The Financial Conduct Authority (FCA) has issued a letter to mortgage intermediaries highlighting key focus areas for the next two years, aimed at reinforcing the Consumer Duty.
The FCA emphasised the importance of ensuring that customers receive tailored advice and are matched with suitable products.
It encouraged firms to embed the Consumer Duty in their current practices and be ready to address any emerging issues.
The FCA found that economic changes, such as rising interest rates, have created challenges in the sector.
Some borrowers now have higher payments and face difficulties with affordability assessments.
The regulator stressed that intermediaries must place customer needs and circumstances at the heart of the advice process, particularly in the first charge market.
The letter said: “Firms must consider customers’ personal and financial circumstances, financial objectives, and provide appropriate information to enable them to make effective decisions.”
In the second charge market, the FCA identified failures in considering whether secured loans are appropriate for customers facing financial difficulties.
The FCA pointed out that recommending products without assessing the implications could cause harm, saying “the rules under the Consumer Duty require firms to avoid causing foreseeable harm.”
Additionally, in the lifetime market, the FCA found shortcomings in advice related to later life mortgages, urging firms to assess the needs of customers more effectively.
The FCA noted issues related to high-pressure selling and conflicts of interest.
It said: “Recent supervisory work has shown some firms have a culture driven by sales targets.”
The regulator intends to review how firms manage these conflicts and prevent high-pressure sales practices.
Regarding fees, the FCA found varying practices in how firms conduct fair value assessments.
While some firms have made positive changes, the FCA reminded firms that “solely benchmarking against competitors does not go far enough.”
The FCA expects firms to demonstrate that their products and services offer fair value.
On financial promotions, the regulator stated that risks associated with secured lending must be highlighted alongside any benefits.
The FCA said: “If advertising is unbalanced, customers are prevented from making an informed decision.”
The FCA continues to monitor compliance with financial promotion rules.
Andrew Gething, managing director of MorganAsh, said: “This latest letter to mortgage intermediaries from the FCA further proves the point that embedding and enforcing Consumer Duty is an absolute priority.
“In particular, the letter emphasises the need to be alive to the challenges of an increasing number of customers facing vulnerabilities or challenging financial circumstances.
Gething added: “It is once again a call to intermediaries to go beyond just assessing whether a client meets criteria to ensuring the advice we provide meets their needs, characteristics and financial objectives.
“However, if we don’t truly know who our customers are and what proportion have characteristics of vulnerability, we cannot achieve this, nor can we prove that the requirements of Consumer Duty are being met.
“It is no secret that this one of the biggest challenges across all areas of financial services, and one of the regulator’s biggest frustrations.
He said: “Whether it’s the recent CII report, the FCA’s review of Duty board reports or the regulator’s extensive market research, all have shown difficulties in identifying, classifying and recording customers characteristics and reducing potential harm.
“The upcoming vulnerable customer review from the FCA is likely to continue this theme as it surveyed firms over 2024 on how they have implemented customer vulnerability management.
“The regulator knows how onerous this is, hence why it has long advocated for technology adoption and deployment.”
He added: “Rather than burying heads in the sand or waiting for others to provide a solution, firms absolutely need to be taking advantage of the proven tech that is available.
“With the right systems in place, firms can consistently identify and support vulnerable customers and retain evidence for the regulator.
“We can then start to communicate vulnerabilities with lenders and improve both awareness and outcomes even further.”
