Has the regulator just let down every consumer in the country?

Rory Joseph is director and Sebastian Murphy is head of mortgage finance (both pictured) at JLM Mortgage Services

The date? 31 January 2020. The time? Late afternoon. The reasoning? As the saying goes, ‘A good day to bury bad news’.

Call us cynics but when the eyes of all are fixed on the UK’s leaving of the EU – a historical moment in this country’s history – there’s perhaps no better time for the FCA to be releasing a Policy Statement which fundamentally alters our mortgage market, which depressingly suggests there is some kind of industry support for its measures, and which rows back so far on the Mortgage Market Review (MMR) that we’re almost back in the dock.

Many predicted the FCA would come out with its post-Mortgages Market Study rules in the days leading up to Christmas, because the reasoning behind its support and encouragement of execution-only would presumably be so utterly mystifying that it would only be bought by those who still believed in Father Christmas.

When that didn’t happen, we naturally assumed the Policy Statement might not be as bad as first anticipated and that, when it was published, the entire industry and all mortgage market stakeholders would be able to give it the scrutiny it deserves.

We were wrong on all fronts. It’s much worse than we might have believed, plus when you release it on the last day of the month, an hour or so before most people clock off for the weekend, and on ‘Brexit Day’, you can probably tell what the FCA think of its contents. Or at least what they anticipate our industry will think of its contents

It is so full of mixed messages and inconsistent feedback, that there’s no wonder it has gone down this particular course. Unfortunately, that makes everything 100 times more damaging – in essence, this Policy Statement and its protestations of supposed ‘industry support’ for the measures contained therein, shows that the regulator clearly doesn’t have consumers’ best interests at heart.

It’s hard to know where to start with this Policy Statement – and we do not have the time or space here to go into every single contradiction or attack on the provision of advice and those who deliver it – so let’s start at the beginning and see how far we get.

In the very first paragraph, the FCA says this statement is designed to combat three ‘potential harms relating to our mortgage advice and selling standards’. The second one of these is this: ‘consumers looking to buy an execution-only mortgage (ie without advice) are diverted to advice; execution-only sales channels are not always easy to use’.

It seems utterly baffling that the very same regulator who brought about the MMR could ever write this. Being ‘…diverted to advice’ was the gold standard lest we forget in the MMR; it was seen as the best option for mortgage consumers, providing them with a far better chance of securing the mortgage they wanted and needed, and giving them a range of protections that they would otherwise be forfeiting by going execution-only.

Now, a diversion to advice is seen as a bad outcome. That advice in itself is a poor option, rather than the best option for pretty much every single customer looking for a mortgage.

In December last year, less than two months before the publication of this Policy Statement, the FCA itself said that a customer opting for execution-only was at a far greater risk than those opting for advice. It said that execution-only was ‘inherently riskier’ than advised sales. In a month and a half, it has now apparently changed its mind – execution-only is NOT inherently riskier than advised sales it says, even though its research clearly shows a result that says otherwise.

What did it do in December last year? Mis-speak? Coupled with this, last year the regulator also revealed that most consumers were completely unaware of the protections they would be losing as a result of going down the execution-only route. In other words, in this Statement, the FCA is contradicting the guidance and recommendations it has given over the last decade. If the architects of MMR weren’t already dead of shock from the direction of travel outlined in both the Mortgages Market Study interim and final reports, then they will surely be by this and will no doubt be turning in their graves at the thought.

One also hesitates to bring the term ‘fake news’ into this, because it’s pretty emotive and is used to cover up a multitude of sins, but within the report there are multiple references to how most respondents to the FCA on these changes were ‘supportive of these proposals’.

I do not recall any mortgage market, particularly intermediary stakeholder, showing any support for a rule change which makes it easier for execution-only business to be done, which can ‘suggest’ products to consumers but not be considered regulated advice, which is likely to make more consumers believe they have received advice when they haven’t, which can aggressively dual-price to encourage more consumers down the execution-only route, and which says advisers must outline why they have not recommended the cheapest option but allows those ‘committing’ execution-only not to point out that a cheaper option could be available, just because they can’t access it. And that’s just the tip of the iceberg.

Make no bones about it – this is all about disincentivising advised sales, taking away triggers for advice which provide consumers with a far better chance of securing the right outcome for their needs and circumstances.

The FCA has bought, hook, line and sinker the message from sellers of execution-only or the larger aggregators who want to come into this market, that they ‘deserve’ a risk-free environment in order to peddle products that consumers don’t understand with no care for advice or the final outcome.

It increases the chances that, in this most sensitive and all-encompassing area of financial advice, we’ll have something akin to the Wild West.

What makes it worse is that it’s the sheriff and its deputies who have abandoned the town in order to let it happen. All responsible should be thoroughly ashamed of themselves.


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