Speaking about the future of financial regulation, Bailey said regulated firms should be focusing on culture with principles and outcomes being more important to the regulator than rules.
So, this week Mortgage Solutions asked our brokers what ‘doing the right thing’ means to them and what they expect from the regulator from now on.
Fundamentally, I agree with Mr Bailey that staying within the rules is not enough and principles and consumer outcomes have to be at the forefront.
For example, a client with missed payments/defaults on every account ever held could in theory get a mortgage, but is recommending a mortgage always the right thing? There have been instances when I advised clients to sort out their finances first and then consider taking a mortgage whilst I acknowledged that technically I could arrange a mortgage for them.
Had I just given a mortgage, I would have stayed within the rules, but I don’t believe that it would have been the right thing to do. That is not to say that I don’t arrange mortgages for people with adverse credit history, far from it, but I do consider whether I truly treat the customer fairly given their vulnerability in financial situations.
A quote from the FCA chief’s statement: “I see rules as a means to deliver outcomes, and it is important not to focus too much on rules as the beginning and end of the process of regulation. Outcomes matter at the end of the day.” In my opinion, rules and principles matter, as they set a framework, and whether an outcome is “right” may be a matter of viewpoint. Did I do the right thing to turn down an adverse credit business when I thought that the client should get themselves in order first? I believe I did, but the client may disagree.
So ‘doing the right thing’ is the new buzz phrase at the FCA. If this means continuing in the same vane as we do now it will be happy days as none of our business owners want to be forking out on any more FCA new ideas.
The fact that we have to give best advice at all times, show detailed client interrogation in a fact finding document, produce market research information, provide bespoke client ESIS documents, justify everything in a detailed suitability report, positively identify every client, obtain documents to confirm their earnings, scrutinise bank statements to confirm solvency and finally submit everything securely using a lenders portal is surely doing the right thing.
If not, I think it is high time the FCA actually showed us some rules with processes to follow as opposed to relying on us to interpret their principles and best practices to decide what is best for our businesses.
At present, I am very happy that my business does the right thing for our clients but I am not convinced the FCA does the right thing for their clients – us mortgage brokers – with escalating fees and constantly trying to reinvent the wheel. Perhaps the new buzz phrase should be ‘are we doing the right thing?’
I think that the customer outcome has to be at the forefront of a broker’s mind when giving advice and making recommendations and I entirely agree with Andrew Bailey.
As an organisation I do not think you focus purely on the rules. A business that is built on reputation and recommendation needs to be client-centric, ensuring clients understand the products they have been recommended, making sure they are clear on the costs, benefits and potential risk. This all has to be built around the rules.
When discussing cultures and principles, I would question how these can be reflected in firms/banks that push for a fully automated mortgage process where a customer’s understanding is not fully tested. This is particularly important with more vulnerable clients. In this automated environment are the systems not built purely on rules?
I am not old school, but some technological innovations need to be tested to ensure that they are delivering the regulators and firms ‘public interest objectives’. What impact may clients experience in the future and how rigorous is the testing of these innovations before they go to the public?
In the main I agree with the statement and as with every business, change and innovation need to be embraced. A change for change’s sake though can sometimes encumber and frustrate. I welcome any change that benefits the ‘public interest’ and just hope that as these are made to regulation, transformation or delivery, they are well tested and fit for the purpose.