One of the key challenges in reading FCA Discussion or Consultation papers is trying to understand the end goal. Perhaps even more so for a DP which, by its very nature, is much more vague in outlook.
However, I think it’s absolutely crucial we do ask the following questions with regards to DP25/2 which, after all, could reshape the mortgage market for many years to come: What is the regulator trying to achieve for consumers? What does ‘good’ look like in its eyes? And how does it intend to get there? Plus, crucially, could it make up its mind on advice?
Chapter 4 of DP25/2 is a case in point. It raises some understandable questions, but it also highlights what feels like an ongoing tension in the FCA’s approach to mortgage advice.
On the one hand, the paper floats the idea of enhanced advice requirements for certain products and borrowers — interest-only, second charges, high LTV — largely, it seems, off the back of historic arrears trends. On the other, it circles back to the regulator’s stated concern in its previous consultation paper that there isn’t enough execution-only business in the market.
That raises a fundamental question: what exactly is the problem the FCA is trying to solve?
Because if we take the regulator’s own findings at face value, then mortgage advice is working, and working well. Most borrowers take advice. They’re happy with that advice. Complaints are extremely low. Satisfaction with mortgage advisers and the outcomes achieved is the highest of all sectors.
Advisers, if anything, we are told are already going beyond what the rules require in many of the higher-risk product areas. And yet, we now have proposals that simultaneously suggest there are groups of borrowers who need more advice and others, it would seem, who don’t require it at all.
It’s difficult to reconcile those two positions. If advice is valued and effective – and all the data says it is – then why try to engineer a market that nudges more people towards execution-only? Why not focus instead on widening access to advice, improving the consistency of disclosures, and supporting innovation in how advice is delivered?
It’s telling that the DP doesn’t include a detailed update on the responses to the FCA’s earlier proposals around removing the advice interaction trigger. There’s a vague reference to pushback, but nothing substantial. And yet this chapter at times almost feels like it’s trying to reframe the case for execution-only by creating a more segmented advice landscape – one where ‘enhanced’ advice is mandated in some areas, potentially leaving the rest to drift toward DIY perhaps?
That matters because it risks fragmenting the consumer experience. Instead of a joined-up, holistic advice journey, we could see the emergence of more silos – at a time, as others have pointed out, when it appears the FCA is open to getting rid of the current equity release/lifetime mortgage silo. That seems odd in itself.
What does that potentially leave us with? More friction and scrutiny where the regulator deems it necessary and less protection where it decides it isn’t? And from a compliance and delivery perspective, that creates a real headache for advisory firms, especially those already investing heavily to deliver consistent, outcomes-focused advice across the board.
The section on disclosure echoes this drift. It questions whether the FCA’s current rules are too prescriptive, and floats the idea of more flexibility in how disclosures are presented.
But again, we need to ask what’s in the best interests of the consumer. Is it a world where different firms present different types of information in different ways, making like-for-like comparisons even harder? Or is it one where there’s a standardised, understandable disclosure framework that firms can make more accessible but not more variable?
At Paradigm, we want to understand where the regulator is heading, not just to respond in kind, but to support our member firms in preparing for what’s coming. If we are moving toward an advice environment with multiple regulatory tracks depending on product type or borrower category, firms are going to need support in adapting systems, advice processes, and training accordingly.
But we also think this is the moment to ask whether that’s the right direction of travel. Because everything we see, and everything our member firms tell us, points to advice as the central strength of the mortgage market. Certainly not a barrier to innovation, but a vehicle for it.
If the FCA is genuinely committed to better outcomes for borrowers, then it needs to show that it understands the real value of advice, and build policy that strengthens access to it, rather than encouraging its dilution. I fear, at the moment, that the right hand is not quite clear on what the left is doing, or is wanting to do, and that can only add to a confused state of affairs for all, particularly consumers and their advisers.
In that sense, our entire sector and all stakeholders need to be absolutely clear on the potential consequences of such confused thinking. We must also hope this DP becomes a real discussion, not just a stepping stone toward decisions that have already been made.
Bob Hunt is chief executive of Paradigm Mortgage Services
