MortgagesMar 6 2023

FCA: Some mortgage firms ‘over-confident’ on consumer duty

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FCA: Some mortgage firms ‘over-confident’ on consumer duty

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.

  1. 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.
  2. 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.
  3. 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.