Why is the FCA seemingly disengaged with mortgage advice? – Murphy

As a scene-setter, you will perhaps have read about it in this very publication here. There appears much to be worried about from an advisory perspective.

I hold that view having taken part and listened to the opening address given by Sarah McKenzie, head of department at the Financial Conduct Authority (FCA) team looking after market analysis and policy making for mortgages. Sarah was there to set out the regulator’s work on mortgage market reform, notably the Discussion Paper on the future of the market and the changes to the mortgage rules over the summer. The more she spoke, the more concerned I got.

What struck me most was just how far apart the regulator’s view of the mortgage world seems from the reality advisers see.

McKenzie spoke about the FCA “injecting innovation” into the market, as though the regulator is the source of new ideas and solutions. In my view, regulators are not innovators, nor should they be. Their role is to provide consistency, parameters and guardrails, not to act as a venture capital firm.

True innovation comes from the market itself – from lenders, distributors, advisers, and (I suspect) increasingly from technology firms. By positioning itself as a driver of innovation, the FCA risks both overreach and confusion.

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She also claimed the UK mortgage market had made “great progress since the 2008 financial crisis.” On this point, I agree. Lending standards are stronger, affordability is better controlled, and positive customer outcomes are far more central to what we all do.

But here is the contradiction seemingly missed by the regulator: much of that progress has been built on advice. Since the Mortgage Market Review, advised sales have become the overwhelming norm, with more than 90% of mortgages now arranged through intermediaries. Consumers continue to make that choice and the evidence is clear: they value the protection, the clarity and the outcomes advice brings.

And yet, having praised the progress of the last 16 years, the FCA now appears intent on unpicking the foundations. McKenzie claimed the regulator is “playing our part in really helping people access the right mortgages”. But how? By making it easier for them to avoid advice altogether?

Majority of clients require advice

In July, the FCA introduced rule changes that allow borrowers to make alterations to their mortgage – reducing term, remortgaging, or product switching – without automatically triggering the requirement for advice.

These were billed as measures to make the process “easier, faster, cheaper.” But in reality, they were designed to appease lenders seeking to cut acquisition costs. In the process, the FCA stripped away a safeguard that ensured suitability and the positive outcomes demanded by the Consumer Duty. Far from protecting consumers, this makes the market riskier for them.

McKenzie even suggested advice can be confusing, or that too much disclosure risks disengaging borrowers. This is perhaps the most worrying assertion of all, because it is simply not borne out by the evidence.

Ask any adviser how many clients have ever disengaged from the process of arranging the biggest financial commitment of their lives. Clients want to be involved, informed, and protected. They rely on their adviser to translate complexity into clarity. The real truth is that without advice, they are much more likely to be disengaged and confused.

And if advice really is so confusing, why has the proportion of advised sales risen consistently over the last decade? Why do consumers consistently vote with their feet, opting for advisers even when execution-only routes exist?

This matters because we are barely two years into Consumer Duty. That framework put the onus on firms to deliver good outcomes, prevent foreseeable harm, and improve consumer understanding. Advisers welcomed it, because it reflected how we already worked. Yet now, in the mortgage world, the FCA seems to be undermining its own ‘crown jewel’.

We must hold firm to the Consumer Duty principles, not dilute them. Advice is not a cost or a barrier. It is a safeguard that underpins a fair and functioning mortgage market. Weakening advice risks exposing vulnerable customers, and remember, by the FCA’s own data, half of UK adults display one or more characteristics of vulnerability.

I am also not arguing against technology or innovation. Advisers have long been early adopters of tech, from digital ID verification to secure portals and from affordability calculators to artificial intelligence (AI)-driven document checks. Technology will continue to improve efficiency, but one got the impression from Sarah that the regulator feels tech is able to replace advisers.

Is the regulator in touch with the reality for our clients? By painting a picture of a financially literate, middle-class nation that simply needs lighter disclosure rules and more technology, the FCA risks ignoring the lived reality of millions of households – people with low financial resilience, limited literacy, complex circumstances, and vulnerabilities. These are not fringe cases; they are also part of the mainstream. And they benefit most from advice.

As noted above, Mortgage Solutions has already reported on my message to the Forum – that some of the proposed reforms risk taking the sector backwards on Consumer Duty. That is the crux of the issue. Consumer Duty was a bold step forward; undermining advice risks leaving consumers more exposed than at any point since 2008. We, and our representatives, should push back against this in the strongest terms.