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Execution-only rule changes provide boost for digital transformation

On Friday 31 January 2020 the FCA published a policy statement (PS20/01) on mortgage advice and selling standards. These new rules are likely to be a significant boost for lenders developing (or considering developing) digital mortgage origination journeys.

The changes outlined in the policy statement are part of a package of remedies arising from the FCA’s Mortgages Market Study designed to make it easier for firms to present options to consumers without giving regulated mortgage advice. The changes represent a significant shift to the FCA’s policy on mortgage advice and sales standards (and the importance placed on advised sales in the mortgage market) post-Mortgage Market Review.

How might the changes impact digital transformation in the mortgage market?

The policy statement recognises that electronic tools showing a consumer which mortgages they may be eligible for may not be giving advice. So, expect to see lenders and intermediaries ramp-up development of new digital tools to help consumers search for mortgages.

The new rules and guidance also introduce greater clarity over whether or not customer interaction triggers advice, by linking this to whether or not the interaction will result in the customer receiving generic or personalised information about the mortgage product. In principle, applying this approach seems straightforward, but in determining their approach to implementation of these changes, lenders will need to consider the nuances in the detailed rules carefully against the overall outcomes the FCA is seeking set out in the broader narrative of the policy statement.

The FCA uses the paper to signal again its current focus on encouraging innovation in customer communications and product documentation. For example, the new rules permit execution-only disclosure to be given by audio or video (providing a copy is retained for 3 years). There is likely to be increasing focus across the market on simplification of the customer journey and product/legal documentation.

We expect to see greater investment by lenders in marketing their execution-only sales channels and making these sales channels more accessible to customers. 

What are the other key areas of impact for lenders and intermediaries?

Although the changes are likely to provide a significant boost both for development of digital mortgage origination journeys, the new rules require that where advisers do not recommend the cheapest suitable mortgage from the firm’s product range, they explain why to the customer and record the reason. 

There will be costs for mortgage advisers in price-checking whether they are selling the cheapest suitable mortgage and recording the outcome of this check. Compliance checking this new element of the advised sales process will also need to be built into firm’s compliance monitoring plans.

Lenders will also need to review their execution-only sales policy. Although firms will still need one, the FCA has introduced greater flexibility by removing the prescriptive detail about their content, so these should be reviewed against the high-level rules in the Senior Management Arrangements, Systems and Controls sourcebook rather than the prescriptive rules that previously applied in MCOB.

This article was originally published by Mortgage Finance Gazette.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.

 

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