As large-scale remediation programmes such as the motor finance review continue to gather pace, the FCA has made clear that every compensation outcome must be fully auditable and transparent.
This principle — known as explainable redress decisions — places a significant compliance burden on firms, requiring them to reconstruct the entire decision-making process for any given customer and demonstrate alignment with FCA redress guidance.
IntellectAI, which specialises in RegTech solutions for financial services firms, has outlined what meeting this standard actually involves in practice — and why falling short carries serious consequences.
Central to the regulator’s expectations is the concept of decision lineage: a structured, chronological record that traces the journey from raw customer data through to the final compensation figure.
According to IntellectAI, this lineage must capture the precise source of a customer’s loan amount and payment history, the eligibility criteria that triggered their inclusion in the scheme, the specific compensation formula applied, and any manual overrides or assumptions made during the process. The final payout figure and its associated payment transaction identifier must also be recorded.
Both the FCA and the Financial Ombudsman Service (FOS) need to independently verify that calculations genuinely reflect the firm’s regulatory obligations, and the resulting explanation must be comprehensible not only to auditors but to the affected consumer.
The increasing use of automation in remediation programmes introduces further complexity. Where advanced algorithms are deployed, systems risk becoming so-called “black boxes” — generating outputs with no transparent logic trail. This is where explainable AI becomes critical.
IntellectAI argues that RegTech platforms must ensure data extraction tools produce confidence scores and flag areas of uncertainty, that rules engine logic is written in human-readable code mapping directly to FCA guidance, and that the audit trail is immutable — incapable of being altered after the fact.
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