Feb 20 – The dangerous devil in the detail
The long-awaited Policy Statement on Mortgage Advice and Selling Standards has now been published by the FCA. Whilst the policy changes came into effect from 31 January there are transitional provisions that run to 30 July 2020 which allows firms to defer application. The FCA have stated that they are implementing all their consultation proposals with only very minor amendments, implicitly ignoring the objections raised by AMI.
The press headlines were limited as this was a very soft launch with only a twitter message announcing its arrival on the day and therefore most articles appeared the next week. Indeed, it took days for the FCA to add the policy statement to their home page. All of the trade press to date has been focussed on the easing of execution-only channels, relaxing of the “advice triggers”, permitting lower pricing on execution-only and a new requirement on brokers to document when they do not recommend the cheapest suitable mortgage.
Whilst the headlines feel very negative from an intermediary perspective, the actual rules make very different and interesting reading. Our review of the changes by looking at the detailed text changes delivers a different perspective. We consider that the new MCOB rules and particularly the Perimeter Guidance mean that whilst on-line information can be developed, it sets clear boundaries for the Price Comparison Websites providing limits on how far they can go without straying into advice. Where they make factual comparisons they may stay outside, but asking too many questions, personalising listings, combining criteria or steering towards a provider or product will mean they are advising.
For those hoping to use technology to deliver execution-only, the interaction rule has been extended from the implied simpler verbal definition to embrace all electronic medium. Changes to what may constitute a contract variation means that product transfers must be total “like for like” changes in order not to require advice. Reality strikes home with the words, “Broadly, if an interaction results in the customer receiving personalised information it is likely to trigger the need to give advice. A consumer receiving personalised information may incorrectly believe they had been advised, and therefore we do not agree that we should remove this interaction trigger.”
When followed by “Giving the monthly cost of a mortgage or saying whether a customer is eligible for a particular mortgage involves personalised rather than generic information…..the distinction …helps firms judge whether an interaction triggers the need for advice.”
My concern was always that the reduced affordability assessments combined with differential pricing and on-line developments might open up remortgaging as well as liberating product transfers. Any regulated firm looking at these rules with an emphasis on a duty of care, acting in their customers’ interests and protecting the consumer from making poor choices is less likely to expand their execution-only approach.
There is an awful lot in the combined detail of the new rules and more particularly the expanded guidance. It is in the depths of the Perimeter Guidance that the real changes are “buried”. Many thought the purpose was to help the new Fintechs break into the mortgage market more easily yet the complexity of the thousands of words defining interaction, advice and the “triggers” does little to simplify. It does provide more real and practical examples to assist in ensuring compliance with the rules. It will be interesting how firms interpret the new rules and guidance, looking past the rhetoric of the policy statement. It does require a long and detailed review of the MCOB and Perimeter Guidance with a balanced mind.