At the end of this month the Financial Conduct Authority (FCA) is due to publish details of its new consumer duty rules, with final compliance expected by 30 April 2023.

This follows a consultation that ended in March this year. The regulator proposed that, in order to raise the standard of consumer protection, firms will have to always put good consumer outcomes at the centre of their business and will have to focus on “the diverse needs of their customers at every stage.”

A new consumer principle, cross-cutting rules – which consist of expectations for behaviour across three common themes – and rules and guidance concerning four ideal outcomes form the bedrock of this.

In short, the FCA wants to raise standards of how people are treated across the board, and mortgage brokers, being in such a customer-facing line of work, will be one of the spear tips of these changes. What do they think – and are they ready?

According to most of the brokers Mortgage Strategy spoke to, the FCA’s move is a welcome one – with some doubts evident, however. For example, while MB Associates sales manager Phil Leivesley describes the rules as being “pitched well”, he does state that, “the cross-cutting rules and four outcomes are open to interpretation when it might perhaps be more helpful to have more specific rules.”

And London Money founder Martin Stewart says: “Of course anything that helps improve standards should be welcomed,” before adding: “I am nervous that we are heading toward an environment whereby the consumer can do no wrong and that is true for wider consumerism as it is for just financial services.”

He continues: “It will soon become very expensive and difficult for smaller firms and one man bands to operate effectively, so the unintended consequences of more regulation is that it could expedite consolidation. This in turn could reduce access to advice and limit consumer choice.”

Touching on the point made by Leivesley, Stewart says: “The phrase ‘Take all reasonable steps to avoid causing foreseeable harm to customers’ could leave advisers open.

“It feels a bit like the equivalent of US foreign policy, where we are meant to be able to predict, assess and accommodate ‘unknown unknowns’ – an impossible task.”

Meanwhile, Connect Mortgages chief executive Liz Syms says the rules, “designed to give better consumer outcomes and reduce consumer harm, [is] something all good mortgage advisers wholeheartedly agree with.

“However, the consultation is just leaving many mortgage brokers a bit confused about what it means to them and if they will need to make changes to their businesses.”

From the point of view of the lending sector, Vantage Finance director Lucy Barrett also raises the worry that the new rules will “increase the regulatory load on smaller firms that do not have large compliance operations.”

She continues: “Brokers will need to review their processes, pricing structures and services to ensure they are aligned with the FCA’s new principles, which could be a big undertaking… Part of the rules state that firms must demonstrate that the benefits of their products and services are reasonable value relative to their price.

“This is not something they will have had to do before, and so they must devise a framework that achieves that.”

Leivesley points out a further sticking point in saying: “In the spirit of communicating products to customers in a way that leads to the customer making an informed decision, I would like to see an overhaul of the format that mortgage details are illustrated.

“In my view the switch from the key facts illustration to the European standardised information sheet (ESIS) was a step backwards, as some aspects of the ESIS – whilst well-intentioned – cause the type of confusion the consumer duty aims to remove.”

When asked is brokerages at large will need to make significant changes to their operations because of these rules, Stewart replies: “As with the mortgage market review, mortgage credit directive and general data protection regulation, there is often a lot more white noise by outside vested interests than there is within the sector itself.

“The reality is that the vast majority of good brokerages will already be doing a lot of what the consumer duty suggests should be implemented.”

It is a sentiment shared elsewhere. Barrett says that the FCA’s requirement for brokers to put themselves in their customers’ shoes and to drive positive outcomes is already happening. “These rules reinforce those basic principles,” she says.

Leivesley comments: “Many firms would argue that they already adhere to the rules within the consumer duty and, as such, seismic changes don’t need to be made.” However, he also notes that while networks will be looking after appointed representatives, there may be “some work to be done by directly authorised firms who aren’t already living and breathing the proposals.”

He explains: “Brokers should review their processes and look for ways to improve communications with customers, and how information is delivered.

“[Ask:] Can we communicate more regularly? Can we be clearer when outlining products? Are we informing our customers of all appropriate products? Many brokers and firms aren’t confident or competent when providing protection advice, for example, but appropriate protection advice should be a central pillar of a firm’s offering to its customers.”

Barrett concludes: “Brokers have proven time and time again that they are highly adaptable and can reposition their businesses to deal with regulatory change.

“While the consumer duty is a shift in emphasis from where we were before, we have no doubt that brokers operating with best practices will find their feet quickly under the new regime.”