FirstRand raises UK motor finance provision to $997.2 million on FCA rules

FirstRand, the South African financial services group led by CEO Mary Vilakazi, has raised its UK motor finance provision to £750 million ($997.2 million), underscoring intensifying regulatory pressure from the Financial Conduct Authority (FCA).

The lender disclosed an additional £510 million ($678.1 million) charge following the FCA’s final redress framework released on March 30, 2026, sharply increasing expected costs tied to historical commission structures in car loans.

Regulatory fallout widens exposure
FirstRand said a detailed internal review, supported by legal and economic advisers involved in the FCA consultation process, showed that revisions to the redress scheme significantly expanded its financial exposure.

At the center of the issue is the FCA’s broader interpretation of “unfairness,” particularly around non-disclosure of discretionary commissions. This approach brings a larger pool of legacy loan contracts into scope compared with earlier expectations.

The regulator also introduced a revised compensation methodology that is not strictly loss-based, alongside a minimum 3% interest floor on redress payments, further amplifying liabilities over extended lookback periods.

Provision eclipses historical profits
The £750 million ($997.2 million) provision now exceeds the roughly £275 million ($365.6 million) FirstRand generated in cumulative profits from its UK motor finance operations over more than a decade.

This marks a sharp reversal in the unit’s contribution to group earnings and highlights the growing cost of regulatory compliance in the UK consumer credit market.

Capital pressure mounts at MotoNovo
MotoNovo, FirstRand’s UK lending arm, will require additional capital support from within the group’s UK operations, limiting its ability to fund new growth.

The bank warned that capital allocated to the business could become increasingly constrained under the evolving regulatory framework.

Despite the hit, FirstRand said its overall capital position remains strong, with key subsidiaries, including FirstRand Bank and Aldermore, continuing to operate above internal capital targets.

Earnings outlook trimmed
The group now expects full-year normalized earnings to decline between 4% and 9% after accounting for the provision.

Return on equity is projected to fall toward the lower end of its target range, although pre-provision earnings guidance remains unchanged.

FirstRand also reiterated its intention to maintain dividend payments based on earnings before the impact of the provision.

Strategic rethink in UK market
The regulatory overhang is prompting a reassessment of FirstRand’s UK strategy. The group signaled that the market may no longer meet its return thresholds due to heightened legal and regulatory risks.

As a result, it is exploring an orderly ownership transition for Aldermore, working with regulators to ensure long-term sustainability while preserving shareholder value.

Legal tensions persist
FirstRand was founded in 1977 by Laurie Dippenaar and has since grown into a $25.54 billion financial institution. Under the leadership of CEO Mary Vilakazi, who took over in 2024, the first woman to serve as group CEO, FirstRand has been actively growing its footprint 

FirstRand maintains that the FCA’s redress framework is “disproportionate and unfair,” arguing that it diverges from guidance set by the UK Supreme Court, which emphasized case-by-case assessments.

While reserving its legal rights, the bank’s latest disclosure underscores growing tension between regulators and lenders, a dynamic that could reshape the economics of motor finance across the UK.