The Financial Conduct Authority has removed the automatic advice requirement for regulated mortgage transactions where there is interactive dialogue between firms and customers.
In a policy statement as part of its Mortgage Rule Review, the FCA said having considered the responses to its proposals, it will be proceeding with the majority of the rule and guidance changes, with two exceptions.
One of which is the automatic requirement for advice, however, it specified that it will continue to require these customers to make a positive election to proceed on an execution-only basis, reducing the risk that they are unclear on whether they have received advice.
The other exemption took the form of a clarification that firms must consider what procedures are appropriate to avoid causing foreseeable harm, adding the word “causing” into the final rule.
Feedback
Additionally, the FCA reported that, while a wide range of respondents, including lenders, trade associations and consumer bodies broadly supported the proposal, several respondents raised concerns.
These respondents cautioned that consumers who proceed without advice may then be less aware that protection products are available to them.
A trade association was also concerned about the loss of income this change may mean for intermediaries.
In response, the FCA said that it understands the concerns of respondents, especially intermediaries, regarding the proposal on loss of revenue, including potential impact on standards, growth, and innovation.
However, the authority argued that these concerns do not outweigh the benefits identified for consumers and the market as stated within the CBA.
“We believe these changes make it less likely that an execution-only customer will choose an unsuitable mortgage than is the case today,” it said.
“Consumers will find it easier to shop around and to ask questions about the products they are considering.”
The FCA also addressed protection worries, stating that, while its rules do not require any form of insurance to be taken out alongside a mortgage, its rules also don’t prevent firms from reminding customers to check their protection needs.
The proposal looked into whether firms agreed with the FCA’s required changes to ensure consumers have made a positive election to use an execution-only channel.
While several respondents agreed with the change, others thought removing the positive election step would weaken customer protection or that it required careful thought from the authority before proceeding.
The FCA said that it has “reflected” on this feedback and decided to maintain the requirement to positively elect to proceed with an execution-only sale where there is interactive dialogue with the firm.
As a result, it will no longer be deleting the requirement for positive election.
It added that, although maintaining this requirement will increase the burden on firms, and add friction before the point of sale, it is likely to boost consumer understanding, and support consumers in making good decisions.
However, it added that firms should be aware that requiring a customer to make a positive election will not, on its own, be taken by us as amounting to compliance with our new rule or with the Duty’s understanding outcome.
Finally, the FCA examined whether respondents had anything else that they thought the authority should consider for this proposal, a question which prompted a lot of feedback.
One trade association suggested that the authority should consider additional disclosure at the end of a fixed rate period, to alert consumers to the possibility that another lender may offer a better deal.
Another association said that it would be unreasonable to expect the same amount of execution-only sales from internal product transfers and from remortgaging to a new lender, due to the additional friction of moving to a new lender.
A firm also weighed in to say that staff would need to be upskilled to ensure that interactions did not stray into regulated advice.
In response, the FCA issued several reactions, firstly arguing that they don’t believe further disclosure to encourage customers to consider alternative lenders is not appropriate at this time.
It also stated that there are many elements involved with moving to a new lender that will add friction to the transaction, as well as time taken to speak to an adviser.
However, the authority argued that time spent on advice, where it is not wanted or needed, is a factor which will influence a customer’s decision.
Additionally, the FCA agreed that some staff will need upskilling to avoid straying into advice during an interaction.
“As set out above, our rules require any member of staff who is arranging an execution-only sale to be appropriately qualified,” it added.
tom.dunstan@ft.com
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