BSLS2023: FCA is ‘less worried’ about mortgage sector on Consumer Duty

Speaking at The British Specialist Lending Senate, Association of Mortgage Intermediaries’ chief executive Robert Sinclair (pictured) explained that the regulator recognised that the “individual consumer journey” predominantly goes through sourcing, so a fact find is done, details are then keyed into the system, which then returns answers.

The broker then uses those answers along with “hard and soft facts to say to the customer, ‘that’s the most suitable product for you at the cheapest price we can get it for you’”.

Sinclair said: “The command lines are short until we get to the specialist sector where there might be a packager in the process or there might be a mortgage club in the way.

“The biggest risk that sits in that is that the club negotiates the price, such as the proc fee, and are they inside the circle when it comes to Consumer Duty? It’s a debate that is still alive, I think in terms of how that operates.”

He continued that the regulator not being as concerned about the mortgage sector “doesn’t mean we don’t have to do it, doesn’t mean we can’t be better, doesn’t mean that there isn’t a lot to be done, but you’re not going to be the prime target when it comes to this stuff”.

The FCA came out earlier this month to say that some mortgage intermediary firms were “over-confident” about their Consumer Duty policy and said some were approaching the regulation requirements “superficially”.

Lender fee structures could come under scrutiny

One area that could come under scrutiny is lender fee structures, especially if a lender does more than one area of business such as residential, second charge and lifetime mortgages.

Sinclair said there would be a “challenge” for a lender who operates in multiple lending areas in how the company “justify the fair value for the amount of work that goes into each by way of fact find, work completion and all the rest of it to say that you’re delivering fair value against the fee structure”.

Sinclair noted that some may segment the business mix into separate legal entities, but still operate under one regulatory regime, but he added that ‘he was not sure the regulator would buy that’.

Another option might be to segment people into different channels and explain that the business only works in that one area, however your regulated permissions may note that the business covers all three.

“Not sure how to get away with that in the fullness of time,” Sinclair added.

“When the regulator says they’re not worried about this market, they mean they’re not worried about the prime residential market.”

He said that the regulator was looking at the lifetime market at the moment, adding that: “I fear that what they’re finding this time is worse than the findings they made two years ago”.

Price and volume ‘most complex areas’

Sinclair said that within Consumer Duty, which encompasses the whole supply chain of financial services, price and volume are the “most complex areas”.

He explained: “In an open market and one as highly competitive as mortgages, if you’re not the price setter, you’re a price follower.

“The regulator gets that, because…normally there is only one price setter, but the reality is that there is a price setter that demands that loan to value (LTV) or at that income point they set the price everyone else is following.”

Sinclair said that that was the “reality of the market we operate in” but “defining that and thinking it through is really important”.

He added that the challenge of Consumer Duty was evidencing that you were doing it, noting that “it is not about anybody saying you’re doing it wrong”.

“It’s the footsteps in the sand that give the measures,” Sinclair continued.

“It starts with understanding your proposition and your strategy and whether you’re a lender or a broker, the fundamental here is you set out in words of one syllable who you are here to serve and why and who you do not want to serve.”

“Consumer Duty is about a lender defining what they do, how they do it and what their products are, and distributors defining what they do, how they do it, and therefore what they do.”