In this month’s blog, we’ll be looking at key points raised by the Inside FCA podcast on information sharing

We would also like to draw firms’ attention to the dedicated Consumer Duty blog on the AMI website – feel free to bookmark it for future reference.

As the April 30th deadline approaches, mortgage intermediary firms will be turning their attention to the Consumer Duty product information they are about to receive from lenders. If you have been tasked with processing and analysing this information, you may have questions about what to expect, how to use the information, and what your firm is (and is not) responsible for – both in the short term and on an ongoing basis.

To guide firms in this process, the FCA has released a podcast on information sharing, which helps clarify its expectations of both manufacturers and distributors in this area of the Consumer Duty. We have drawn out the key points below, and expanded on some to show how they relate to the mortgage intermediary sector.

What does the FCA want to see?

• The FCA wants to see that all firms in the chain are ‘pulling in the same direction’ and ‘working towards a shared goal’ – i.e. delivering good outcomes for consumers. They highlight that consumers often aren’t aware of all the different moving parts of the distribution chain, which is why collaboration is so important. All firms need to play their part well, not just those which are customer-facing.
• They key idea here is to consider what ‘material influence’ each respective firm in the chain has on consumer outcomes. In other words, which aspects of the consumer journey are within your power to deliver, shape or prevent? These are the areas in which your firm will likely be held accountable.
• It’s also worth remembering that the FCA guidance states that a firm’s real-world ‘material influence’ overrides any contractual agreements between firms. So, think carefully about what happens in practice, not on paper.

Who is bound by the 30^th April deadline?

The podcast reaffirms that the purpose of the deadline in the first place was to give those at the end of the distribution chain ample time to complete their own fair value work by the 31^st July deadline. So, if you are the regulated entity at the end of the chain (as the vast majority of mortgage intermediaries will be), you will only need to focus on receiving information by the April deadline.

What expectations will product manufacturers have to meet?

• The FCA has strong expectations that manufacturers should meet the April deadline – they are unlikely to be flexible around this.
• Manufacturers need to make sure they share enough information to align distributors’ understanding with their own – especially in respect of the intended target market, how the product set meets the needs of that target market, and how it delivers fair value.
• The same applies for ongoing updates and reviews of Consumer Duty product information – these need to be supplied down to distributors in the same manner as the initial exercise.
• Distributor firms subject to similar requirements on fair value for General Insurance and pure protection products and services are already likely to be meeting Consumer Duty expectations on information sharing – though firms should carefully study the guidance to identify any potential gaps. It’s also important to remember that the Consumer Duty goes wider than the price and value and products and services outcomes and therefore firms should still include GI and pure protection products and services within scope of their Consumer Duty work.

Will the information shared cover all four outcomes?

• Product manufacturers are only required to share what firms ‘reasonably need to know’. For example, it would not be appropriate for a lender to share detailed calculations or data on pricing models that form part of their fair value assessment. This could also mean lenders omit information that is readily available via other sources, e.g. sourcing systems, ESIS documents, etc.
• The focus is likely to be on the Products and Services and Price and Value outcomes – though it will be down to individual lenders to decide what is relevant. E.g., lenders that have a role in the provision of customer-facing information or ongoing support may have to factor this into their assessments and the information they share.

What format should the information arrive in?

• The podcast notes that trade associations ‘have played a really helpful role’ in establishing standard templates for industry to use. We have written extensively about our work on lender templates, including how they look and how we expect them to be used – which you can read about here.
• The FCA is not prescriptive about the format for sharing information, and it is not mandatory for lenders to use the templates developed by industry. However, AMI’s view is that intermediary firms may wish to communicate early with lenders to encourage them to provide information in the standard format. Not only will this make things easier for intermediaries, lenders will have peace of mind that they are participating in a standardised process adopted by many of their peers and which the FCA has spoken about positively in a public forum.

What if we have concerns? Can we challenge a lender on its assessment?

• The FCA encourages open dialogue between manufacturers and distributors in the first instance, for example to address cases where a broker firm encounters unreasonable expectations from a manufacturer, or believes anything in the information supplied to be false or contradictory.
• If communication breaks down or the explanations are not satisfactory, only then would the FCA expect more forceful action. This might mean reconsidering the value or justifiability of that particular relationship, or in cases where serious breaches are thought to be taking place, firms should report it to the FCA’s supervision hub.
• The same applies in cases where manufacturers have missed the deadline – distributor firms should engage first with the manufacturer, and only consider reporting to the FCA if no response is received, or the response received is unsatisfactory.
• To a degree, intermediaries will have to trust the statements made by manufacturers are valid. Distributors will not be required to do extensive due diligence on each piece of information shared, as lenders will be considered accountable for their own Consumer Duty work. A more serious concern for a distributor would be the total absence of information sharing, or receipt information that is plainly wrong, incomplete or self-contradictory.

If firms have any questions about the issues raised in this blog, or Consumer Duty in general, please contact info@a-m-i.org.uk.