The Financial Conduct Authority (FCA) has issued a stark reminder to mortgage intermediaries of their obligations under Consumer Duty, with a renewed focus on advice quality, high-pressure sales tactics, excessive fees, and financial promotions.

The letter, sent to chief executives on 30 January, sets out the regulator’s supervisory priorities for the next two years, warning that firms failing to meet expectations risk regulatory intervention.

CONSUMER DUTY AT THE CORE

The FCA has made it clear that embedding the Consumer Duty remains its primary focus. Firms are expected to align their practices with these regulatory expectations, ensuring customers receive tailored, high-quality advice and access to appropriate mortgage products.

The regulator has committed to conducting thematic work across the sector, publishing examples of good and poor practices to help firms align with best standards. Mortgage intermediaries are urged to review their approach to advice, particularly in light of economic challenges and affordability concerns in the current mortgage market.

QUALITY OF ADVICE & SUITABILITY OF PRODUCTS

The letter notes that economic volatility and rising interest rates have left many borrowers struggling to meet affordability criteria when remortgaging or switching lenders. The FCA has reiterated that advice must extend beyond simple eligibility assessments. Intermediaries are expected to conduct thorough fact-finding exercises, considering customers’ financial objectives, vulnerabilities, and potential trade-offs.

In the first charge market, the FCA is pushing for stronger assessments of whether borrowers have fully considered their options before committing to a mortgage. Second charge lending, in particular, is under scrutiny, with concerns that some firms are failing to assess whether securing additional debt against a property is appropriate for financially vulnerable customers.

For later-life lending, the FCA has already highlighted shortcomings in advice and marketing. It warns that firms must have robust systems in place to assess complex customer needs and protect those in vulnerable circumstances.

The FCA intends to review the suitability of advice and the effectiveness of firms’ quality control measures. It will publish findings to provide greater clarity on expectations.

CRACKDOWN ON HIGH-PRESSURE SALES & CONFLICTS OF INTEREST

The FCA has raised concerns over high-pressure sales tactics driven by conflicts of interest. The regulator’s investigations have identified some firms with sales-driven cultures where advisers are incentivised to push higher-commission products, potentially leading to mis-selling and poor consumer outcomes.

Intermediaries are urged to review their incentive structures to ensure they do not prioritise sales volume over customer interests. The FCA will assess firms’ handling of conflicts of interest, warning that those failing to address these risks could face regulatory action.

FAIR VALUE & EXCESSIVE FEES

The FCA acknowledges that some mortgage transactions are more complex, justifying higher fees. However, it warns against unjustified price increases and has reminded firms of their obligation to conduct fair value assessments. Simply benchmarking against competitors is not sufficient — firms must evaluate the total cost to the consumer relative to the service provided.

The regulator has noted positive steps from some firms, including holistic fee reviews and reductions where charges were deemed excessive. However, others have been found lacking in their approach, and the FCA will continue monitoring compliance in this area.

TIGHTER CONTROLS ON FINANCIAL PROMOTIONS

The regulator warns that mortgage firms must ensure their advertising and marketing materials clearly present the risks of secured borrowing alongside the benefits. The FCA is particularly concerned about promotions for second charge and later-life lending, warning against unbalanced messaging that could mislead consumers.

With social media increasingly used as a marketing channel, intermediaries are urged to familiarise themselves with recent FCA guidance on financial promotions. The regulator has signalled its intent to scrutinise compliance in this area.

OTHER REGULATORY PRIORITIES

The FCA’s letter also touches on several other areas of concern:

• Dormant ARs: Principal firms must monitor appointed representatives (ARs) to ensure they are actively engaged in regulated activities. Firms with dormant ARs should terminate these relationships to prevent misuse of regulatory status.
• Managing AR Conflicts: Principal firms must actively manage conflicts of interest within their AR networks, ensuring effective oversight mechanisms are in place.
• Trading Names: The FCA reminds firms that registering a trading name does not substitute for proper authorisation, warning against unregulated activities.
• Conditional Selling: The regulator continues to crack down on estate agents pressuring homebuyers to use in-house mortgage services, urging firms to ensure conflicts of interest are adequately managed.

REGULATORY ENGAGEMENT & NEXT STEPS

The FCA has encouraged firms to review their practices in light of this latest supervisory focus. It has provided contact details for urgent regulatory discussions and has committed to continued engagement with the sector to ensure compliance with Consumer Duty expectations.

As scrutiny intensifies, mortgage intermediaries must ensure their advice processes, sales practices, and compliance frameworks meet regulatory standards—or risk significant consequences.

“CONSUMER DUTY IS AN ABSOLUTE PRIORITY”

Andrew Gething, managing director of MorganAsh, said: “This latest letter to mortgage intermediaries from the FCA further proves the point that embedding and enforcing Consumer Duty is an absolute priority. In particular, the letter emphasises the need to be alive to the challenges of an increasing number of customers facing vulnerabilities or challenging financial circumstances.

“It is once again a call to intermediaries to go beyond just assessing whether a client meets criteria to ensuring the advice we provide meets their needs, characteristics and financial objectives. However, if we don’t truly know who our customers are and what proportion have characteristics of vulnerability, we cannot achieve this, nor can we prove that the requirements of Consumer Duty are being met.

“It is no secret that this one of the biggest challenges across all areas of financial services, and one of the regulator’s biggest frustrations. Whether it’s the recent CII report, the FCA’s review of Duty board reports or the regulator’s extensive market research, all have shown difficulties in identifying, classifying and recording customers characteristics and reducing potential harm. The upcoming vulnerable customer review from the FCA is likely to continue this theme as it surveyed firms over 2024 on how they have implemented customer vulnerability management.

“The regulator knows how onerous this is, hence why it has long advocated for technology adoption and deployment. Rather than burying heads in the sand or waiting for others to provide a solution, firms absolutely need to be taking advantage of the proven tech that is available. With the right systems in place, firms can consistently identify and support vulnerable customers and retain evidence for the regulator. We can then start to communicate vulnerabilities with lenders and improve both awareness and outcomes even further.”

MorganAsh provides the MorganAsh Resilience System (MARS) which is designed to help brokers, advisers and financial services firms to better manage and evaluate customer vulnerability and comply with Consumer Duty.