Ideology over outcomes? Why the FCA might need to pause and reflect – Hunt

Lending standards have been high, arrears have remained low, and consumers have benefitted from an advice-led model that, by almost any measure, has delivered good-quality outcomes.

Which makes it all the more curious that the regulator appears to be signalling a desire to change direction, and not necessarily for the better.

The recent Discussion Paper from the Financial Conduct Authority (FCA) has generated plenty of debate across the industry. While, in theory, it was a call for engagement, there’s a growing sense among many that the regulator’s mind may already be made up on a number of fronts.

For example, the paper sets out a broad range of proposals and possible reforms, which knowing what we do about the regulator, feels a little less than ideas for discussion, and more like a list of intentions waiting for validation. And if validation is not forthcoming, then there’s still a very good chance it will go ahead with them anyway.

The one potential saving grace here is that this isn’t a consultation paper, because in many cases of those being published, it definitely appears that minds have been made up, regardless of what is fed back. I refer you to the paper that effectively ratified the removal of the advice interaction trigger earlier in the year. Rubber-stamped doesn’t even cover it.

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Which, of course, should concern us all. Not because the industry shouldn’t be challenged, but because this market is categorically not broken. Of course, there are areas for improvement, particularly when it comes to broadening access to holistic advice across both mainstream and later life lending. But the fundamentals have worked well, and we should be cautious about changing things simply to be seen to be changing them.

Focus should be on the outcomes

I can’t help but draw comparisons with what’s happening in local planning at the moment. Local authorities have been told to meet ambitious housebuilding targets, often with limited resources to manage the impact locally. So developments get waved through, regardless of whether the surrounding infrastructure – schools, GP surgeries, transport links – can cope. The focus becomes the numbers, not the outcomes.

In a similar way, there’s a risk that the regulator is being driven by the need to be seen to simplify and accelerate mortgage activity; to ‘cut red tape’ in the name of boosting lending volumes and transaction numbers. But what’s the cost of that? When senior voices at the FCA are suggesting that lending over the past 10 years has been too good and that arrears are too low, you have to question the logic. Are we really saying that we’d like to see more arrears and repossessions, simply because that might indicate a more ‘active’ market? That’s ideology, not consumer protection.

This, of course, also feels counter to the Consumer Duty itself, which was introduced to ensure firms act in the best interests of their customers and focus on delivering good outcomes.

Making it harder for consumers to access advice, or increasing the risk of poor decisions, runs against that principle. The Discussion Paper suggests that by loosening some requirements, we might make the market more ‘efficient’, but efficiency without protection is not progress, it’s exposure.

Advisers know better than anyone that consumers rely on guidance. The shift we’ve already seen – such as that removal of the advice interaction trigger – means the balance of influence between lenders and advisers has changed in this area. The risk is that, in pursuit of faster or higher lending activity, we end up undermining the very structures that have protected consumers so effectively in recent years.

The irony is that the mortgage market is, in many ways, a success story. We have high-quality lending, low levels of default, and a well-regulated advice profession that has consistently delivered for clients. To unpick that because of a belief that less regulation automatically equals more growth seems misguided. It’s the classic ‘if it isn’t broken, don’t fix it’ scenario.

None of this is to say that the regulator’s aims are totally misplaced, but some of them certainly require re-evaluation. Simplification, consistency and efficiency are all worthy goals.

But the path to those goals must not compromise the protection that advice and good practice provide. The FCA should be working with the industry to enhance what already works – to evolve the advice framework so it keeps pace with consumer needs – not seeking to dismantle it in the name of expediency.

Sometimes it’s worth taking a breath and asking the simple question: what is good for the public? Because when a market consistently delivers quality and good outcomes, that should be a cause for confidence, not concern.