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Investing.com -- Close Brothers Group plc (F:CBRO) has increased its provision for potential motor finance commission redress to approximately £300 million following the Financial Conduct Authority’s (FCA) consultation paper published on October 7.
The banking group is adding around £135 million to its existing £165 million provision after reviewing the FCA’s proposed industry-wide redress scheme. The company said the FCA’s proposals indicate the potential financial impact would be at the higher end of its previous estimates.
Close Brothers stated the increased provision reflects a greater likelihood that more historical cases, particularly those involving Discretionary Commission Arrangements, would qualify for redress. It also accounts for the possibility of higher compensation levels under the FCA’s proposed methodology.
While committed to providing fair customer outcomes, Close Brothers does not believe the FCA’s proposed redress methodology appropriately reflects actual customer loss or achieves a proportionate outcome.
The company also noted that the FCA’s approach to assessing unfairness does not align with the legal clarity provided by the Supreme Court judgment in the "Johnson" case.
The banking group emphasized that the ultimate cost could be materially higher or lower than the estimated provision depending on the consultation outcome and any further legal, regulatory or industry developments.
Despite the increased provision, Close Brothers expressed confidence in its capital strength. The additional provision is expected to reduce the Common Equity Tier 1 (CET1) capital ratio by approximately 130 basis points from its July 31 position of 13.8%.
When accounting for the estimated benefit from the sale of Winterflood, the pro-forma CET1 capital ratio would be approximately 13.0%, which remains significantly above the group’s regulatory requirement of 9.7%.