Modernising the Redress System: why Motor Finance firms should be paying attention now!

The FCA and Financial Ombudsman’s latest consultation on modernising the redress system is not just another policy update. It is an important signal about the future direction of complaint handling, redress, and regulatory expectations across financial services.

For firms involved in Motor Finance, the timing is especially notable.

With final FCA rules on Motor Finance remediation still expected shortly, and an implementation period widely anticipated before any scheme goes live from H2 2026 onwards, this consultation arrives at exactly the point where many firms are moving from policy watching into practical readiness planning.

At one level, the paper is broader than Motor Finance. It covers structural reform to the wider redress framework, including how complaints are filtered, investigated and resolved. It also sits alongside the FCA’s wider focus on firms identifying harm earlier, reporting emerging issues promptly, and running redress exercises more effectively. The consultation paper was published on 16 March 2026 and the consultation closes on 11 May 2026.  

But looked at through a Motor Finance lens, the message is clear. The regulatory environment is moving toward earlier intervention, greater predictability, and stronger operational discipline.

What is changing?

The consultation includes several significant proposals.

First, the Financial Ombudsman is consulting on a more formal registration stage so that only sufficiently evidenced complaints move forward into full investigation. The intention is to improve consistency, reduce poorly evidenced referrals, and create a clearer checkpoint before cases proceed.

Second, the dismissal grounds available to the Ombudsman are being updated and expanded. This is intended to give more structure to how weak, unsuitable or premature complaints are handled.

Third, the FCA is consulting on removing “good industry practice” from the fair and reasonable test, making it clearer that the relevant standards are those that applied at the time of the act or omission being complained about.

Alongside this, the FCA has also finalised guidance under SUP 15 and related materials aimed at helping firms identify, report and rectify redress issues more effectively. The paper says these finalised policy proposals are intended to help firms understand how to identify issues that cause foreseeable harm at an early stage and resolve complaints more proactively.

Taken together, this is a material package of reform. It is about more than legal drafting. It is about how the redress system is expected to function in practice.

Why this matters for Motor Finance

Motor Finance firms do not have the luxury of treating this as background noise.

Even though the consultation is not the Motor Finance scheme itself, it is highly relevant to the environment in which that scheme will land.

The direction of travel is obvious. Regulators want firms to identify issues sooner, escalate emerging harm earlier, communicate more clearly, and handle redress in a way that is structured, controlled and capable of operating at scale. The FCA and Financial Ombudsman say the overall aim is to improve alignment, predictability and early engagement across the system, while strengthening cooperation and improving transparency.

That is exactly the challenge many firms are already facing in Motor Finance.

For lenders, brokers and other firms exposed to Motor Finance complaints, the next phase will not be defined by legal analysis alone. It will be defined by execution.

Once final rules are published, the pressure will move rapidly onto questions such as:

1. How will complaints be triaged and assessed?

2. What evidence will be needed and where will it come from?

3. How will customer communications be handled, especially where vulnerability is a factor?

4. What MI will be needed to support governance and escalation?

5. How will complaint backlogs, CMC volumes and operational surges be managed?

6. What delivery model is actually capable of working at the pace and scale required?

Those are not theoretical questions. They are operational ones.

The real lesson from this consultation

The most important takeaway is that the FCA is reinforcing a much wider expectation around redress readiness.

Firms need more than a view on the rules. They need a credible plan for delivery.

That means governance that can support timely decisions. It means escalation routes that work. It means complaint operations that are built for consistency, traceability and control. It means communications that are clear, compliant and capable of supporting large customer populations. And it means realistic thinking about capacity, workflow, technology, and oversight.

This is where some commentary on the consultation risks missing the point.

It is easy to summarise the proposals. It is harder, and more valuable, to translate them into what firms should actually be doing now.

For Motor Finance firms, the answer is not to wait for every final detail before acting. It is to use this period to test operational readiness, challenge assumptions, and close obvious gaps before implementation starts.

What firms should be doing now

In practical terms, there are a few priority areas.

The first is governance. Senior stakeholders should already be clear on ownership, decision making, and escalation routes.

The second is operational design. Firms should be reviewing how complaints will flow, how evidence will be gathered, how exceptions will be handled, and where manual effort is likely to create bottlenecks.

The third is customer handling. Communications, vulnerability considerations, and representative journeys all need attention well before go live.

The fourth is MI and reporting. If firms are expected to identify emerging issues earlier and respond more effectively, their management information needs to support that.

And finally, firms should be honest about delivery capacity. Large scale redress exercises are rarely delivered successfully through business as usual structures alone.

Final thought

Modernising the redress system may be framed as a broader reform agenda, but for Motor Finance firms it is also an early warning signal.

The industry is moving closer to a period where preparedness will matter just as much as interpretation.

The firms that respond best will be those that recognise that regulatory change does not land neatly into existing operations by itself. It has to be designed for, governed properly and delivered with discipline.

That is the real challenge ahead.

To discuss what this could mean for your business, email Dan.richards@profexx.co.uk

Profexx Partners | Specialists in Remediation Delivery