Commission payments in financial services

The decision in Johnson v FirstRand is expected to have far-reaching consequences across all commission-based industries, beyond the motor finance sector. It will clarify the obligations of principals and intermediaries regarding the disclosure of commission arrangements and could lead numerous current and previous customers to challenge the nature of their agreements across multiple sectors including insurance, financial services, property, and professional services.

The case will set a precedent for how similar claims are handled in the future and could prompt fundamental changes in industry practice (and, where relevant, regulatory guidance) across any sector where commission payments are involved.

Insurers, brokers, comparison sites, managing general agents, mortgage and investment intermediaries, estate agents and even utilities switching services have a direct commercial and regulatory stake in the outcome and are keenly waiting for the judgment to be handed down.

The appeal was heard in April 2025. Judgment will be handed down on 1 August 2025.

Johnson v FirstRand is one of three test cases that were joined because each concerned a discretionary commission arrangement (DCA) that had not been fully disclosed to the consumer. When the claims reached the Court of Appeal, the Court found that credit brokers owed customers a fiduciary duty to act on an “impartial or disinterested basis”. Failure to disclose either the existence or value of commission was held to make the relationship between the lender and the borrower unfair.

Crucially, the Court framed its reasoning in broad terms: whenever a customer relies on a professional intermediary to recommend or arrange a financial product, the intermediary is ordinarily under a duty to disclose any remuneration that could influence their advice.

That logic extends beyond consumer credit. The breadth of the ruling is not confined to DCAs, regulated agreements or motor finance, and could have transformative implications in any industry where commission is paid. The appeal turns on duties and remedies that may exist independently of (or in parallel with) sectoral regulation and the forthcoming ruling is being followed with intense interest by every industry in which commissions are paid.

The Supreme Court will address the following matters:

• Fiduciary duty and disinterested advice: The Supreme Court will consider whether intermediaries, when arranging products or services for customers, have a duty to act in the customer's best interests (a fiduciary duty) and a duty to provide disinterested advice. This is relevant to insurance brokers, financial advisers, estate agents, mortgage brokers, and any other intermediary remunerated by commission.
• Disclosure of commission arrangements: The Court will examine whether it is necessary for principals or intermediaries to disclose to consumers not only the existence but also the specific nature of any commission arrangement. This will involve determining the level of transparency required to ensure that the relationship is fair and that consumers are adequately informed about any potential conflicts of interest or incentives. The Court of Appeal suggested that the disclosure of the possibility of commission being paid would not be sufficient to negate secrecy and was critical of such wording being "hidden in plain sight".
• Impact of non-disclosure on fairness: The Court will consider whether non-disclosure alone is sufficient to render the relationship unfair, or whether additional factors (such as the size of the commission or the way it was determined) must also be taken into account. This will clarify the threshold for establishing unfairness across all commission-based relationships.
• Remedies for unfair relationships: If the Court finds a relationship unfair due to non-disclosure or other factors, it will consider what remedies are appropriate. This could include requiring principals to repay commission received, intermediaries to refund fees, or other forms of redress for affected consumers.

Organisations across all commission-based industries should consider the following now:

• Commission-chain audit: Each product line and distribution channel should be reviewed to identify where, by whom and on what basis commission is paid. Particular attention should be paid to any variable or discretionary element that correlates with premium size, policy term, add-on products or renewal behaviour etc.
• Review agreements and disclosures: Principals and intermediaries should jointly review all standard agreements and commission arrangements to ensure clarity, fairness, and transparency; especially on commissions, fees, and each party's obligations. It is vital that intermediaries fully disclose their role and any remuneration to customers in straightforward terms. This applies to insurance brokers, financial advisers, estate agents, mortgage intermediaries, and any other commission-based relationship. Ambiguous or potentially unfair terms should be identified and amended to reduce the risk of disputes or regulatory scrutiny.
• Staff training: Companies must ensure that their staff and representatives are comprehensively trained on the importance of clear, honest, and compliant communication with customers. Training should cover legal and regulatory requirements, best practices for explaining products and services, and the implications of commission arrangements. Intermediaries should be trained to explain their role, the nature of their relationship with principals, and any commission arrangements clearly and transparently.
• Complaints handling strategy: Organisations should prepare for potential increases in complaints about historical commission arrangements. Clear communication strategies should be developed to explain commission structures to customers who raise concerns. Firms should review internal practices, gather relevant documentation, and prepare for potential future investigations or redress.
• Financial projections: Organisations across all commission-based industries should undertake comprehensive financial modelling to assess and prepare for the potential financial impact of the Supreme Court's decision. This involves analysing various scenarios to estimate the possible costs associated with redress, increased complaint volumes, and changes to commission structures. By modelling different outcomes, businesses can better understand the scale of potential liabilities, the effect on profitability, and the adequacy of existing financial reserves.

