The FCA has released its first thematic review on key findings relating to the quality and suitability of mortgage advice provided by firms since the Mortgage Market Review (MMR) implementation in April 2014.
The findings in general were positive. Examples of good and poor practise, particularly relating to the up-front sales process, were identified. Some 59% of advised sales reviewed were deemed suitable and only 3% unsuitable.
However, many firms failed to take reasonable steps to obtain sufficient relevant information about customers’ needs and circumstances before making recommendations. And that fact accounted for the remaining 38% of cases, where it was not possible to determine whether the mortgage recommended was suitable. That clearly leaves room for improvement.
Some interesting points were made by the FCA. It observed that oversight typically focused on checking compliance with processes, such as verifying the ‘fact find’ document or that a customer letter had been completed correctly, rather than focussing on identifying, challenging and mitigating the risk of poor customer outcomes.
It also commented on the fact that if appropriate granular management information (MI) was not captured, there was a fundamental flaw in a risk based approach to quality assurance; those processes themselves would become questionable because they would be based on inaccurate information. That could therefore result in failure to identify poor customer outcomes or even jeopardise the mortgage conduct risk position.
It was felt that with so much MI being collected now, it was not sufficient to focus simply on sales data to identify the competence of a sales advisor. Many tools are available to assess the quality and suitability of mortgage advice; by using mystery shopping, file reviews or qualitative consumer research, the process can be checked for its robustness and effectiveness.
Whilst continuing to build processes to satisfy the regulator, firms can seek assistance in these areas by engaging Rockstead as external experts to complement internal oversight procedures. Independent verification can prove to be extremely valuable.