Our conduct regulator, the Financial Conduct Authority, communicates with the industry in a variety of ways.

Having set out its three-year plan and issued multiple consultations and policy statements to augment its comprehensive rule book, you would be excused for thinking that would be sufficient to set the parameters under which firms would know to operate.

However, to supplement this we get guidance, thematic reviews, speeches and decision notices accompanying enforcement activity.

Everyone in the sector should wake up and pay attention

All of this is also added to by our friends at the Financial Ombudsman Service, who provide another perspective on firms’ consumer-focused behaviour by delivering judgements on performance.

Cause for concern

On top of these, the FCA supervision team provide their unique perspective via Dear CEO letters. These set out trends they are observing that give them cause for concern and are effectively warnings to change activity or pay closer attention to the principles and rules.

They are an early warning to those who want to listen, indicating where the FCA may be going next, so those who care can avoid falling foul.

In June 2022 the FCA issued two Dear CEO letters. The first of these, on the 16th, covered actions the regulator wanted firms and lenders, in particular, to take with regard to the cost-of-living crisis. The second, issued on the 29th, was addressed to lifetime mortgage providers and set out the FCA’s view of current key aspects of harm it saw occurring and what remedies it was looking to see applied.

It is not enough to hide behind progress on product development, flexibility and better interest rates

There has been precious little debate on these matters, either in meetings or within the trade press.

Robust assessments

There are clear warnings in these letters that, where consumers are approaching advisers looking for debt consolidation, or expressing concern over their ability to cope with the current or projected levels of price inflation, the FCA expects a robust income and affordability assessment to be done and consideration given to referrals for debt advice.

Even though the debt charities are over-run, that is not an excuse to step past this.

The assessment should also not be as simplistic as, ‘It will reduce the amount the consumer is paying,’ but must ensure the solutions work in the longer term, not create later foreseeable harm.

I believe we should align the residential and lifetime markets

Two sectors in particular were highlighted at the regulator’s roundtable in July but not specified in the first letter: second charge and lifetime. Those sectors need to up their game when asked to assist by those who may be in debt distress and potentially vulnerable.

Conflicts of interest

The letter of the 29th covered similar ground but also expressed concern in three areas that we have not had to address for many years.

Under the Mortgage Market Review, the Mortgage Credit Directive and the Mortgages Market Study, attention was directed in all three at conflicts of interest, product bias and provider bias, which might be caused by fees or commission.

There has been precious little debate on these matters, either in meetings or within the trade press

In all three studies, these issues were roundly dismissed.

However, the FCA has raised concerns over: whether the levels of procuration fee in lifetime mortgages may be creating conflicts of interest; where there is a direct adviser/provider relationship, this may not be managed effectively; and whether the levels of fee are excessive. Concern is also expressed as to whether compounding interest is properly understood by consumers.

That this is cited should cause everyone in the sector to wake up and pay attention. It is not enough to hide behind progress on product development, flexibility and better interest rates.

The FCA clearly has concerns and we can either wait to be told or give it nothing to see.

Income assessments must ensure the solutions work in the longer term, not create later foreseeable harm

For my part, having spent 15 years protecting the right to earn commission, the benefits of intermediation and the value of advice, I believe we should align the residential and lifetime markets.

The Consumer Duty will be the best lever to ensure all aspects are working in the customer’s best interests, we are not creating foreseeable harm and all parties are delivering fair value.

Robert Sinclair is chief executive of the Association of Mortgage Intermediaries