Broker remuneration in the spotlight following the motor finance cases: is a broker a fiduciary?

This article revisits the importance of transparency in insurance broker remunerations (first discussed in this article), following the Supreme Court’s judgment on the motor finance commission cases, overturning some crucial decisions made in the Court of Appeal.

In particular, we consider the broader impact the final decision has had on intermediaries in the financial sector and the extent to which they owe their clients a fiduciary duty, which would require a more stringent approach to commission transparency than is currently stipulated by Financial Conduct Authority (FCA) regulations, and how business practices may need to adapt as a result.

Judgment

On 1 August 2025 the Supreme Court handed down its judgment which largely overturned the earlier Court of Appeal decision of 25 October 2024. Contrary to the earlier finding, it was held that motor dealers (but not intermediaries in the financial sector as a whole) do not owe a fiduciary duty when arranging finance and therefore, absent such a duty, commission payments are not bribes (as held in the first instance ruling). However, inadequate disclosure of commission – especially where large or misleading – can still render the relationship “unfair” under the Consumer Credit Act 1974 because those facts are materially relevant to the consumer’s decision

Fiduciary Duty

Although the judgment confines itself to only assessing the role of motor dealers and concluding that they are not fiduciaries, it leaves established positions relating to other intermediaries, such as insurance brokers, untouched.  In fact, the judgment provides an analysis on what disclosure requirements are necessary in cases where fiduciary duties do exist. The Supreme Court confirmed that, where a fiduciary relationship between an intermediary and its client is established, the fiduciary must disclose “all material facts” relating to the commission, to the client. If such full disclosure is not made, the provider of the commission can be liable for bribery.

What amounts to full disclosure depends on the circumstances; however, the judgment found that disclosure must be specific, transparent and sufficiently detailed to allow informed consent to the transaction – mere generic disclosure of commission is not enough, and the customer must give their fully informed consent to the commission.

Practical impact on insurance brokers – do they owe a fiduciary duty?

The fiduciary duty principles relating to commissions, as clarified by the Supreme Court will echo across other commission-based industries. Brokers and intermediaries; particularly in sectors like insurance, are likely to be impacted. The key question being, are they now considered to owe fiduciary duties to their clients, and therefore caught by the strict commission disclosure duties specified in the judgment, which are more extensive than the duties currently imposed by the FCA via the Insurance Conduct of Business Sourcebook (ICOBS)?

There is no automatic fiduciary duty expected of a broker – an insurance broker typically has duties in contract and tort to use reasonable skill and care, follow instructions, and arrange appropriate cover.  Neither does ICOBS specifically state that insurance brokers are fiduciaries. It regulates them on the basis that they owe regulatory duties of honesty, fairness and professionalism (ICOBS 2.5).

ICOBS expectations on broker disclosure duties are different from a fiduciary’s ‘disclosure of all material facts’ obligations, as defined in the judgment. ICOBS states that intermediaries must disclose the nature and scope of their services, their status (whether they are acting on the basis of a fair analysis or from a limited range of insurers), and any conflicts of interest. However, a breakdown amount of standard commission is not automatically mandated for retail consumer policies. This is slightly different for commercial clients, in that insurance brokers are required to disclose that commission is earned and that details can be provided to the client upon request (ICOBS 4). This is often referred to as a ‘half-commission’.

In order to establish that an insurance broker owes their client a fiduciary duty, a relationship of trust and confidence must have developed between them. The principal touchstone appears to be the existence of an obligation of loyalty, although whether or not there is a fiduciary relationship between the parties will turn on the facts of the case. Where a broker exercises discretion or undertakes an advisory role to source specific coverage, strict fiduciary obligations (such as avoiding conflicts of interest and disclosing secret or variable commissions) will most likely attach to the relationship.  Fiduciary duties arise only when a party consciously undertakes to act with loyalty and in the best interests of another.

What matters is what role the intermediary undertakes in practice, not the ‘label’ it has been loosely, or contractually, given.  In most (but not all) cases, insurance brokers are not generally fulfilling a fiduciary role as their remit is largely limited to purchasing insurance cover. However, as brokers continue to expand the scope of their services to get ever closer to their clients, it is likely that the debate as to whether a broker does in fact owe a duty will continue to intensify.

In the wake of the judgment, potential claimants are now likely to place additional scrutiny upon the nature of broker/insured relationships in an attempt to circumnavigate the ICOBS approach and bring a claim against their broker. It would therefore be prudent, in order to avoid disclosure liability, for brokers and other intermediaries, to review whether any part of their sales process implies a commitment that might give rise to a fiduciary relationship.   Although the motor finance cases have not specifically changed the rules for broker commissions, they will have put their disclosure practices under the spotlight.

Confirmation that the FCA has taken the Supreme Court’s findings on board is evidenced by its implementation of a redress compensation scheme (the Scheme) for motor finance commission claims where ‘statutory unfairness’ can be established for commissions paid. However, this has been partially suspended by the Upper Tribunal pending legal challenges on the grounds that the Scheme is unlawful and overly broad. While the Scheme will not extend beyond the motor industry, the parameters for unfairness established by the FCA will influence and inform the broader consumer lending market.

Concluding thoughts

While the judgment is largely positive for the motor finance industry, it highlights the need for careful management of lender/broker/consumer relationships.

Although the motor commission cases served to push brokers closer to a fiduciary model in relation to commissions it has not automatically classified intermediaries as fiduciaries in all dealings – the situation remains that they may owe fiduciary duties in certain respects, dependent on the facts of the individual relationship.  Prudent brokers and intermediaries in this field will take measures to clearly define their role to avoid the risk of inadvertently assuming the disclosure obligations of a fiduciary.

The bottom line is that the motor finance cases didn’t rewrite insurance law, and commissions are still permitted; however, they may have changed the tolerance for opaque broker pay structures. The commissions trajectory is now more along the lines of transparency and tighter scrutiny of incentives; however, the rulebook has not formally changed.