MMR 2012: Advice stays
The Financial Services Authority said it had listened to lenders’ concerns about contract variations and further advances but ruled that advice must be given to customers increasing their level of borrowing.
Discussions relating to contract variations where product information only is given will not have to be advised but as soon as product suitability is mentioned advice will become compulsory.
This will be the case for discussions had in branch, over the phone and where an interactive “chat” is had online.
This will mean that borrowers speaking to their existing lender about switching rates will “generally” be advised though not in all cases.
Contract variations include new contracts with the existing lender that involve rate switches, further advances, amending the term and amending the repayment type.
Variations carried out on a non-interactive basis can be offered on an execution-only basis including where there is additional borrowing.
The regulator said discussions with firms during the consultation of CP11/31 published last December revealed “a misunderstanding about the scope of our advice proposals”.
It said some firms interpreted proposals to remove “the non-advised sales process and requiring that sales involving some form of ‘interactive dialogue’ between the firm and the customer should generally be advised” as meaning that every customer conversation would be construed as providing regulated advice and therefore subject to advice rules.
In today’s rules the FSA said: “We did not intend that every conversation with a customer would be subject to our advice rules.
“The Regulated Activities Order defines what regulated mortgage advice is i.e. advice on the merits of the customer entering into (or varying the terms of) a particular regulated mortgage contract or contracts.
“As a result of this our view is, and always has been, that where a firm steers a customer towards particular identifiable products that the customer could enter into, that is regulated advice.
“It is perfectly possible for a firm to have a discussion about mortgage products in general or to gather information about the customer’s general mortgage needs, without that being regulated advice.”
The Perimeter Guidance on regulated activities connected to mortgages explains the distinction between information only, advice and limited advice.
But the regulator has announced that given the confusion about the boundary apparent from the feedback to CP11/31 it will review PERG over the course of the next year.
“The aim would be to ensure that any changes considered appropriate following that review would be made in time to be implemented alongside the MMR rules,” it added.