Auto ABS: The FCA Speeds Into Action

In January 2024, the Financial Conduct Authority (FCA) announced a review of the historical commission structures across several auto lenders in the United Kingdom (UK). The FCA issued a stark warning: should widespread misconduct be found, appropriate redress measures will be taken to compensate customers. While we do not consider that the overall credit risk profile of UK Auto ABS transactions we rate could be negatively affected, the investigation exposes the sector to considerable uncertainty.

“The volume of loans affected in UK Auto ABS transactions that we currently rate is limited due to discretionary commissions being banned with effect January 2021 and the relatively short life span of auto loans, usually not exceeding four years”, said Miklos Halasz, Assistant Vice President of European ABS Ratings at Morningstar DBRS.