Commission disclosure has become an increasingly important area of regulatory focus for credit broking firms. With greater scrutiny from the FCA and growing consumer expectations around transparency, it’s essential that firms, including those operating as Appointed Representatives, understand their obligations and embed clear, compliant processes when discussing commission with customers.
The FCA’s Core Rules on Commission
Under the FCA’s Consumer Credit Sourcebook (CONC), credit brokers must disclose the existence and nature of any commission, fee or remuneration that could influence their recommendations or affect a customer’s decision. This must be communicated prominently and in good time, well before the customer enters into a credit agreement. If a customer asks, firms must also provide the actual amount of commission.
The FCA also expects brokers to explain how commission arrangements may impact what a customer pays, ensuring consumers understand whether remuneration could affect product selection or pricing.
Aligning with the Consumer Duty
With the introduction of the Consumer Duty, the FCA has reinforced expectations around transparency and fair outcomes. In its sector-specific letter to credit brokers, the regulator highlights the need to manage conflicts of interest in remuneration structures, ensuring that incentives do not drive poor outcomes or biased product recommendations.
Under the Duty’s Consumer Understanding outcome, firms must communicate in a way that enables customers to make informed decisions. This means that explanations about commission must be in clear, plain-language and delivered at the right stage of the journey. The FCA also expects firms to test, monitor and evidence that customers genuinely understand the information provided.
Lessons from Motor Finance
Recent developments in the motor-finance sector underline the importance of robust disclosure. The FCA has reminded brokers that inadequate commission transparency can contribute to an unfair relationship. It is important for firms to disclose not only that commission exists, but also its nature and amount where appropriate.
What This Means
- Be transparent: Clearly explain how your firm is paid.
- Be proactive: Provide commission information early, not as an afterthought.
- Be clear: Avoid jargon and explain how commission may affect cost or product choice.
- Be responsive: Supply commission amounts when requested.
- Be compliant: Review your incentive structures regularly to ensure alignment with customer interests.
Through consistent, clear and early disclosure, credit broking firms can meet regulatory requirements, support good customer outcomes and strengthen trust across their operations.
