Critical accounting judgements and key sources of estimation uncertainty


Critical judgement:	Determining whether a present obligation exists and whether it is more likely than not that an outflow of resources will be required to settle that obligation
Key sources of estimation uncertainty:	Populations impacted, level of remediation and response rates

Determining the amount of the provisions, which represent management’s best estimate of the cost of settling these issues, requires the

exercise of significant judgement and estimation. It will often be necessary to form a view on matters which are inherently uncertain, such

as the scope of reviews required by regulators, and to estimate the number of future complaints, the extent to which they will be upheld,

the average cost of redress and the impact of decisions reached by legal and other review processes that may be relevant to claims

received. Consequently, the continued appropriateness of the underlying assumptions is reviewed on a regular basis against actual

experience and other relevant evidence and adjustments made to the provisions where appropriate.


Provisions for financial commitments and guarantees £m		Regulatory and legal provisions £m	Other £m	Total £m
At 1 January 2024	322	1,105	650	2,077
Exchange and other adjustments	(1)	(3)	(1)	(5)
Provisions applied	–	(401)	(488)	(889)
Charge (release) for the year	(51)	899	282	1,130
At 31 December 2024	270	1,600	443	2,313

Provisions are recognised for expected credit losses on undrawn loan commitments and financial guarantees.

In the course of its business, the Group is engaged on a regular basis in discussions with UK and overseas regulators and other governmental

authorities on a range of matters, including legal and regulatory reviews and, from time to time, enforcement investigations (including in

relation to compliance with applicable laws and regulations, such as those relating to prudential regulation, consumer protection,

investment advice, employment, business conduct, systems and controls, environmental, sustainability, competition/anti-trust, tax, anti-

bribery, anti-money laundering and sanctions). Any matters discussed or identified during such discussions and inquiries may result in,

among other things, further inquiry or investigation, other action being taken by governmental and/or regulatory authorities, increased

costs being incurred by the Group, remediation of systems and controls, public or private censure, restriction of the Group’s business

activities and/or fines. The Group also receives complaints in connection with its past conduct and claims brought by or on behalf of

current and former employees, customers (including their appointed representatives), investors and other third parties and is subject to

legal proceedings and other legal actions from time to time. Any events or circumstances disclosed could have a material adverse effect on

the Group’s financial position, operations or cash flows. Provisions are held where the Group can reliably estimate a probable outflow of

economic resources. The ultimate liability of the Group may be significantly more, or less, than the amount of any provision recognised. If

the Group is unable to determine a reliable estimate, a contingent liability is disclosed. The recognition of a provision does not amount to

an admission of liability or wrongdoing on the part of the Group. During the year ended 31 December 2024 the Group charged a further

£899 million in respect of legal actions and other regulatory matters and the unutilised balance at 31 December 2024 was £1,600 million

(31 December 2023: £1,105 million). The most significant items are outlined below.

The Group recognised a £450 million provision in 2023 for the potential impact of the FCA review into historical motor finance commission

arrangements and sales announced in January 2024. In the fourth quarter of 2024, a further £700 million provision has been recognised in

relation to motor finance commission arrangements, in light of the Court of Appeal (CoA) decisions handed down in their judgment in

Wrench, Johnson and Hopcraft (WJH) in October 2024, which goes beyond the scope of the original FCA motor finance commissions

The CoA judgment in WJH, determined that motor dealers acting as credit brokers owe certain duties to disclose to their customers

commission payable to them by lenders, and that lenders will be liable for dealers’ non-disclosures. This sets a higher bar for the disclosure

of and consent to the existence, nature, and quantum of any commission paid than had been understood to be required or applied across

the motor finance industry prior to the decision. The Group’s understanding of compliant disclosure was built on FCA and other regulatory

guidance and previous legal authorities. These CoA decisions relate to commission disclosure and consent obligations which go beyond the

scope of the current FCA motor finance commissions review. The Supreme Court granted the relevant lenders permission to appeal the

WJH judgment and the substantive hearing is scheduled to be heard on 1 April to 3 April 2025.

Following the WJH decision, the FCA extended their temporary complaint handling rules in relation to discretionary commission

arrangements (DCA) complaints to include non-DCA commission complaints until December 2025. The FCA has also announced that it

intends to set out next steps in its review into DCAs in May 2025 and hopes to provide an update on motor finance non-DCA complaints at

the same time, but its next steps in relation to both types of complaint will depend on the progress of the appeal to the Supreme Court of

WJH and the timing and nature of any decision. In addition, there are a number of other relevant judicial proceedings which may influence

the eventual outcome, including a judicial review (which is now subject to appeal) of a final decision by the Financial Ombudsman Service

The Group continues to receive complaints as well as claims in the County Courts in respect of motor finance commissions. A large number

of those claims have been stayed, as has a claim in the Competition Appeal Tribunal.

In establishing the provision estimate, the Group has created a number of scenarios to address uncertainties around a number of key

assumptions. These include the potential outcomes of the Supreme Court appeal, any steps that the FCA may take and outcomes in

relation to the extent of harm and remedies. Other key assumptions include applicable commission models, commission rates, time

periods, response rates, uphold rates, levels of redress / interest applied and costs to deliver. The Group will continue to assess

developments and potential impacts, including the outcome of the appeals, any announcement by the FCA of their next steps, and any

action by other regulators or government bodies. Given that there is a significant level of uncertainty in terms of the eventual outcome, the

ultimate financial impact could materially differ from the amount provided.

The Group continues to apply the recommendations from Sir Ross Cranston’s review, issued in December 2019, including a reassessment of

direct and consequential losses by an independent panel (the Foskett Panel), an extension of debt relief and a wider definition of de facto

directors. The Foskett Panel’s full scope and methodology was published on 7 July 2020. The Foskett Panel’s stated objective is to consider

cases via a non-legalistic and fair process and to make its decisions in a generous, fair and common sense manner, assessing claims against

an expanded definition of the fraud and on a lower evidential basis.

In June 2022, the Foskett Panel announced an alternative option, in the form of a fixed sum award which could be accepted as an

alternative to participation in the full re-review process, to support earlier resolution of claims for those deemed by the Foskett Panel to be

Virtually all of the population have now had decisions via the Fixed Sum Award process, with operational costs, redress and tax costs

associated with the re-reviews recognised within the amount provided.

Notwithstanding the settled claims and the increase in outcomes which builds confidence in the full estimated cost, uncertainties remain

and the final outcome could be different. There is no confirmed timeline for the completion of the re-review process nor the review by

Dame Linda Dobbs. The Group remains committed to implementing the recommendations in full.

The Group continues to challenge PPI litigation cases, with mainly operational costs and legal fees associated with litigation activity

Customer claims in relation to insurance branch business in Germany

The Group continues to receive claims from customers in Germany relating to policies issued by Clerical Medical Investment Group Limited

(subsequently renamed Scottish Widows Limited), with smaller numbers of claims received from customers in Austria and Italy.

Operational costs, redress and legal fees associated with the claims are recognised within regulatory and legal provisions.

The Group carries provisions of £154 million (31 December 2023: £137 million) in respect of dilapidations, rent reviews and other property-

Provisions are also made for staff and other costs related to Group restructuring initiatives at the point at which the Group becomes

committed to the expenditure; at 31 December 2024 provisions of £135 million (31 December 2023: £245 million) were held.

The Group carries provisions of £35 million (31 December 2023: £46 million) for indemnities and other matters relating to legacy business

disposals in prior years. Whilst there remains significant uncertainty as to the timing of the utilisation of the provisions, the Group expects

the majority of the remaining provisions to have been utilised by 31 December 2026.