The Financial Conduct Authority said some mortgage intermediaries are “over-confident” of their preparation for the consumer duty and further outlined areas brokers need to consider.
In a Dear CEO letter sent to mortgage intermediaries, FCA director of consumer finance, Roma Pearson said most of the firms whose implementation plans were reviewed showed an understanding of the consumer duty.
However, she noted that some firms risk not being ready in time and may struggle to embed the duty effectively throughout their businesses.
The consumer duty will come into force at the end of July for new and existing products or services, while it will come into force for closed products and services the following year, July 2024.
In the mortgage sector, the duty applies to all firms that provide a product or service to retail customers and to all firms who have a material influence over customer outcomes.
Monitoring forms an important part of the duty, with firms expected to evidence and stand behind the outcomes their customers are experiencing.
Commenting further on the review of firms implementation plans, Pearson identified three key areas firms should focus on before July.
- Effective prioritisation: The FCA said firms should make sure they are prioritising the implementation work appropriately and focus on reducing the risk of poor consumer outcomes in the areas where they are likely to be furthest away from the requirements of the duty.
- Embedding the substantive requirements: The FCA noted that some firms are “over confident” that their existing processes are adequate and urged them to carefully consider the requirements to allow them to identify the necessary changes.
- Working with other firms: The FCA said many firms will need to work and share information with other firms in the distribution chain and noted that some firms may need to accelerate this step.
The letter also outlined a number of examples of products and services firms should be mindful of when implementing the consumer duty.
One of these related to unsuitable advice and lifetime mortgages.
“Given the rising cost of living, there may be an increasing demand for advice for second charge and lifetime mortgages,” Pearson wrote.
“It is important that the needs of consumers are fully considered as well as the costs and risks involved in these products.
"Rising interest rates and less disposable income may impact the suitability of some products for certain consumers.”
Pearson noted that the FCA is reviewing the advice that lifetime mortgage intermediaries are providing and said it continues to monitor this area to ensure products are properly targeted and that consumers fully understand the implications of using such products.
Pearson also noted four key expectations the regulator has of mortgage intermediaries, centred on service design, fair value, communication and consumer support.
- Target market - The FCA reminded firms that they should ensure that they understand the target market each product or service has been designed for by the manufacturer and that its strategy for selling it is targeted at those whose needs, characteristics and objectives are met by it.
- Fair value - Mortgage intermediaries must get information from the manufacturer about a product or service such as a summary of the benefits to the target market, price and fees. The intermediary must make sure the manufacturer considers that the total benefit of the product is proportionate to the cost.
- Consumer understanding - Intermediaries were reminded to communicate in a way that supports consumer understanding and informed decision making, this means producing product information that gives a balanced picture of the costs, risks and benefits for the consumer.
- Consumer support - Firms were reminded to provide support that meets consumers’ needs throughout the life of the product or service, for example by making key information easily accessible.
Firms' boards were expected to have agreed their plans for implementing the consumer duty by the end of October 2022.
By the end of April 2023 manufacturers should have completed all reviews necessary to meet the outcome rules of the consumer duty and shared necessary information with their distributors.
jane.matthews@ft.com
