, if not hundreds of millions, of retail investors firing orders in during the course of the day. We do not have that. When you look at their overall volumes, of course they are going to be many times higher than ours. That is before you even get to the pension fund question.

We will be concerned about consumer harm, I am sure.

Just briefly before we go into private session, the advice guidance boundary is something that we have discussed with you a fair deal. Where are you at with your conversations, with Government particularly, about the consumers who could be worse off as a result of it? You have warned us about moving the boundary—that that could leave people vulnerable. What is your latest update on this area?

I believe that the consultation is now closed on targeted support and simplified advice. We are looking to set out our rules by the end of the year so that that regime can be up and running in time for April 2026, and the ISA season, in particular, next year. We have had a very encouraging response to our consultation. We believe that a number of commercial providers are getting ready. There are some practical things they have asked us to look at in the final rules, which we will do. We have been very clear, including with this Committee, that we believe this could help the critical mass of consumers who are not accessing advice to get support in a more cost-effective way, but it is not going to lead to the optimised solution for everybody. To the point around trade-offs, which comes up, that is a choice and trade-off we are making, but I do not think anyone can say that the advice market right now, where 9% of people are taking advice, is working for your constituents. We are going to have to make some choices here. We are doing some other work—I have not met the new Economic Secretary yet, so I look forward to discussing this with her—around financial inclusion. We published some work just a few weeks ago on workplace savings, because we also recognise that this work on targeted support and simplified advice is suitable for people who have £10,000 or more of investable assets, which is a significant number of millions of people, but there are also several million people who have no savings at all. There is work to do on resilience, so people get even £1,000 of savings from unexpected life events. We have put some work out on workplace savings schemes and others, but there is a much broader governmental question there as well. We are trying to work to deliver for the entire market, and with different solutions for different cohorts of people.

There is a lot going on. The Financial Inclusion Centre responded to your discussion paper, as you know, in February of last year. It was concerned that targeted support would be used by industry as an opportunity to channel consumers into higher-risk, higher-charging products, so they would be selling, not supporting. Do you think that there is a risk of that? Do you agree with that?

We have asked the Government to have a specific authorisations channel for us for targeted support, so that we can make sure that appropriate standards are followed and that the consumer duty is respected.

As part of that, we have been quite clear that we will offer pre-application support to firms. We actually opened it earlier than planned, and we have one application in so far. The aim is to work with firms early.

Is that with the biggest firms, or a range of firms?

I will not go into who it is.

No, I mean that pre-application process.

It is open to any firm to apply. It is very similar to how we, as part of our response to the Prime Minister’s letter, opened pre‑application support for all crypto-payments and wholesale firms earlier. We wanted to offer it here, so that we could have that period to engage, to pick up on Mr Rathi’s point about making sure that we are comfortable that they are ready to launch.

Our sense at the moment is that this is going to be highly competitive.

We are looking at AI in financial services, and it is apparent that AI is offering financial advice of various sorts. We have had some evidence suggesting that it is all fine, but, when we try to delve into it deeper, we get a little bit of reluctance and pushback about giving public evidence on the use of AI. How are you looking at how AI could be used in advice and guidance?

We have responded to the Committee’s inquiry on AI and financial services. We set out there an extraordinary range of things that we are doing, both within our organisation and also to support firms. Coming up in the next couple of months, we will be doing a tech sprint with the Information Commissioner’s Office on agentic AI, which is where you have autonomous agents starting to make complex decisions on behalf of firms, subject to a predetermined set of goals. We think this could be potentially enormously beneficial if it is done in the right way, because it could bring the cost down and you could get more financial inclusion and better outcomes. We want to test it. We are going to have to allow a certain amount of innovation in and try a few things, make sure we monitor the outcomes, and report transparency against those outcomes at the industry-wide level, which is where our role sits. If something is not working, we need to adjust.

How are you going to regulate AI? That is a big question for the end of a session, but do you have plans to look at how you can regulate the AI models and see what is behind the actual final advice? Any wrong data in there could give a very poor result for consumers.

What we have said is that the frontier of this technology is moving every three to six months; realistically, the idea that you are going to put in rules to keep up with that is not practical.

But you will be monitoring.

We have said we are going to rely on our consumer duty and our senior managers regime, which we do think is important. As you think about the reforms that are being proposed, be mindful that having an anchor in legislation, our senior managers regime, enables us to allow technology to be rolled out. We have our market integrity framework. We will then expect firms to monitor the outcomes. We will look at things such as complaints reporting as well. We will intervene where we see there are problems, but fundamentally we are saying to firms, “We want you to use this technology.” We have also made available, including through our partnership with Nvidia, live testing environments, so that firms can come and test their propositions with us. We have been inundated with interest in that, just to try to see what works and what does not work. We will share best practice as well. In terms of our conversations with the industry, we are having very constructive conversations with a number of firms about using AI to tackle financial crime. This is something that the good firms want to tackle, because this raises their cost of doing business. It is not good for their customers or trust in the industry. Actually, we see real promise there as well.

It is almost worthy of a session on its own. At this point, I am going to pause. In summary, we have heard some useful information from the FCA about the timing, and hints about the scope of the scheme, but obviously the consultation has to go ahead. It is clear from what Mr Rathi said right at the beginning—and repeated again—that consumers do not need to do anything at this point. They certainly do not need to employ third parties to help them, because the aim is that the scheme will be simple enough for consumers to use. However, whatever finally comes out, compensation is likely to be in the hundreds, not the thousands, although we have heard that in the media before. Up to 30 million people could be affected. Payments will not be coming out any time soon; next year is the earliest that any money will be paid to consumers. Can I thank our witnesses for their time? We are going to now adjourn into private session.