May 19 – Slaying the dragons of the MMR
In deciding as part of its Mortgages Market Study that the market needed help by revising advice and selling standards, the FCA has made some interesting statements and assertions. As one of the few still in their role from the inception of the Mortgage Market Review, I find some of the re-writing of history fascinating. In section 2.20 and from section 3.20 onwards, the FCA’s CP19/17 consultation paper states that they did not intend under MMR to infer that it should be more difficult to complete execution only business. This convenient re-writing of history ignores that there must have been and were very strong reasons why in 2012 the FCA drafted the requirement for Boards of Lenders to carefully consider and approve the application, use and scale of this approach.
Indeed, in so doing lenders have consistently not allowed intermediaries access to execution only, nor have traditional brokers wanted access to this channel. Such intermediaries recognise that in communicating with a consumer they will end up advising on the most suitable product. Most lenders have found methods of mixing execution only into their product transfer mix and have been pursuing this happily to the extent of over £70bn of transactions in 2018. Accordingly, it is fascinating to ask what is driving these new demands.
The issue is that this particular dragon has to be slain to move on to the next part of the Game. Under MMR it was ruled that firms should not encourage consumers away from advice – so despite many firms adopting such practices – differential pricing and telling customers about follow-on products with a simple tick box or keyboard click completion – these rules are also to be obliterated.
We should not worry however because the FCA is keeping the “interaction” rule, whatever that now means, given the prior changes. A regulator that is meant to protect consumers is going a funny way about it. They are exercised about how poorly the GI markets are delivering transparency, but want to change the mortgage market rules to replicate that market. What is the use of stressing that lenders should give details of all their products that a customer is eligible for on a product transfer rather than their version of key highlights. Unless the FCA is prepared to supervise this standard, then it is a waste of paper. This reduced menu of product is being used “en masse” daily and ignored as there is seen as limited consumer detriment.
The proposals to require brokers to justify why they may not have selected the cheapest mortgage available looks straightforward on the face of it. However it remains dependent on how much data and criteria are input to any sourcing system and agreement with the consumer how relevant these are in relation to price. This risks creating a complex paper chase without more detailed guidance from the FCA about what the core baseline for an assessment might be.
It appears that justification for all this is coming from fears that firms do not want to set up filtering based on objective criteria. These are such as loan amount, property value, term, interest rate type and fees. As these have existed for years through base line affordability checks with PCWs, lenders and many brokers – instead of just telling firms the rules allow this we have proposals for significant relaxations of rules being justified by irrational fear.
This is all hung on the data that said that 30% of consumers could have got a cheaper deal. However, two thirds of those were justified by the firm either not having the lender on panel or the deal only being available direct or through limited distribution. No messages here to change these rules and give the broker and consumer more access – just rule changes to destroy advice and give the Throne to the boys from fintech who do not want to carry full accountability. Lenders should tread carefully in allowing them licence to sell their products – as it will not be advice and liability will stay in the regulatory perimeter.