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Why mortgage advisers need to take client vulnerability seriously

Updated: Sep 22, 2023


Unpicking the 10 new rules focused on vulnerability in The Consumer Duty



When the FCA sent its ‘Dear CEO’ letter on 16 June 2022 to over 3,500 firms, and published guidance aimed at lenders, brokers and buy now pay later providers (currently not regulated by the FCA) it signalled the first warning siren from the regulator. The cost of living claxon was then sounded again at the end of October with an update to the FCA’s Financial Lives Survey which, overlapping with the Consumer Duty, and keeps the attention firmly on fees and charges, communications and customer support.


These publications demonstrate how the cost-of-living crisis is intensifying the focus on consumer outcomes, as a million more consumers are identified as being in financial difficulty and therefore vulnerable. As such, it highlights that it may be more difficult to achieve good outcomes for these vulnerable people and emphasises what firms needed to do to support their vulnerable customers.


Firms should already be well under way with their implementation plans, given that they were requested to be ready to share their plans with the FCA by 31st October 2022. However, rather than ensuring good outcomes for customers are a ‘thread of guidance’ running through the Consumer Duty, once one starts to look in greater detail at the new handbook rules, it is clear that there are 10 new rules that mandate vulnerability being considered. As such, we urge firms to ensure they have read these and contemplated them carefully.


From a mortgage adviser’s perspective there is one specific rule that they must take into consideration (2A.3.16 R). This rule dictates that, “A distributor must ensure that the product distribution arrangements contain effective measures and procedures to obtain sufficient, adequate and reliable information from the manufacturer about the product to consider the needs, characteristics and objectives of any retail customers in the target market with characteristics of vulnerability.”


This means that all advice firms will need to get additional product information from the lenders to be able to understand whether it marries up with the needs of their prospective borrower. It also means that advisers will need to understand whether the customers they are interacting with have any vulnerable circumstances and then judge whether there are any additional needs required to ensure they get the same outcome.


Conceptually the FCA considers that aggregated data sets can be used to assess the needs of vulnerable customers in a ‘target market’, yet then expect firms to be able to demonstrate that those with a vulnerability have achieved a similar outcome. This can only be done through the identification of vulnerability for every customer throughout the lifetime of their customer journey, alongside recording what measures have been put in place and whether the outcome is adequate or not.


At this stage of the implementation of the Consumer Duty it may seem insurmountable for mortgage advice firms to implement this. As a result, we’ve noticed a portion of the sector in disbelief at the FCA’s expectations being realistic, and denial may well have started to creep in. However, it must be stressed to firms that it is indeed possible and accessible with a cost-effective system that is straightforward to implement if they have the right technology in place, such as what we can offer clients here at Comentis.


Mortgage advice firms already rely on third party systems for their Know Your Customer (KYC) checks and will find it a simple, but powerful step, to take in creating their Consumer Duty implementation plans.


Another powerful step in this plan is to review the firm’s privacy or fair processing notice and the provider/distributor agreement with each lender to be able to share the sensitive vulnerability personal data when submitting applications. It will be important that customers are not bombarded with vulnerability assessments through the distribution change.




Author: Richard Farr, Non- Executive Director at Comentis and Chair of Vulnerability Working Group, Association of Professional Compliance Consultants

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