When the FCA announced its review of historic motor-finance commission models, few expected it to become one of the largest potential redress exercises since PPI. Yet as the consultation (CP 25/5) continues into late 2025, billions of pounds in potential liabilities hang over the sector — and with them a wider question about what kind of regulatory culture the UK wants to build.

At stake is more than compensation for undisclosed high commissions on car loans. The case goes to the heart of regulating for growth: whether the UK can sustain a system that protects consumers without undermining firms’ ability to plan and invest on the basis of stable, forward-looking rules.

Was this really “retrospective”?

Critics argue the FCA is judging firms by today’s standards for conduct that was lawful at the time. Until January 2021, discretionary commission models (DCMs) — where brokers could vary interest rates and share in the margin — were explicitly permitted. The FCA supervised them for years. From that perspective, imposing redress now looks like hindsight rule-making.

The FCA disagrees. It insists that long-standing Principles 6 and 8 — fair treatment of customers and management of conflicts — always prohibited arrangements that rewarded brokers for increasing a customer’s cost of credit, particularly where those arrangements were inadequately disclosed. The 2021 rule change, it suggests, merely codified what good conduct had always required. Firms were repeatedly warned that commission-linked interest models posed unacceptable risks if unmanaged.

In truth, both positions have some merit: The dividing line is foreseeability. If firms could reasonably have foreseen that these models breached the Principles, the redress is legitimate. If not, it becomes a precedent for uncertainty — and uncertainty is the enemy of growth. But as lawyers well know "foreseeability" is a slippery concept, often used by courts and regulators to allocate liability for losses after the event on the basis of retrospective (and sometimes arbitrary) considerations.

The deeper issue: how predictable is principles-based regulation?

For three decades, UK conduct regulation has prided itself on being principles-based: broad duties of fairness and integrity rather than (or, more accurately, in addition to) prescriptive rules (which are denigrated as "checklists" or "tick boxes"). In theory, that flexibility should support innovation and proportionality by leaving firms a reasonable degree of flexibility as to the precise policies, procedures, systems and controls required to deliver compliance with broadly stated rules. In practice, its success depends on how consistently and predictably those principles are applied over time.

When the same principle can justify tolerance in one decade and multi-billion redress in the next, firms question whether “principles-based” is simply code for “we’ll decide later.” That is not cynicism; it’s a rational pricing of regulatory risk.

Enter “outcomes-based” regulation

The FCA presents the Consumer Duty as the next evolutionary step: more outcomes-based and evidence-driven than the old Treating Customers Fairly (TCF) framework. Firms must act to deliver good outcomes — across product design, price and value, consumer understanding and support — under the new Principle 12, three cross-cutting rules and a wealth of additional rules and guidance on how firms should go about that task.

But is this really different?

TCF already expressed six consumer outcomes and relied on many of the same underlying Principles. The Consumer Duty adds more structure and guidance and a new (if ill-defined) focus on delivering good value for customers, but the essence — fairness, transparency, value — remains familiar. If anything, with its more detailed rules, it risks being more prescriptive, not less.

In other words, “outcomes-based” regulation is not necessarily more predictable than principles-based regulation. It only achieves that if:

• The regulator defines stable benchmarks for what a “good outcome” means (a mammoth and unmanageable task given the myriad of different business models, products and processes to which the Consumer Duty applies).
• The FCA and FOS interpret those benchmarks consistently (as to which the proposed reforms of the FOS may provide some comfort).
• Firms that act reasonably and document their judgement enjoy a degree of safe-harbour protection or at least a reasonable "margin of appreciation" from the FCA, FOS and courts/tribunals against hindsight reinterpretation.

Otherwise, outcomes-based regulation can simply mean principles with more paperwork.

Lessons for the Consumer Duty and Targeted Support

These questions are not abstract. They matter directly for the FCA’s ongoing implementation of the Advice Guidance Boundary Review, which proposes a new form of “targeted support” — something short of full-blown investment advice — to help close the advice gap in pensions and retail investments.

Under the proposals (CP 25/17, June 2025), firms could give personalised prompts or nudges to groups of customers sharing similar needs, without crossing the line into regulated advice. The aim is to enable more people to make better decisions, cheaply and accessibly.

Yet firms eyeing Tailored Support face the same anxiety that motor-finance lenders now feel: can we trust today’s boundary to hold tomorrow? If a well-intentioned prompt later leads to poor consumer outcomes, will the FCA or FOS say the firm “should have known” and could reasonably have taken more steps to prevent foreseeable harm and has therefore failed the Consumer Duty test?

Without genuine predictability, the safe regulatory choice will be to do less — the opposite of the policy’s intent.

Re-balancing flexibility and certainty

From these two live debates — motor-finance redress and Targeted Support — a common theme emerges: the need to re-balance flexibility with certainty. This is not a new challenge — it is a basic requirement of the rule of law. But it requires some more practical solutions in financial services regulation:

• Safe harbours for documented reasonable judgement: Under the Consumer Duty and Tailored Support regimes, firms that can evidence a defined customer group and need; reasonable analysis of likely benefits and risks; transparent risk disclosures; and monitoring of outcomes should enjoy a rebuttable presumption of compliance. This is not leniency; it’s legal certainty for responsible innovation.
• Consistency between the FCA and the FOS: The same case cannot yield different answers depending on which forum hears it. A single public framework of interpretive standards would reinforce confidence — the current proposed reforms of the FOS should go some way to addressing this.
• Predictability as a regulatory objective: It underpins investment, competition and market entry — all pillars of a growth-oriented economy.

Principles, outcomes, and growth: finding the synthesis

Neither principles-based nor outcomes-based regulation is inherently pro-growth.

• Principles give agility but can become unstable if re-interpreted without notice.
• Outcomes sound empirical but risk perpetual hindsight review.

The answer lies in institutional discipline in rule-making and standard setting — not the label.

A growth-aligned regulatory model would combine:

• Principles as a floor — enduring duties of fairness and integrity.
• Outcomes as a compass — clear objectives with measurable indicators.
• Operational standards as the bridge — published examples, materiality thresholds and safe-harbour processes that make those principles predictable in use.

Under that structure, firms could innovate and extend access — through tailored support, digital distribution, or new product models — without fearing that the rules will be rewritten after the fact.

Conclusion: regulation that learns but does not re-litigate

The motor-finance episode has exposed a deeper truth: credibility in conduct regulation depends less on its severity than on its stability.

If the FCA can deliver motor-finance redress as an exceptional, proportionate clean-up — while simultaneously embedding predictability into the Consumer Duty and Tailored Support frameworks — it will have achieved something rare: a conduct regime that both protects consumers and empowers firms to invest with confidence.

That, ultimately, is what regulating for growth requires. Not regulation that is soft. Regulation that is sure-footed.