Consumer Duty is a set of regulations created to encourage a greater focus on reducing consumer harm and providing good outcomes, and was applied to all FCA-regulate firms since 31 July this year.
According to a Mortgage Solutions poll, almost 42 per cent of brokers said that Consumer Duty implementation had made no difference and 41 per cent said that the regulation had only changed working practices to a small extent.
Around 17 per cent of brokers said that the implementation of Consumer Duty had changed working practices to a large extent.
Stacy Penn, senior policy adviser at Association of Mortgage Intermediaries (AMI), said that Consumer Duty was “never going to drastically alter” the mortgage and protection advice journey as the sector was “further ahead than others due to previous regulatory changes and the customer-centric nature of advice businesses”.
She noted that it was “surprising” that over two fifths of respondents had seen no difference, but it depended on who answered the question.
“If they were advisers, I’d be less concerned, as any changes made to processes and procedures at a firm level may not have been viewed by them as changes to their ‘working practices’.
“For example, a firm may have implemented an updated fees policy meaning an adviser has to follow a revised fee structure – this doesn’t fundamentally change the way an adviser interacts with customers on a day-to-day basis,” Penn explained.
She continued that if the two fifths were business owners she would be “worried” as the regulation “should have had more of an impact on their role”.
This includes setting time aside to “regularly review data and unpick the insights or assessing how the firm supports customers with vulnerable characteristics to see if there is any room for improvement”.
“We also know the FCA is starting to review firms’ fair value assessments and supporting documentation – if a firm hasn’t done this work, or hasn’t completed it robustly enough, they will be leaving themselves exposed,” Penn added.
She noted that there was help and support out there, including factsheets on the AMI website.
Surprised by Consumer Duty confidence
Tony Crane, founder of Crane Consulting, added that he was “surprised” that so many felt confident to say that Consumer Duty had made no difference to their day-to-day.
“If nothing else the annual attestation and the monitoring and reporting required to provide that should invoke some change to working practices,” he added.
Crane continued: “Taking a wider view, I’m not overly surprised by the other results. I’ve said it before, but I don’t think the behaviours within the standard market were the drivers behind Consumer Duty.
“In the main, the standard advice market functions well and I think there’s broad awareness from consumers on what good and bad looks like. I wouldn’t be as confident if I were a lender, especially in areas such as product switching, vulnerability management, ER referrals and online/execution only processes.”
He noted that in each of the above areas, he would have “expected significant change” and pointed to the equity release market and second charge market as possible areas that could undergo change.
“Of course, what the data doesn’t tell us is how many firms delivered the regulatory minimum for the end of July and are only now starting the more meaningful work to deliver the bigger changes required to extract the commercial benefits locked into the regulation – are the 17 per cent ahead of the rest or did they have the furthest to travel to get to the higher bar?” Crane added.
He concluded that July was the “start gate” so there would be bigger changes to come.
‘Consumer Duty is now here and there is no time left to fall behind’
Jonathan Barrett, co-founder and managing director of Comentis, said that the results were “disappointing, but sadly not altogether surprising”.
He continued: “While some firms are well aware of the regulations and changing their ways of working accordingly, others are struggling, and a few haven’t even started yet. In many ways, this is a familiar story.
“But we cannot stress it strongly enough: Consumer Duty is now here and there’s no time left to fall behind. The FCA expects all firms, no matter what size they are, to be on board.”
Barrett added that there had been a long-held perception that those with mortgages were less likely to be at risk of financial vulnerability but this was “far from true”.
“With interest rates rising and the cost of living increasing even those who might not be deemed ‘obviously’ vulnerable could still be at risk,” he noted.
Barrett agreed with Crane that the 31 July deadline was never supposed to be treated as a “finish line”.
“Instead, it was intended to be the firing of a starting pistol; marking the beginning of a broader conversation on vulnerability. And this is still very much the case. We now know what the next stage of this race looks like. To those who are already making progress and changing their working practices – well done. And to those who have yet to act or who are falling behind, don’t delay,” he concluded.
‘New regulation brings real benefit for everyone’
Gindy Mathoon, founder of broker firm Create Finance, agreed that the results were not surprising but questioned whether respondents had been “totally honest” and understood what Consumer Duty changes meant to brokers and consumers.
He continued: “I feel the new regulation brings real benefit for everyone. Lenders [need] to ensure their for product offerings are clear and concise so consumers can make a fully-informed decision on what is the best product for them.
“Brokers can ensure they truly offer a full holistic mortgage and protection journey for all consumers and cover all the key areas which are vital when individuals are committing to the biggest liability they will ever have in their lifetime.”
Mathoon added that consumers can have “more peace of mind in terms of the products they take out and that they “fully meet their individual needs at that time and also moving forward”.
He noted that Create Finance had started its Consumer Duty journey around 12 months before the new regulation came into force, which involved a full review of its processes to ensure it was aligned with new regulations and monthly staff training.
“As a company, we have seen no difference to our working practices as we have always prided ourselves on delivering a superior consumer experience around all stages of the end-to-end mortgage and protection journey,” Mathoon added.
