Go to the FCA website to read the speech that chief executive, Nikhil Rathi’s, gave at last week’s Legal & General Mortgage Club conference, and there is a note which reads ‘This is a drafted speech and may differ from the delivered version’.
That feels important, because I was at the event, and I have to say, the positive tone reflected in the published speech on the FCA website was not one I particularly felt being in the room.
As a starter, when discussing the FCA’s mortgage market rule review, Rathi said: “Our response must be bold.”
Now, boldness is fine in principle. But as those of us who deal with the real-world impact of mortgage regulation know there’s a fine line between being bold and being reckless. And at certain points, that what this speech felt like. Reckless.
Because while Rathi talked about the need for a bold response to build a mortgage market of the future, what he also said on stage beyond the confines of the published speech was way more telling, particularly in terms of who might be driving the changes we have seen this year, and those we might get in the future.
For a start, Rathi let slip that before issuing the recent Discussion Paper, the FCA spoke to lenders not advisers. Those same lenders who have shut thousands of branches and got rid of the majority of their regulated, advice-providing staff.
So, forgive me for wondering: why didn’t he also urge those lenders to go and train up regulated staff and offer regulated advice? Instead, we heard enthusiasm for the idea that lenders could somehow offer non-advised, tech-driven “support” to consumers while still operating in the regulated space. And that was seen as some sort of positive, instead of being a huge red flag?
The FCA now seems quite comfortable with a future where banks use AI to deal directly with borrowers; Rathi even admitted that AI advice isn’t perfect yet, but will be one day. That’s not reassuring. Effectively saying “some people will fall victim to this” and get poor outcomes until it is ‘perfect’ as if it’s an acceptable price to pay for progress, is frankly alarming.
It’s a ‘you can’t make an omelette without breaking a few eggs’ approach. Except in this case, the eggs are consumers.
To me, it feels as if the regulator has been starstruck by the banks and larger lenders. Convinced by their narrative that advice can be automated, oversight can be light-touch, and it will all somehow work out fine in the end. That’s not bold, it’s blind. The FCA seems to be driving towards a multi-car pile-up with its eyes open.
There are also numerous contradictions here. In the written speech, it says “advice and support will be vital to help consumers navigate options” but, at the same time, it agreed to a change that stripped away access to advice altogether, via the removal of the advice interaction trigger, for existing borrowers communicating direct with lenders. How do those two things marry up in a Consumer Duty world?
I’ll give Rathi his dues, the speech was full of fine words about collaboration, innovation and consumer wellbeing. But for advisers, the problem isn’t the sentiment, it’s the inconsistency, the fact this theory hasn’t married up with the practice, and that the future journey looks to be going off further in this direction.
If you believe, as I do, that advice is a force for good, that by taking advice consumers have a far better chance of achieving a positive outcome, then you don’t need to “think differently” about this. The FCA might believe the market needs to, but we don’t.
Because this is already a market in which advice dominates for a reason. Over 90% of new mortgages come through advisers. It’s a market which, in Rathi’s own words, is “serving millions of customers well”. So why is the regulator seemingly determined to fix what isn’t broken?
This Mortgage Rule Review, Rathi said, isn’t about the market today, but the market of tomorrow. That’s fine to a point. But you can’t write a rulebook for a market that doesn’t yet exist. And you can’t simply have blind faith that technology and AI is going to comfortably deliver the same positive outcomes that advice does, just because the big lenders tell you it will.
Reading Rathi’s speech, you might think the FCA is fully behind advisers – that it sees us as central to fair value, strong outcomes, and sustainable homeownership.
Yet too often, the FCA cherry-picks its position depending on who it’s talking to. One week advice is the heartbeat of the market; the next it’s too dominant and needs to be reined in. That’s not a sustainable position, and it doesn’t square with Consumer Duty.
Consumers overwhelmingly want advice. They value it. They seek it out. That’s why the advised channel is dominant. And yet we appear to have a regulator that feels it’s important to support other channels over ours, to directly sign-post these channels, and to have blind faith that artificial intelligence (AI) and tech will make everything right, when it’s really a play to help bring lender’s cost base down at the expense of quality outcomes.
I wish every adviser could have been in the room to hear this, because it was worrying in the extreme. What the regulator thinks is ‘being bold’ felt more like a reckless experimentation with a market that isn’t broken. And that should concern us all.
Sebastian Murphy is group director at JLM Mortgage Services, the mortgage and protection network
