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Encouraging greater choice in the mortgage market: This week in regulation

09/05/19

The Speed Read:

  • Encouraging greater consumer choice in the mortgage market
  • New working group launched to tackle phoenixing
  • How should regulators and the wider industry respond to issues around intergenerational finance?
  • [Speech] What is the value of data?


Encouraging greater consumer choice in the mortgage market

New proposals have been published which could fundamentally change the requirements for mortgage sales in order to provide consumers with greater choice in how they purchase a mortgage.

First identified during the Mortgage Market Study, the FCA has identified a number of ways its rules are limiting the development of innovative new tools to assist consumers during the mortgage process. These latest proposals are designed to address this by:

  • Changing the perimeter guidance on mortgage advice to align it to the recently updated guidance around advising on retail investments, and clarifying that tools designed to search and filter based on an objective criteria aren’t necessarily giving advice
  • Allowing a greater number of customer interactions before a firm is required to give advice
  • Requiring advisers to justify their reasoning if they have not recommended the cheapest mortgage suitable for the customer’s circumstances
  • Introducing changes to make execution-only sales channels easier to use.

Overall, the FCA is aiming to streamline the consumer journey by preventing unnecessary diversions to advice services when engaging in interactions that don’t influence purchasing decisions. These measures should also support firms looking to provide execution-only services.


New working group launched to tackle phoenixing

Representatives from the Financial Services Compensation Scheme (FSCS), the Financial Ombudsman Service (FOS), the Insolvency Service and Scotland’s Accountant in Bankruptcy have joined the FCA in launching a working group to tackle the issue of phoenixing.

The group aims to address instances where firms and individuals close down a firm in order to avoid its consumer liabilities or poor conduct history and re-emerge as a different legal entity. This has a detrimental effect on the consumers involved and can damage market integrity and overall consumer trust.

Although the organisations involved have previously shared information on phoenixing, this is the first time a formal way of working together has been agreed. The group will share information around FSCS claims, complaints, unpaid FOS awards and director disqualifications in order to help the FCA build a clearer picture of the scale of the issue and refuse applications of authorisation where appropriate.


How should regulators and the wider industry respond to issues around intergenerational finance?

The FCA has published a discussion paper exploring the changing needs of consumers within different age groups. As part of its consumer protection objective, the FCA recognises the need to adapt its approach to the changing needs of consumer groups within and between the generations.

The research, drawn from the ONS Wealth and Assets Survey and the FCA’s Financial Lives survey, highlights that people of working age have less wealth compared to people of the same age 10 years earlier, while those at retirement age have significantly more accumulated wealth, in real terms.

Broad observations across the generations include:

  • Baby boomers (born 1946–1965): While this generation has benefited from asset appreciation and defined benefit pensions, they may need different products in order to take advantage of the pension freedoms. Only half of this segment have given thought to how they will manage their wealth in retirement and care costs are a source of uncertainty.
  • Generation X (born 1966–1980): These individuals are often financially stretched and struggle to save for emergencies or into a pension. This group has lower than average cash savings and the highest amount of unsecured debt (excluding student loans). However, they have benefitted from rising house prices and are likely to inherit wealth.
  • Millennials (born 1981–2000): The impact of issues such as rising house prices, insecure employment and higher debt limits their ability to save, both for everyday and later life. Compared to previous generations they start building wealth much later in life.

In combination with the above generational changes, there are a number of socio-economic factors impacting the circumstances and needs of each generation, including low interest rates, rising house prices and the changing nature of employment. Each of these areas is analysed in detail within the paper.

To stimulate discussion the FCA poses seven questions to stakeholders. The responses received will help the regulator identify ways that the changing needs of generational groups can be better serviced.

  • Are there any additional factors driving changes in the needs of different generations?
  • Are there other ways the identified factors are influencing the way consumers build and access wealth?
  • To what extent are financial services providers meeting the changing needs of consumers and how could innovative product design improve this?
  • Are there any barriers, including regulatory barriers, to consumers being able to access and use financial products that meet their needs?
  • How can positive innovation be encouraged and supported?
  • Are there any examples of firm or market behaviour that could potentially cause consumer harm?
  • Are there any broader intergenerational issues which should sit with another public body, but where the FCA could play a role?


[Speech] What is the value of data?  

Do we really know the value of our data, and does it matter to individuals and policy makers? That was the main topic of a recent speech delivered by Robin Finer, Acting Chief Economist at the FCA. We bring you the highlights.

Personal data is the bedrock upon which many innovative services have built their businesses, but without a thorough understanding of how personal data can create economic value for companies and individuals, policy makers will be unable to minimise the dangers this new ecosystem presents.

Regulation such as GDPR means we are much more aware of what data is being collected and how it is being used, but are still unclear on its worth, with the emotional value ascribed to personal data entirely unique to the individual.

Customer engagement is an essential part of increasing competition. However, the evidence suggests that less engaged consumers don’t benefit from the increased competition generated by those that are more engaged in the process. It should be the regulators’ role to empower consumers to make appropriate decisions around what they share and for what purpose. We may reach a stage where a firm’s data use is considered during regulatory action such as breaking up dominant technology providers.

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