All commission-based businesses must be prepared to take several important actions to ensure compliance and manage the potential impact of the judgment:

• Immediate review and implementation: Affected businesses should carefully review the Supreme Court's judgment and any subsequent guidance or requirements issued by relevant regulators and assess how the decision affects existing and historic commission arrangements, complaint handling processes, and customer communications. Organisations must then implement any necessary changes to policies, procedures, and documentation to ensure ongoing compliance with the new legal standards.
• Complaint handling: Organisations should prepare to handle potential increases in complaints about commission arrangements, ensuring that all responses are consistent with the Supreme Court's findings and any regulatory instructions (if relevant). They should consider whether there is a need to proactively identify and address cases that may be affected by the decision, even if customers have not yet complained.
• Customer communication: A clear and transparent customer communications strategy should be put in place, explaining the outcome of the Supreme Court case, its implications, and what steps the business is taking in response. Customer service teams should be briefed and equipped to handle an increase in enquiries or complaints about commission arrangements.
• Redress and remediation: Companies should be ready to calculate and provide redress where required, in line with the Supreme Court's decision and any regulatory redress schemes that may follow (where these apply). Accurate records and evidence to support decision-making and demonstrate fair treatment of customers should be maintained.
• Staff training and support: Training materials should be updated and guidance provided to staff to ensure they understand the new requirements and can apply them consistently across all customer interactions. Staff who may be dealing with a higher volume of complex customer interactions should be supported with additional resources and clear escalation procedures.
• Ongoing monitoring and engagement: Organisations should monitor for further updates, as additional guidance or requirements may follow the Supreme Court's decision. Proactive engagement with industry bodies and trade associations is recommended to stay informed of sector-specific implications and best practices.
• Commission structure review: Affected businesses should be prepared to fundamentally review and potentially restructure their commission arrangements to ensure full transparency and compliance with any new disclosure requirements that may emerge from the judgment.

Although government rarely intervenes in the outcome of Supreme Court judgments, there are several examples of previous governments responding to judicial decisions with emergency legislation. The principle of judicial independence is fundamental in the UK; however, the government has, on occasion, acted swiftly to counter what were perceived as extreme practical or financial consequences of certain rulings by enacting retrospective legislation to clarify the law and prevent disruption in the markets.

Such occasions are rare, reflecting exceptional circumstances where court rulings have far-reaching practical effects. This may be one such occasion. Rachel Reeves’ recent indication of possible emergency legislation to limit the judgment’s retrospective effect reflects the level of the government's concern about its potential economic impact.

If the government believes the judgment has significant policy implications or creates an undesirable legal precedent, it could look to respond in the following ways:

• Legislative change: The government could introduce new legislation to amend, clarify, or override the legal principles established by the Supreme Court’s decision. This would require the passage of a bill through both Houses of Parliament and Royal Assent.
• Consultation and review: The government might initiate a public consultation or commission a review to assess the broader impact of the judgment and consider possible legislative or policy responses.
• Guidance and regulation: Where possible, the government could look to issue new guidance or secondary regulations within the framework of existing law. This could be brought into effect far quicker than new legislation. Any such guidance or regulation would have to be consistent with the Supreme Court’s interpretation of the relevant law.