Despite admitting that execution-only had a greater risk of customers choosing an unsuitable mortgage, the FCA emphasised that it does not consider execution-only riskier than advised sales.
Within its CP19/17 consultation paper published today, the FCA said: “Our changes should make it easier to buy a mortgage online.
“This might encourage engagement in the market from consumers who may feel that the face-to-face sales method is not for them.”
Changes within the consultation include amending its rules to make clear that tools which allow customers to search and filter available mortgages are not necessarily giving advice.
It will also be clearer that some forms of interaction, such as firms helping consumers with their applications, do not require advice.
And the FCA is also making changes to the standards around execution-only policies.
The regulator said it had identified a number of ways its advice rules were acting as a barrier to the development of new tools to help customers choose and buy a mortgage.
It originally highlighted this within its Mortgages Market Study (MMS), where it noted that consumers maybe being channelled “unnecessarily into advice”, but that any harm from this “does not appear to be large”.
The changes are taking place in four key sections:
Changing Perimeter Guidance on mortgage advice
The FCA is proposing to align mortgage advice with investment advice to facilitate online sales options.
At present its Perimeter Guidance on mortgage advice states that giving generic information or advice may amount to giving regulated advice if it steers the customer towards one or more mortgages.
“Some mortgage lenders and potential market entrants told us that this prevents them from developing online tools for consumers to search and filter available mortgages,” the regulator said.
“This is because the filtering may result in one or several mortgages being displayed. In these cases, firms are not collecting information on the consumer’s needs and circumstances.
“They do not want to be at risk of being treated as having given advice on suitability when they have not undertaken the necessary steps, so they do not provide this facility,” it added.
As a result, the FCA is proposing to update its guidance to indicate that a tool that allows a consumer to search and filter based on objective factors, such as interest-rate type and term, is not necessarily giving advice.
The FCA is also considering replicating the investment rules by identifying different types of online tools that either give advice or information and that create prompts to buy and sell.
Modifying the interaction trigger for advice
The FCA is proposing to modify the interaction trigger for advice to exclude interactions that are unconnected with regulated advice.
These include support with an application or ongoing case management and would allow firms to use generic information about products to answer customers’ queries.
The FCA said this should give consumers more choice in the way they buy a mortgage as firms should understand there are a wider range of circumstances in which advice is not required.
Industry feedback warned that increasing execution-only could increase consumer detriment by choosing the wrong mortgage.
As part of the MMS, the FCA said it did not see widespread evidence of consumers buying mortgages that were not appropriate to their needs and circumstance pre-MMR.
It added: “We considered conducting further research, but evidence of customer capability to choose a suitable mortgage is difficult to collect.”
The FCA acknowledged that this change “could reintroduce some of the risk identified in the MMR that consumers think they have been advised when they have not”.
“However, we think this risk is limited by allowing only interactions most obviously unconnected with advice to be exempt from the interaction trigger.
“It was not the intention of the MMR to deny consumers the choice of an execution-only purchase,” it added.
The regulator continued: “Our changes may mean that more consumers buy a mortgage on an execution-only basis and choose an unsuitable mortgage.
“However, we anticipate that, even under our proposals, most consumers in new purchases will still receive advice, as we are not removing the interaction trigger.
“In addition, the development of tools that allow consumers to search and filter may make it easier for consumers to choose a suitable mortgage.”
Changes that may remove barriers to make execution-only more accessible
Some respondents to the MMS suggested they felt the FCA did not look favourably on execution-only. As a result, the regulator said it wanted to “equalise our treatment of advised and execution-only sales”.
“These changes will also make it easier for firms to design good customer journeys for execution-only sales,” it added.
The FCA has proposed removing the prescriptive detail on the firm’s execution-only policy, after some respondents said this gave the impression that it considered execution-only sales to be inherently riskier.
The regulator agreed, saying: “This would bring our requirements into line with our treatment of advised sales in this respect and avoid implying that we consider execution-only to be inherently riskier.”
The FCA will also clarify that firms can offer different pricing between their advised and execution-only channels and market execution-only.
“Some respondents told us that they believe our rule preventing a firm from encouraging a consumer to opt-out of advice prevents them from marketing their execution-only channel or pricing execution-only and advised sales differently,” the FCA said.
“We propose to add guidance to this rule to make clear that it does not prevent either of these things.”
Rate switching
The FCA is proposing to change the process for internal rate switch exceptions to say that if the firm adds new products or makes a change to interest rates or fees likely to be material to the customer’s decision, it must first re-send the list to the customer before they can make use of the internal rate switch exception.
However, if products are removed or the interest-rates or fees change in a way that is unlikely to be material to the customer’s decision, there is no need to re-send the list.
The regulator has also proposed adding guidance to this rule to remind firms of their obligations to be clear, fair and not misleading in their communications with customers.
Where a customer contacts a lender proposing to move to another lender, the firm need only present to the customer the product that matches the loan identified by the customer, rather than the full list of products that the customer is eligible for.
And it will allow execution-only disclosure to be given and recorded by audio or video.
Includes second charges
FCA executive director of strategy and competition Christopher Woolard said: “The mortgage market is working well for most customers but we have identified some areas where our rules are acting as a barrier to innovation.
“The changes we’ve announced today will allow firms to develop products and services which can truly meet the needs of customers.”
As part of the consultation, the FCA is also proposing to require mortgage advisers to tell customers why they have not recommended a cheaper product.
Although the MMS was focused on first charge mortgages, the regulator said it will apply these changes to second charge lending, but not to lifetime mortgages.
The consultation is open until 7 July and the FCA said it will consider feedback and intends to publish its rules in a policy statement late in 2019.
