Close Brothers sets aside £400m as FCA continues motor finance probe

Close Brothers has confirmed that it has set aside up to £400 million ahead of the Financial Conduct Authority (FCA)’s regulatory review into the motor finance sector.

The firm made the announcement as part of its half year results for the six months to January 31, 2024. The company has decided to not pay dividends as a result of its preparations.

The company's results showed a statutory operating profit before tax of £93.8 million, up from £11.7m over the same six month period for the first half of 2023.

Operating income fell slightly by 1% from £474.3m to £470.8m.

The FCA announced an inquiry into discretionary commissions on car financing deals earlier this year, citing concerns that such arrangements incentivised lenders and dealers to increase interest rates for customers.

Analysts are concerned that these investigations could result in significant costs for the industry, possibly amounting to billions of pounds.

Adrian Sainsbury, Close Brothers chief executive, said: “The FCA’s review of the motor finance industry is ongoing and it would be premature to predict the outcome or estimate the potential impact on the group.

“The board however recognises the paramount importance of preparing the group for a range of outcomes from this review.

“As part of this, the board is taking a number of decisive actions to strengthen our capital position materially. These include the difficult decision taken last month not to pay dividends in respect of the current financial year.

“In addition, we are taking steps to optimise our risk weighted assets and reduce costs.”

Sainsbury added that while the business is working through a current period of uncertainty, the board is taking “decisive actions and is confident the group will emerge well positioned to take advantage of future opportunities”.

Close Brothers preparing its balance sheets follows on from Black Horse announcing in February that it has also set aside £450m to prepare for the FCA probe.