FCA fine gives context for Natwest over-compliance

In particular, the bank was one of several cited for refusing a remortgage request for a couple who were downsizing their loan and thus reducing their borrowing, in the process disregarding the transitional rules the sector had fought for that were designed to prevent such perverse outcomes.

Perhaps some explanation of Natwest’s tough approach is provided by today’s (27 August) £14.5m Financial Conduct Authority fine for mortgage advice failings pre-MMR.

The final notice given to the Royal Bank of Scotland and Natwest for “serious failings” in their advised mortgage sales business has shown that affordability issues and lack of oversight of advised sales lay at the heart of the problems identified between June 2011 and March 2013.

These same issues are at the main thrust of the changes under the MMR, which has reclassified almost all mortgage ‘sales’ as being ‘advised’ and introduced tough affordability assessments, including forward modelling of rate rises.

In the case of the pre-RDR sales, the FCA found that processes for assessing affordability were inadequate.

“While the firms considered expenditure based on Office of National Statistics data, and took into account some key customer data, they were not considering the full extent and implications of a customer’s budget and additional committed or future expenditure,” read the notice.

An algorithm based on ONS data was used to determine customer expenditure on average household items, together with information about credit card and loan borrowing. The FCA noted that the firms’ process did not properly consider the customer’s actual situation.

At the end of September 2012 the firms’ group internal audit reported on a review of branch sales files, telephone sales and observed live sales for the period between January and July that year. It found that for 72 per cent of telephone sales in particular, it was unclear how affordability had been assessed.

During the period covered, RBS and Natwest provided approximately 177,000 mortgages to customers, of which approximately 30,000 were advised sales, generating gross revenue of £106bn.

Although the FCA stated there is no evidence that failings have caused widespread detriment to customers, the firms have agreed to contact the 30,000 consumers given advice to allow them to “raise any concerns”.

If this had happened now, of course, it is likely all 177,000 would have been advised sales, and the fine would have been much higher. Shareholders will be thanking the powers that be, then, that a new stringent approach aims to go well beyond what is needed.

Better safe than sorry and all that, especially for a bank that has been hit with around £400m worth of fines for issues from Libor fixing to incorrect reporting in the past two years.