The regulator admitted that there had been a “misunderstanding” about the scope of its advice proposals outlined in its last paper (CP11/31), where advisers were concerned that every customer conversation would be construed as providing regulated advice.
In PS12/16, the regulator said: “Where a firm steers a customer towards particular identifiable products that the customer could enter into, that is regulated advice. It is perfectly possible for a firm to have a discussion about mortgage products in general or to gather information about the customer’s general mortgage needs without that being regulated advice.”
The regulator said the biggest challenge to its advice proposals concerned the impact on contract variations undertaken by lenders, such as rate switches, further advances, amending the term and amending the repayment type.
During the feedback period, lenders and the trade bodies expressed concern that all contract variations would be captured by the advice requirements, which contradicted the near-final approved persons rules.
The FSA said: “These rules explicitly exclude lender staff involved in these transactions from being Approved Persons where there is no additional borrowing. The concern was that under our advice proposals, these individuals would be required to give advice, but would not be approved to do so.”
The FSA said this would be “inappropriate” and has amended its approach to bring it into line with the Approved Persons near-final rules.
“We think that it is appropriate that purely administrative contract variations are undertaken on an execution-only basis, where the total sum outstanding under the mortgage will not increase. Where the total sum outstanding will increase, for example where there is a further advance, advice will be required.”
On rate switches, including retention deals, the FSA said execution-only sales should be permitted in some circumstances.
For example, if a borrower wants to switch their product and nothing more, it would be acceptable for the lender to act on the borrower’s instructions over the telephone, or in the branch, and proceed on an execution-only basis. If the discussion with the borrower goes beyond simply acting on their instructions, however, it would become an advised interactive sale.
The FSA added forbearance would remain exempt from the advice requirements.
The FSA will be implementing the final rules on 26 April 2014.
