Speaking in an in-house produced video, Christine Newell (pictured), mortgage technical director at Paradigm, said that Consumer Duty was “huge and very significant” and that a lot of attention was being paid to vulnerable clients and the expectation of treatment of such clients.
She continued that mortgage firms needed to think about the entire customer journey, from financial promotion, to explaining the mortgage and underwriting journey, how your advice adds to that, the price the clients pay and what happens at the end of the policy and how you keep up communications with your clients.
Mike Allison, director of protection at Paradigm, added that it was a “real sit up and take notice moment” for all firms and said that it is “not going away for any firm”.
He said that the costs could be substantial, with one-off direct costs of implementation pegged at £21.4bn between 51,000 firms that the Financial Conduct Authority (FCA) regulates with annual direct costs estimated to be between £74m to £106m.
The FCA said that it plans to issue final rules on 31 July and implement in full by end of April 2023.
Key foundations for Consumer Duty implementation
Both Newell and Allison said that ensuring that Senior Managers and Certification Regime (SMCR) was properly implemented would be vital.
This replaced the Approved Persons regime, and aims to improve culture, governance and accountability within financial services firms by improving individual accountability and awareness of conduct issues in firms.
Newell added that ensuring vulnerable customer practices were “fit for purpose” and spending time on training was also important as a foundation for Consumer Duty.
“This is particularly apparent if a firm uses a lot of specialist lenders as it is likely that clients who need a specialist lender to achieve their financial objectives are much more likely to be considered vulnerable,” she explained.
Allison added that firms processes around protection needed to be clear, whether that is brokers advising clients themselves, referral to specialists within the firm or outsourcing to a third party.
He explained a mortgage adviser must “fully look” at potential harm that could occur, noting that one in two people getting cancer, the average age for acquiring a disability is 53 and average age of protection claim is 37
“This isn’t something that you can kick down the street for another conversation later on, people are claiming at 37 and if they didn’t have the right advice then there could be issues.
“Consumer duty doesn’t state that everybody needs to advise on life cover. But it could be an opportunity for firms who struggle to fit protection in to their business models to signpost the client to another firm who could address their needs and get the right outcome,” he said.
Newell added: “I find that a few brokers who are quite stretched…leave the protection conversation to a later date in client journey, so it can get lost or perhaps never take place, leaving a client open to that foreseeable harm. Any firms not taking all of these things into consideration with own processes and business models are going to struggle to meet the standard and could fall foul of new principle.”
Actions that firms can take
Some actions that firms can take include team meetings that discuss how clients are currently served, training provided to staff, information collected, vulnerable customer treatment and how this could change under Consumer Duty to ensure everyone is on the same page.
Both suggested that appointing a Consumer Duty champion to coordinate a firm’s approach could be a good idea.
Allison said that asking newer members of staff to review how people interact with clients could also be a good idea.
“Newer members of staff are less likely to be entrenched in the business and maybe be able to offer up-to-date ideas and changes,” he said.
To view the whole video, along with other content that can help prepare for Consumer Duty please click the link here.