First published by Financial Reporter
‘Regulators regulate’ as the old maxim goes, and we perhaps know that better in financial services than many other sectors.
The latest impending addition to the canon of regulation that mortgage advice firms may well have to get their collective heads round is the ‘Consumer Duty’ which the FCA is currently consulting on, and which has – shall we say – received a less than positive response from many senior market stakeholders.
Let’s get something out of the way up front, the ‘Consumer Duty’ seems like a fair code – very few would argue with a proposed principle of firms acting in the best interests of, and delivering good outcomes, for their clients. But to what extent is this required? To what extent is it delivering something that already exists?
For instance, in the mortgage handbook (MCOB) section 2.5A, it states that, ‘a firm must act honestly, fairly and professionally in accordance with the best interests of its customer’. And that’s been the text since 2016.
Adding to existing regulation
In a way therefore, as some have pointed out, are we in danger of adding a new layer of regulation here that already exists? What is the rationale? What will a ‘new’ ‘Consumer Duty’ deliver above and beyond the existing rules and obligations on firms, except more rules? After all, we already have the Treating Customers Fairly principle and this feels incredibly close to this on a number of levels.
The FCA suggests it has seen evidence of advice which caused consumer harm, for example, through the provision of misleading information or it being difficult to understand. There appears to be a view within the regulator that firms are not treating their customers in the way they would want to be treated themselves.
You will see many market commentators say that nothing could be further from the truth, and what the ‘Consumer Duty’ could actually mean in practice, is firms having to find further resources and investment in order to measure current standards against the new ones. It will mean good quality firms taking this seriously, undertaking a gap analysis, revising procedures, training staff and advisers, all to get to outcomes which are already being delivered.
In effect, the likelihood is that good firms will continue to keep doing things well, and poor-quality firms will fail to implement what is expected by the regulator.
For many this will seem like a sledgehammer to crack a nut and what might go down much better with regulated firms is a more tailored approach starting with engagement with those large numbers of consumers (65% states the FCA) who believe the industry lacks integrity, in order to find out which firms they have had dealings with and why they might have come to that conclusion.
From this, the FCA should be able to step up its engagement and supervision of those firms specifically to ensure they begin to produce better consumer outcomes; and at the same time, it could leave those ‘good’ firms who have spent the best part of a decade implementing the layers of additional rules and regulations to continue focusing their time and resources on maintain the good standards and outcomes they are already delivering.
One further point to make here is around the culpability of the regulator itself in these findings. The research around this shows that 25% of consumers lack confidence in the financial services industry and, as mentioned, 65% agreed that firms were not always honest and transparent in their dealings with them.
It saddens me that the regulatory regime hasn’t been able to deal with those firms who are failing to drive the cultural and procedural changes imposed by previous regulatory developments such as TCF, the MMR, the Mortgage Credit Directive and, more recently, the Senior Managers’ Regime.
It is over a decade since the Credit Crunch and subsequent recession and we have had years of regulatory intervention to drive positive change but, if the survey results are anything to go by, the regulator must share some blame for the status quo.
So, while it is never a bad thing to ask firms to take a step back, question what they do and take a look at some key areas to improve upon, whether this is best delivered by a whole new ‘Customer Duty’ or by focusing on and emphasising, or dare I say it, even providing greater guidance on existing rules already in place remains to be seen.
Some may argue the former is the same as the latter but simply delivered at a greater cost to firms – something I would hope we would all want to avoid.
Rob Clifford is Chief Executive of Stonebridge