FCA consultation on changes to the mortgage advice rules (CP19/17)

The aim of the proposed changes is to reduce the risk of consumer harm by:

• removing some of the barriers caused by misinterpretation of existing rules and guidance
• simplifying  the execution-only mortgage process
• requiring mortgage advisers to account for price when making recommendations

The majority of proposed changes will be welcomed across the industry and consumers alike, as the FCA seeks to reduce some of the ambiguity stemming from existing processes.

Proposed changes

Changes to Perimeter Guidance on mortgage advice to align with guidance on retail investment advice.
The changes will allow firms to offer online tools for consumers to search and filter available mortgage options based on objective criteria. Firms were reluctant to implement such tools due to concerns that where only limited options are available to a consumer, the firm could be seen to be “advising”.

Clarifying existing guidance around interaction with customers. 
Proposed amendments will allow firms to use generic information about products to address queries. Firms often find they are unable to provide general assistance as, again, there is a risk interactions may be considered “advising”.

Reducing prescriptive requirements for execution-only sales so these align with the treatment of advised sales. 
The current requirements are more onerous for an execution-only sale compared to an advised sale. Further proposed changes will allow execution-only disclosure to be made verbally rather than by durable medium (as per the current requirement).

Documentation for cases when the recommended mortgage is not the cheapest. 
Perhaps the most significant proposed change is the requirement for advisers to document their rationale for recommending a mortgage which is not the cheapest mortgage available to meet the customer’s needs and circumstances. The FCA believe this measure will help to reduce the risk of customers overpaying for their mortgage.

Firms now have until 7 July 2019 to respond to the Consultation Paper. The FCA has stated that a final Policy Statement confirming changes will be issued in late 2019.