Four Challengers and One Deadline

Hey,

Horizon scanning helps firms stay ahead of regulatory shifts, industry developments, and emerging risks. In financial services, FCA activity often sits at the centre of that conversation.

Over the past week, motor finance redress has dominated the headlines, particularly as the issue moves through the courts and scrutiny intensifies. But beyond the immediate legal and commercial debate, a broader issue is beginning to emerge.

What interests me most is how AI is increasingly being embedded into financial services workflows, and the accountability questions that come with it. As firms rely more on AI-driven processes, where does responsibility sit when things go wrong? How do Senior Managers maintain effective oversight under SM&CR?

Those questions are quickly becoming practical rather than theoretical. So in this edition, we look at AI, governance, and the growing regulatory focus on accountability in automated decision-making.

Let's get into it.

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UK financial services is navigating more simultaneous regulatory pressure than at any point in the last decade. The FCA, that's the Financial Conduct Authority, the UK's main financial regulator, is in court defending a multi-billion-pound compensation scheme while simultaneously launching the UK's first full cryptoasset regulatory regime. Under SM&CR, the Senior Managers and Certification Regime, named individuals at regulated firms are personally accountable for what happens inside their organisations. This week, two groups of firms are discovering that legal uncertainty and regulatory deadlines run on separate calendars. One may be moving. The other is not.

In March 2026, the FCA published PS26/3, its final policy statement on the motor finance consumer redress scheme. The scheme covers approximately 12.1 million motor finance agreements taken out between 6 April 2007 and 1 November 2024, where commission was paid from lender to broker without the customer's knowledge. Total estimated compensation: £7.5 billion. This week, the FCA confirmed it is defending the scheme against four simultaneous legal challenges, from Mercedes-Benz Financial Services, Volkswagen Financial Services, Crédit Agricole Auto Finance, and a consumer group called Consumer Voice. The lenders say the compensation framework is too costly. Consumer Voice says it is too low. The FCA says the scheme is lawful and the most effective route for consumers. The courts will take their time. The implementation deadline for more recent agreements, applying to loans from April 2014, runs to 30 June 2026.

Motor finance lenders, credit brokers, and any firm involved in discretionary commission arrangements are the primary affected parties. But the operational reality cuts wider. No firm can run a redress scheme of this scale manually. They are using AI and automated systems to identify eligible customers, calculate individual amounts, and generate millions of personalised communications. Every one of those outputs is a regulated output. The legal challenge changes nothing about that obligation.

PS26/3 explicitly requires each firm to appoint a designated Senior Manager with overall responsibility for the redress programme, covering governance, accuracy, customer communications, and quality assurance. If AI or automated tools are producing the calculations that determine what individual customers receive, the accountable SMF holder must be able to explain the methodology, evidence the controls, and produce the audit trail on request. Being in litigation does not pause that accountability. In the FCA's logic, it heightens it.

From 11 May 2026, this Monday, cryptoasset firms can request a pre-application meeting with the FCA through its Pre-Application Support Service, known as PASS. The meetings are free, begin scheduling from July 2026, and are the last structured window for firms to ask questions before the authorisation gateway opens on 30 September 2026. The new FSMA-based cryptoasset regime takes effect on 25 October 2027. There are no carry-overs from existing AML registrations, payment services authorisations, or e-money licences. Every firm that wants to operate legally under the new regime must apply fresh.

The firms affected include every firm currently operating under the FCA's cryptoasset AML register, and any new entrant planning to offer services in scope under the new regime. That includes crypto exchanges, staking platforms, custody providers, and firms offering cryptoasset-related financial services. The FCA has stated clearly that it expects applicants to be ready and willing and to present a credible plan before the gateway even opens in September.

For crypto firms, the AI governance implication is structural and cannot be deferred. SM&CR will apply to authorised cryptoasset firms for the first time under the new FSMA framework. That means named Senior Managers with Statements of Responsibilities, documented accountability for regulated functions, and personal liability for failures in oversight. If a firm uses AI for customer onboarding decisions, AML transaction monitoring, market surveillance, or trade surveillance, the FCA will want to know who is accountable for those systems and what the governance structure looks like. Pre-application meetings are not a formality. They are the moment the FCA begins forming its view of whether a firm has the infrastructure to hold a licence.

This week exposes the accountability gap from two directions. In motor finance, firms that deployed AI at scale to run the redress programme now have to prove that every output is traceable to a governed process, with a named Senior Manager who can answer for it. In crypto, firms seeking FCA authorisation are realising that SM&CR accountability cannot be designed in at the application stage. It has to be operational before the application is submitted. In both cases, the gap is the same. Firms have the technology. They are using it. But the human infrastructure that makes those AI outputs defensible to a regulator, the named accountability, the documented rationale, the audit trail, is either missing or untested. A court challenge does not protect a firm whose governance trail goes cold at the point of automation. A credible application cannot be built on an AI stack that nobody can explain.

If the FCA requested an audit of your firm's AI-assisted customer decisions today, which Senior Manager would you name as accountable, and how long would it take to produce the evidence trail?

If this is a live problem in your organisation, reply to this email. BuildMoat works with UK financial services firms to build the human infrastructure that closes the gap between AI deployment and regulatory accountability.

BuildMoat — buildmoat.co.uk

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