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Investing.com -- Lloyds Banking Group PLC (LON:LLOY) stock dropped 3.5% on Thursday after the British lender warned it may need to set aside a "material" provision related to the Financial Conduct Authority’s consultation on motor finance.
The bank said it continues to analyze the impact of the FCA’s recently published consultation paper on motor finance, noting that "uncertainties remain outstanding on the interpretation and implementation of the proposals."
Based on its initial review and the characteristics of the proposed scheme, Lloyds indicated an additional provision is likely to be required, which "may be material."
The FCA’s consultation is examining potential compensation for consumers who may have been overcharged on car loans. This regulatory scrutiny comes as part of a broader investigation into commission arrangements in the motor finance industry.
Lloyds did not provide specific figures for the potential provision in its statement. The bank said it remains subject to "ongoing analysis and review of the proposals" and promised to update the market "as and when appropriate."
RBC on Wednesday indicated that its updated motor finance impact model suggests total required provisions of approximately £850 million for Lloyds Banking Group PLC (LON:LLOY), £350 million for Banco Santander (BME:SAN) UK, £210 million for Bank of Ireland Group PLC (LON:BIRG), £80 million for Barclays PLC (LON:BARC), and £170 million for Close Brothers Group plc (BS:CBGl).
The announcement marks the latest challenge for the UK banking sector, which has faced increasing regulatory scrutiny across multiple business lines in recent years.