The Equity Release Council has warned advisers they will need to review older lifetime mortgage cases, as these will shortly fall under the new Consumer Duty rules.
From July 31 the Financial Conduct Authority’s Consumer Duty rules will include previously sold products and ‘closed’ books of business as well as new sales.
The ERC is publishing guidance for advisers to help them with the second phase of this regulation, which is says could be considerably more onerous for firms.
It says this will be tougher to implement because closed books of mortgages can be decades old and are often sold on without the full client history.
However, the ERC points out that equity release products could potentially provide a ‘lifeline’ to customers whose cases are being reviewed as part of this process. This might include mortgage prisoners and interest-only customers without repayment vehicles – who could be identified under these regulations.
The Council recently published guidance for its members, which includes the entire equity release value chain, in collaboration with a member consultancy firm.
The ERC’s director of risk, policy and compliance, Kelly Melville-Kelly says that while providers shoulder the most responsibility, advisers have a key role to play too.
“Consumer duty is about fairness. Firms must act in the best interests of their customers and take reasonable care to avoid causing harm, at all times.
“Embracing this proactive approach during the open book phase has meant that organisations have had to update and change their processes, but our members have risen to the challenge.
“Applying the same scrutiny to closed book customers is going to be harder still. Some firms will have inherited closed books which present an even greater challenge as many of the originator firms are no longer in market. For providers this could mean unpicking legacy systems that have long since been archived.
“For advisers, or distributors, it’s about working with the providers as well as checking client records to see if any are on closed book products and ensuring they are kept informed of their options.”
She adds that advisers will also need to ensure that if a client’s circumstances have changed, there is an assessment of the ongoing suitability of the product, with particular attention paid to vulnerable customers.
“Even if the customer sits within a closed book, firms must check whether the product remains suitable and that the customer still understands the risks and benefits. If the answer is no, then firms must have a plan to support that customer.”
