If you are an insurer, a pension fund, or a private credit vehicle backing these products, you are operating at a distance from the point of sale. You rely on originators to get the underwriting right and ensure the risk profile matches your appetite. But in the later life market, risk is not a static thing you can just measure on day one and forget about.
The biggest variable in all of this is consumer vulnerability. As the FCA study points out, cognitive decline and sudden financial shocks can completely change a borrower’s circumstances. Under the Consumer Duty, delivering a good outcome isn’t just about what happens when the loan is agreed. It is an ongoing responsibility that lasts for the life of the product.
For funders, this is a headache. A loan that ticks every box on your risk matrix today might look like a major liability in five years if the borrower’s situation deteriorates. Because these are ‘one and done’ products that customers rarely exit early, that risk is locked in. If the original advice was poor, or if the servicer fails to spot a customer struggling with cognitive decline, the regulatory and reputational fallout eventually lands right back on your desk.
The regulator is actively looking at how commercial setups, like commissions and referral fees, might be creating the wrong incentives. If you are funding these portfolios, you can no longer just rely on the originator’s internal quality assurance or a quick glance at the credit metrics.
We see this all the time when we provide due diligence and risk services. A portfolio can look solid on paper but when you dig into how the loans were actually distributed and how vulnerability is being managed, you find latent risks. Funders need to know for a fact that the assets they hold are not just financially sound but that they have been originated and, crucially, serviced in a way that is bulletproof under the Consumer Duty.
The only way to manage this is to change how we monitor risk. We need regular, independent reviews of both the underwriting process and the ongoing servicing. This cannot be a simple tick-box compliance check.
We need to ask the difficult qualitative questions. Was the advice actually holistic? Did anyone think about how this customer might become vulnerable in the future? Is the servicer actually capable of identifying someone in distress years down the line?
The FCA wants to encourage new funders into the market to boost competition, which is great news. But those new models will only survive if they are built on serious, independent risk oversight. The regulator is getting ready to look very closely at the later life market. If you are providing the capital, you need to make sure you have already done the same.
