A major international lender has dealt a fresh blow to the Chancellor Rachel Reeves by signalling it could quit the UK market, warning that regulators have imposed an “unfair” compensation scheme on the car finance sector.
FirstRand said it is considering exiting Britain, with its UK challenger bank, Aldermore, expected to be put up for sale, after a landmark ruling by the Financial Conduct Authority triggered a surge in compensation costs.
The bank has criticised the regulator’s intervention into the car finance market as “disproportionate and unfair”, warning that it will now be forced to pay out as much as £750 million to motorists who were mis-sold finance deals.
FirstRand, which has owned car finance provider MotoNovo since 2006, is among the largest lenders in the sector and is expected to shoulder a significant share of the compensation burden. The group also revealed it may need to set aside a further £510 million in provisions to cover all potential claims.
The announcement, made in a statement to the Johannesburg Stock Exchange, follows what the bank described as a comprehensive assessment of the FCA’s ruling.
The decision raises fresh concerns about the UK’s attractiveness as a financial hub, with critics warning that regulatory intervention and rising costs risk driving investment away. A potential sale of Aldermore would mark a significant retreat by an overseas lender from Britain’s challenger banking sector.
The controversy centres on historic commission arrangements in the car finance market, where lenders and brokers were accused of failing to disclose incentives that increased consumers’ borrowing costs properly. The FCA’s crackdown has opened the door to widespread claims, echoing past mis-selling scandals that have cost the industry billions.
For ministers, the prospect of a major lender scaling back its UK presence adds to mounting pressure from business leaders, who argue that a combination of regulatory tightening and rising costs is undermining confidence in the British economy.
FirstRand said: “The legal teams and economic specialists that provided input to the FCA’s consultative process have also reviewed the Statement.
“FirstRand acknowledges that whilst the FCA has made some changes to the scheme, that can be viewed as responses to issues raised by the group and other lenders during the consultative period, any mitigation arising from these changes has been more than offset by other amendments.
“These amendments are problematic in that they result in a financial impact above the group’s expectations. Therefore, FirstRand remains firmly of the view that for the group the final redress scheme proposed by the FCA is disproportionate and unfair.”
The statement continued to say that “the UK as a consumer finance jurisdiction will not deliver the returns the group requires.”
FirstRand, which is a prominent South African financial services group, concluded that owning and operating a UK consumer finance entity was no longer aligned with the group’s risk appetite.
Aldermore added: “The Aldermore Board will work closely with FirstRand and respective regulators to ensure an orderly ownership transition that will support Aldermore’s growth ambitions going forward.”
