Consultant Zone

Closed books and Consumer Duty

In a recent speech, the FCA warned firms to focus on providing fair value in closed mortgage books, defined as mortgages that were sold before 31 July 2023 and that have not been marketed or sold to new customers since.  The FCA said, “We know many firms have applied their laser focus on open book products ahead of the Consumer Duty coming into force.  But the clock is also ticking for closed products which will come under the scope of the Consumer Duty at the end of July.” 

So, from then the requirements of Consumer Duty will apply to closed products in exactly the same way as they do for open ones. As warning shots go, this speech could not have been clearer – closed mortgage books are under the microscope.

The FCA gave firms an extra year to get to grips with the complexity of closed products because they are often processed on older, legacy systems and there will therefore undoubtedly be gaps in the required data. This will make the task of confirming that the Consumer Duty responsibilities are in place, and have been complied with, tougher to achieve. Our industry friends, including tech platforms and servicers themselves, have even highlighted the issue that the potential difficulties are so challenging that we may see a flurry of closed books coming to the market.

But companies engaged in the closed book issue, in whatever form, cannot escape their responsibilities – they need to ensure compliance with regulatory rules and guidelines.  That means servicers, holders of assets and potential purchasers of mortgage books need to be engaging in the issue now and we know that many are.  There is also a fear that some are simply not addressing the matter and playing a ‘wait and see’ game – a dangerous strategy.  The FCA has also strongly encouraged even unregulated purchasers of portfolios that they should act in accordance with Consumer Duty principles.

Holders, sellers, or purchasers of mortgage portfolios need to ensure that their chosen third-party review providers can advise beyond what would normally be categorised as due diligence, AUP and compliance verification. They need to have the subject matter expertise and capability to analyse gaps in monitoring data, review fair value in closed products, assess the ‘keeping the customer connection’ and verify vested rights, as required by the FCA. Further, potential purchasers also need a root and branch re-think around the way potential acquisitions are reviewed and portfolios integrated into existing holdings.

Whether you are considering a closed book purchase, dealing in RMBS transactions, or involved in any other financial services product, give us a call to see how we can help raise standards in Governance, Risk and Compliance.