Closed mortgage books are under the microscope as the consumer duty deadline for closed products approaches, according to Rockstead.
A recent speech by the Financial Conduct Authority warned firms to focus on providing fair value in closed mortgage books.
“We know many have applied their laser focus on open book products ahead of the consumer duty coming into force,” the FCA said.
“But the clock is also ticking for closed products which will come under the scope of the consumer duty at the end of July.”
Rockstead argued that “as warning shots go, this speech could not have been clearer”.
It explained the FCA gave firms an extra year to get grips with the complexity of closed products because they are often processed on older, legacy systems and there are likely to be gaps in the required data.
Rockstead pointed out this will make the task of confirming consumer duty responsibilities are in place, and have been complied with, tougher to achieve.
“Our industry friends, including tech platforms and servicers themselves, have even highlighted the issue that the potential difficulties are so challenging that we may see a flurry of closed books coming to the market,” it warned.
Rockstead cautioned that companies engaged in the closed book issue cannot escape their responsibilities and that they need to ensure compliance with regulatory rules and guidelines.
That means servicers, holders of assets and potential purchasers of mortgage books need to be engaging in the issue now.
Rockstead also pointed out that there is a “fear” that some are not addressing the matter and playing a “wait and see” game, which it described as a “dangerous strategy”.
“Holders, sellers, or purchasers of mortgage portfolios need to ensure that their chosen third-party review providers can advise beyond what would normally be categorised as due diligence, AUP, and compliance verification,” Rockstead explained.
“They need to have the subject matter expertise and capability to analyse gaps in monitoring data, review fair value in closed products, assess the ‘keeping the customer connection’ and verify vested rights, as required by the FCA.”
Additionally, it advised that potential purchasers need a “root and branch re-think” around the way potential acquisitions are reviewed and portfolios integrated into existing holdings.
tom.dunstan@ft.com
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