Collaboration and communication are essential for delivering Consumer Duty

Consumer Duty is posing challenges to everyone. Its higher and clearer standards of consumer protection across financial services mean all firms will need to act to deliver good outcomes for customers across the life of the loan, and providing evidence of this will become essential.

There’s a lot involved but if we concentrate on the origination process, there are some unique and very specific dynamics to consider. As the mortgage sales process currently stands, there are a variety of ‘hand off’ points that perhaps give the impression there are discrete parts of the process where only one entity or person is responsible at any one time. Indeed, brokers, both directly authorised and appointed representatives, their respective clubs and networks and lenders must all reflect upon their specific part in the process and what systems and processes are required to encourage and evidence that a good outcome was achieved.

But the objective of Consumer Duty goes much further. In a nutshell, distribution and manufacturing firms need to consider the holistic needs of borrowers, including those in vulnerable circumstances, and consider and make allowances for them. Mortgage products must be fit for purpose, provide fair value, and be sold with confidence that the borrower understands how they work and how they are supported throughout their time in the mortgage contract. But perhaps the greater change will be the requirement for brokers to have ongoing involvement in the borrower’s journey, rather than viewing a mortgage as a single transaction. This will be a challenge for certain product manufacturers too.

This may mean brokers’ work expands – perhaps becoming like that of an IFA as they check in with clients to make sure the product remains the best vehicle over time for their borrowers. If borrowers’ circumstances change or rates change and the borrower is on a tracker for example, then there may be a case for revisiting the original decision. Consumer Duty is moving the focus from the mortgage transaction to the continuous performance of the mortgage for the borrower.

Of course, as I write, lenders are once again repricing as swap rates rise in the face of stubborn inflation. Good advice is probably as difficult to give in this climate as it has been in decades. Do you fix affordably only to see rates come down in two or three months or take a discounted variable or tracker? The point is whichever recommendation you make, the focus on outcome means borrowers can expect more active advice throughout the life of the loan from all parties.

This will necessitate better communications and collaboration between brokers and lenders. The result is going to mean working very hard together to ensure nothing falls through the cracks and assumptions aren’t erroneously made that one of the other parties will pick up the evidence trail of another. Consumer Duty is perhaps the most significant regulatory upgrade since the implementation of the Mortgage Market Review. Working together will be the only way we can guarantee it works well for everyone.

Tracy Simpson
(Former) Head of Lending

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