South Africa’s FirstRand exits UK market after $1 billion setback

FirstRand Ltd., a leading financial services group is preparing to step back from the UK after a sharp rise in compensation costs tied to a motor-finance mis-selling review pushed it to reassess its overseas exposure. 

FirstRand is now working with advisers, including Bank of America and its own investment-banking arm, RMB, to explore the potential sale of its UK subsidiary, Aldermore Group.

The review marks a clear pullback from a market it entered less than a decade ago. 

The shift follows a steep increase in provisions linked to Britain’s car-finance mis-selling investigation, one of the most closely watched regulatory cases in the UK banking sector.

FirstRand raised its provision from $668 million (R11 billion) to $1 billion (R17 billion), after regulators finalized the compensation framework. 

The UK Financial Conduct Authority’s plan has forced lenders to set aside billions of pounds across the industry, reshaping how banks price risk in the motor-finance market.

For FirstRand, the updated estimate changed the economics of its UK operations and tightened pressure on returns.

Rising regulatory costs reshape strategy 

FirstRand said Aldermore remains a sound business with experienced management, but the group no longer sees the UK consumer-finance unit as fitting its return expectations or risk limits.

The bank originally acquired Aldermore in 2017 as part of a push into developed markets. 

In April, FirstRand confirmed it would pursue what it called an “orderly ownership transition,” signaling a managed exit rather than a sudden withdrawal.

The group has also said it does not plan to challenge the UK compensation framework in court, even as it continues to describe the plan as “unfair and disproportionate.”

UK motor-finance probe widens impact 

The FCA estimates total compensation across the industry could reach about £9.1 billion ($12 billion), with more than 12 million loans eligible for review.

The scale of the program has put pressure on several UK lenders and revived debate over how historic car loans were sold. 

Banks including Lloyds Banking Group and Close Brothers have also raised concerns about the regulator’s approach, arguing the rules may not fully reflect past court rulings and industry practices.