Learn why fiduciary duty and FCA regulation are vital when choosing a finance broker. Discover how transparent commission disclosure protects your business interests.
In the world of commercial finance, the relationship between a borrower and a broker has to be built on a foundation of trust. However, in recent years, the Financial Conduct Authority (CA) has significantly sharpened its focus on how that trust is formalised.
You have probably seen this in media articles around motor finance commissions, prior to that with insurances and all the way back to endowment mortgages (showing my age).
At Lime Finance Solutions, we believe that transparency isn’t just a regulatory requirement – it’s the cornerstone of a professional partnership.
Central to this is the concept of Fiduciary Duty. Bear with me, this matters.
At its simplest, a fiduciary duty is a legal and ethical obligation to act in the best interest of another party. For a finance broker, this means putting the client’s financial well-being ahead of their own profit motives.
That is the crux of fiduciary duty.
While the term originated in equity and law (traditionally applied to trustees or solicitors), the FCA has integrated these principles into its “Consumer Duty” and “Principles for Business.” A broker acting with fiduciary-like responsibility must:
That last point, that is the part which should show you whether the broker you work with is on board with fiduciary duty or not.
The FCA may not always use the specific phrase “fiduciary duty” in every handbook, but their regulations – particularly the New Consumer Duty – mandate the same outcomes. The FCA views the broker’s role as an agent for the borrower.
The regulator’s stance is clear: Brokers must avoid “hidden” incentives. The FCA’s objective is to ensure that competition works in the interest of consumers. If a broker recommends a loan simply because it pays them a higher commission, rather than because it is the best product for the client, they have breached the FCA’s core principles of integrity and fair treatment.
One of the most critical aspects of fiduciary responsibility is the disclosure of commission. There has been a significant shift in the industry regarding how “secret commissions” are viewed by the courts and the FCA.
Whilst transparency is fundamental to what Lime Finance Solutions does and forms a core of how we treat customers fairly, it isn’t industry wide.
1. Eliminating Bias
If a broker is receiving £5,000 from Lender A and £1,000 from Lender B for the same loan amount, there is an inherent risk that the broker might lean toward Lender A. By declaring the commission, the borrower can see exactly how the broker is being incentivised. Fair? I think so.
2. Informed Consent
The FCA believes a borrower cannot truly agree to a deal unless they know the full cost. Since the commission is often built into the interest rate or fees paid by the borrower, it is essentially the borrower’s money. Transparency ensures the borrower knows exactly what they are paying for the broker’s service.
For the record, we try to avoid lenders who allow you to ‘hide’ income, it is clearer to invoice what was agreed at the outset.
3. Preventing “Unfair Relationships”
Under the Consumer Credit Act, failure to disclose commission can lead to a court deeming the relationship between the lender and borrower “unfair.” This has led to a wave of litigation in the motor finance and commercial sectors where undisclosed commissions were present. If you haven’t seen this in the media – where have you been?
When seeking finance, you may encounter “unregulated” consultants. Choosing an FCA-regulated broker like Lime Finance Solutions provides essential layers of protection:
A: Yes. Under FCA rules and current legal precedents, if you ask for the commission amount, the broker must disclose it. Many professional brokers, us included, now provide this information upfront in a “Disclosure of Commission” document.
A: No, it is a standard way for brokers to be paid for their work. It only becomes a legal or regulatory issue if that commission is undisclosed or if it creates a conflict of interest that harms the client.
A: You should search the FCA Services Register using the firm’s name or their Firm Reference Number (FRN).
A: You may be entitled to claim that commission back, and in some cases, the entire credit agreement could be deemed unenforceable or subject to a claim for damages. It doesn’t apply in all circumstances and revolves around situations where income was gained by increasing interest costs being charged.
A: While some commercial lending is “unregulated,” the professional standards expected by the FCA and the courts regarding agency and secret commissions apply broadly across the finance sector. The legalities differ, but good practice shouldn’t be optional.
At Lime Finance Solutions, we don’t just follow the rules because we have to; we follow them because it is the right way to do business. We provide clear, upfront disclosures so you can make your financial decisions with total confidence.
Need transparent advice for your next business or commercial loan? Contact Lime Finance Solutions today.
Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.
Tel: 01293 541333
Email: hello@lime-fs.com
Tel: 0207 866 2102
Email: hello@lime-fs.com
Tel: 01293 541333
Email: hello@lime-fs.com
Tel: 0207 866 2102
Email: hello@lime-fs.com
ICO registration Z3450620 and you can check via ico.org.uk
‘Lime Finance Solutions’, ‘We are on your side’ and the ‘Lime tree logo’ are registered trademarks of Lime Coaching & Consultancy Ltd.
It is recommended that you always take independent legal advice before entering any credit agreement.
