2016 saw a significant number of consultations across the full range of financial service products and its looks like 2017 is going to follow the trend as the Financial Conduct Authority [‘FCA’] announced, just before Christmas, another ‘market study’ into mortgage advice.
The FCA obtained ‘concurrent competition’ powers on 1 April 2015 in respect of ‘market studies’ which evolve out of the Competition Act 1998 [‘CA98’], the Financial Services and Markets Act 2000 [‘FSMA’] and the Enterprise Act 2002 [‘EA02’]. The FCA most recently consulted on its procedures in respect of ‘market studies’ in 2015 and its finalised guidance and handbook are contained within FG15/9 [https://www.fca.org.uk/publication/finalised-guidance/fg15-09.pdf]. The usual market study procedure includes an interim report (usually delivered 6 months after the commencement of the study), a subsequent consultation and final rules (which are usually announced a year after the study commencement date. So the outcome of this study will not be fully known until early in 2018. That does not, however, mean that those involved in mortgage origination, distribution and management can ignore this for a year.
The first (immediate) requirement is for those involved in the mortgage market to consider the proposed study and to send any comments to the FCA; at MortgagesMarketStudy@fac.org.uk.
It is also likely that the FCA will consider the tools and technology
This study will focus on three main issues relating to first charge residential mortgages:
- Whether competition in the mortgage market can be improved to benefit consumers.
- Whether the tools available in the market, including advice, help consumers make effective decisions.
- Whether the commercial agreements between lenders, brokers, and other parties lead to conflicts of interest or “misaligned incentives” to the detriment of consumers. In particular, it is anticipated that the FCA will review price comparison websites [‘PCWs’] and best buy tables [‘BBTs’] and the commercial arrangements that sit behind them.
The FCA also plans to consider all the key stages in the mortgage process (such as deciding whether or not to obtain advice, choosing a provider or intermediary, choosing a product, etc.), as well as decisions, or barriers to consumers making a decision, across the lifecycle of the mortgage (such as house purchase, remortgage, switching). It is also likely that the FCA will consider the tools and technology and resulting information provided by lenders to consumers when shopping around or selecting a mortgage. Robo-advice is back on the agenda – see my article in the last issue.
Although the study will require input across all mortgage functions the advice element needs particular consideration as the FCA grapples with what consumers value most about advice processes and whether those consumers who seek advice obtain better outcomes than those who don’t receive advice. Although, as a result of previous ‘Mortgage Market Reviews’, the majority of mortgage sales now involve advice at some level, readers who are involved in the mortgage process will know that ‘specified’ consumers can choose their mortgage on an ‘execution only’ basis and that all consumers can opt out of receiving advice. The FCA will consider whether its previously issued rules in this regard have led to poor consumer outcomes. When considering advice rules, we must not forget the current rules require firms to recommend ‘a suitable’ mortgage rather than the ‘most suitable’ mortgage. Any review of this requirement is likely to generate a wider range of comments and differing views.
It’s healthy that the FCA is considering these weighty issues and it is highly that these issues will shape the thinking of those involved in the mortgage market during 2017 and into 2018. The full terms of reference in this study are detailed in MS16/2 [https://www.fca.org.uk/publication/market-studies/ms16-02-1.pdf]. Happy New Year reading!