Warning sign #1: The motor finance compensation scheme is actively being contested and the stakes are rising
On 27 April 2026, the FCA confirmed that its motor finance compensation scheme has been subject to legal challenges, but stated it will robustly defend the scheme as lawful and confirmed that the challenges do not suspend or delay its implementation. The FCA reiterated that firms should continue to prepare for delivery of the scheme in line with published timelines.
From 1 April 2026, the Financial Ombudsman Service maximum award limit rose to £455,000 for complaints relating to acts or omissions on or after 1 April 2019, and to £205,000 for earlier conduct.
On 23 April 2026, the FCA issued a statement warning consumers that using a claims management company or law firm may cost them up to 36% of any compensation in fees, and advised consumers not to appoint multiple representatives or pursue court action that may delay compensation. The FCA called on law firms and CMCs to act in clients' best interests, including by explaining that legal challenges may delay compensation.
The combination of rising award limits, an actively contested compensation scheme, and FCA warnings to the claims management industry is a textbook precursor to a wave of litigation. Financial services firms with any motor finance exposure should be preparing their legal strategy now – not waiting for claims to arrive.
What to watch: Consumer claims under the FCA redress scheme, regulatory enforcement actions against firms whose practices do not meet published standards, and secondary litigation against directors and senior managers where governance failings are identified.
Warning sign #2: The FCA has told financial firms their AML controls are not good enough
On 8 April 2026, the FCA published findings from its 2025 multi-firm review of Customer Due Diligence, Enhanced Due Diligence and ongoing due diligence controls. Poor practice identified included insufficiently detailed policies and procedures, unclear periodic and event-driven review cycles, limited guidance on alternative identity verification, inadequate documentation of EDD measures, weak governance and oversight arrangements, insufficient independent assurance, and poor version control. The FCA expects firms and senior management to consider these findings when reviewing and strengthening their CDD frameworks as part of its wider financial crime supervisory work.
When the FCA publishes a multi-firm review identifying systemic poor practice and explicitly calls on senior management to act, enforcement typically follows. The firms that ignore these findings and fail to remediate their CDD and EDD frameworks are the ones that will receive supervisory visits, enforcement notices, and ultimately financial penalties. The FCA has signalled exactly what it considers inadequate – there is no ambiguity about what is expected.
What to watch: FCA enforcement actions against firms with weak CDD and EDD frameworks, personal liability for senior managers under the Senior Managers and Certification Regime where governance failings are identified, and civil claims from counterparties affected by financial crime that passes through inadequate controls.
Warning sign #3: Right-to-work compliance is becoming a discrimination liability
On 15 April 2026, the UK Home Office published a consultation on a draft statutory code of practice for employers on avoiding unlawful discrimination while preventing illegal working. The consultation applies to all employers and employment agencies carrying out right-to-work checks, including those who will be brought into scope of the Right to Work Scheme later in 2026. The draft code provides practical guidance on conducting right-to-work checks without unlawful discrimination, particularly on grounds of race, while complying with immigration control obligations.
The publication of a statutory code of practice on discrimination in right-to-work checks is a signal, not a coincidence. It indicates that the Home Office has identified a pattern of unlawful discriminatory checking practices and is creating the legal architecture to enforce against them. Once the code is in statutory form, failure to follow it will be taken into account by Employment Tribunals in discrimination claims. Employers whose right-to-work checking processes have not been reviewed against current guidance face direct exposure to race discrimination claims –with the evidential bar lowered by a statutory code that sets out exactly what good practice looks like.
What to watch: Race discrimination claims arising from inconsistent or targeted right-to-work checking practices, tribunal awards combining discrimination compensation with civil penalties for illegal working, and reputational consequences where discriminatory checking practices become public.
This content has been prepared based on regulatory and legislative updates identified across UK and EU jurisdictions as of April 2026. It is intended for awareness purposes and does not constitute legal advice.
Take a look at last month’s article: Early warning signs of litigation risk your business should not ignore | DWF Group
