FCA to publish good and poor practices of mortgage advisers

The Financial Conduct Authority will be reviewing mortgage advice firms and will publish the good and poor practices it sees.
In a letter sent to chief executives yesterday (January 3o), the regulator said it would be carrying out supervisory work on mortgage intermediaries over the next two years.
This included reviewing whether sufficient assessment of customer circumstances is being carried out, and whether the advice being given is suitable.
It also said it would assess to which extent firms were ensuring customers understand the products available to them.
As well as, reviewing the “adequacy of firms’ systems and controls, and quality assurance procedures to ensure there is consistency in the advice given and appropriate oversight to mitigate risks of harm.”
As part of the review, the FCA plans to select a cross section of firms and publish good and poor practice so all firms can learn from the work being carried out.
The City watchdog highlighted that recent supervisory work showed some firms had a “culture driven by sales targets” with advisers financially incentivised to sell products that attracted higher rates of commission or fees.
It said incentive schemes needed to avoid rewarding poor compliance and mis-selling to ensure good customer outcomes.
“We intend to assess how firms are identifying and managing conflicts of interest.
“Where we identify that the risk of high-pressure sales is not being properly managed, we will consider appropriate regulatory tools to bring this about,” the FCA explained.
Fair value
The FCA said when it reviewed firms’ fair value assessments it had seen different approaches.
“We have seen positive steps, for instance, some firms have completed holistic reviews of their fees charged compared against their costs and have considered the service provided in different circumstances.
“We have seen examples where firms have reduced or removed charges for certain products or ongoing services where these were deemed too high relative to the benefits provided.
“We have also seen firms put better controls in place for certain groups of consumers and remove charges for those groups if they do not offer fair value.
“However, we have seen instances of less considered approaches, and we remind firms that solely benchmarking against competitors does not go far enough,” it added.
The FCA went on to say it expected firms to be able to demonstrate their products and services offer fair value and would be monitoring this as part of its review.
Financial promotions
FCA said it was “imperative” that when firms were promoting mortgage services, the risks of secured lending were featured prominently alongside the promoted benefits.
It added firms should not be seeking to exploit consumers’ behavioural biases and communications should be designed in a way that avoids foreseeable harm and aids consumer understanding.
“Communications should enable the intended recipients to evaluate their options by assessing the benefits, risks and costs associated with those options, and how those options relate to their needs and financial objectives.
“Firms should consider how they can demonstrate compliance with the consumer understanding retail customer outcome, for example, through testing, monitoring and adapting communications and products or processes to support good consumer outcomes,” the letter read.
The FCA went on to say it would be closely monitoring firms’ compliance with its financial promotion rules.
Other expectations
The regulator also said it expected principal firms to monitor the type, volume and source of business being carried out by their ARs, adding if a firm’s AR was not carrying on any regulated activity, then it should consider terminating the relationship.
On the topic of trading names, the FCA explained: “Registering a trading name is not an alternative to authorisation or being appointed as an AR. If a person carries on regulated activity without being authorised or exempt (for example, being made an AR) it is likely they are carrying out regulated business unlawfully.”
Additionally, the regulator said it would continue to act where it received intelligence and reports of homebuyers being pressured to use estate agents’ in-house mortgage brokers.
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