Implementing the Consumer Duty in Mortgage Intermediaries [pdf]

The Financial Conduct Authority, FCA, has published an open „Dear CEO Letter“ addressed at firms functioning as mortgage intermediaries to provide mortgages to both private and corporate customers as regards the upcoming new consumer duty. Among other things, the letter
– reminds firms of the implementation timeline of the new duty,
– summarizes the key pillars of the duty,
– outlines how these pillars apply towards such firms,
– provides feedback from a recent review of firms‘ level of adaptation to the new duty,
– sets out the expectations of the FCA in this context, and
– summarizes some key issues firms shall take into account when transposing their new requirements.
Some of the key issues addressed in the letter are briefly summarized below. It shall be noted in this context that the summary is far from complete which is why affected firms MUST review the original Letter.
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##### Issues to consider when transposing the new requirements and how the new duty applies to mortgage intermediaries
As far as applicability of the new duty is concerned, the FCA notes that the consumer duty applies to all firms involved in the manufacturing, distribution, sale, or administration of a mortgage, including platforms firms „operating an investment platform, operating a model portfolio service, debt counselling services and arranging transactions, and carrying on a regulated activity or activities connected to providing a payment service or issuing electronic money“. A sample of firms subject to the new duty is included in below noted table (please note that the table comes from the original „Dear CEO letter“ addressed at mortgage lenders and administrators).
Table 1 – Firms engaged in the provision of mortgage loans subject to the new consumer duty

With respect to the issues mortgage intermediaries need to consider in the transposition of the new duty, the FCA particularly notes that such firms need to review the products and services they are offering to retail customers. This entails an assessment as to whether or not the loans they are brokering are in line with the target market’s characteristics and meet the needs of borrowers. In this context, the FCA notes that intermediaries need to get in touch with loan manufacturers to obtain all necessary information on the credit arrangements they are mediating, including information on overall prices and fees. Additionally, they must ascertain that their own fees can be considered „fair“ and of good value to customers and that specific groups of customers (i.e. with not so good financial track records) are not overcharged via excessive fees for initiating a mortgage arrangement. Furthermore, mortgage intermediaries must ensure that they are not putting the interest of firms along their value chain over those of customers.
Mortgage intermediaries must also ensure that they provide all relevant information to clients about the loan arrangements they are brokering and that they offer an adequate level of customer support which may vary depending upon the intermediation channels used by the firms.
Far and foremost, however, must mortgage intermediaries become clear about „their roles in the distribution chain“ which will trigger different regulatory requirements depending upon such role.
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##### The implementation timeline of the new duty
– The policy statement to the new duty was published on July 27, 2022 (please see EventID 16865 in this context for more information).
– A corresponding guidance (FG 22/5) was issued at the same time.
– The FCA expects / expected that by October 2022, all management boards have agreed upon a plan to implement the new duty.
– By April 2023, manufacturers of products, including creators of mortgage arrangements, should have concluded their reviews to ensure that their products or services meet the above noted requirements.
– On July 31, 2023, the duty comes into force for new or renewable products and services.
– On July 31, 2024, the duty comes into force for legacy products or services not subject to any renewals.
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##### Findings from a recent review of firms‘ level of adaptation to the new duty
Most firms have understood and „embraced“ the new duty and have assigned a significant number of resources and have implemented adequate plans to transpose the new requirements. However, some firms still seem to lack prioritization of the new duty and / or are unclear on how to do this. In this context, the FCA notes that they shall look at above noted issues and determine „where they are likely to be furthest away from the requirements of the Duty“. Furthermore, they shall focus on issues that could potentially lead to consumer harm.
The FCA also found that many mortgage intermediaries are over-confident that their current policies and procedures are sufficient to satisfy the new requirements. Therefore, and in view of the scope of the new consumer duty, the FCA strongly urges firms to review the loan products they are brokering, their own fee structures, and their customer support to ensure that they are truly prepared for the new obligations.
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Finally, the FCA concludes by noting that it will soon send a survey to a number of sample firms to determine their status quo on the transposition of the new duty. Additionally, the Authority will engage with firms and stay in close touch to assist the duly implementation of the new consumer duty.