Equity Release: Get your five-step guide to Consumer Duty compliance

What happened?

Later life mortgages and equity release have returned to the regulatory spotlight in recent months following a wide-ranging review that raised concerns over advertising and advice standards within the market.

The review dovetailed with the recently implemented Consumer Duty legislation, which mandates firms put customers’ interests at the heart of all decision making. The findings prompted swift intervention from the FCA due to the complex and high-risk nature of equity release products, particularly when dealing with customers displaying vulnerable characteristics.

But the FCA’s work in this area is far from over. In fact, it now expects all mortgage providers to learn from the lessons highlighted in the review and take action where they’re falling short.

Why does it matter?

Equity release: firms must do more to safeguard customers

The FCA’s review suggested that firms still have a lot of work to do to embed the ‘customer first’ ethos of the Consumer Duty into their business.

Evidence of misleading financial promotions, potential risks being underreported to customers and sales being prioritised over suitability all point towards the conclusion that some businesses haven’t fully embedded the rules across their customer lifecycle.

And when dealing with intrinsically high-risk products such as later life mortgages and equity release, this leaves consumers exposed to considerable potential harm stemming from poor advice.

As Sheldon Mills, FCA Executive Director of Consumers and Competition, noted: “Releasing money tied up in your home later in life is a big decision and can have a financial impact on consumers and their families well into the future.”

So, what are some key takeaways for equity release providers looking to strengthen their policies and processes?

Ensure Financial Promotions are fit for purpose under the Consumer Duty

It’s all too easy for firms to think of Financial Promotions as simple advertising that don’t need to be vetted as closely as more formal communications – but in fact, the FCA has been clear that this kind of messaging is just as subject to the Customer Understanding outcome (and regulation in general) as any other.

This means that consumers should be provided with the right information, in the right format, at the right time from the very beginning of their journey. For example, do your Financial Promotions create a realistic expectation of product performance? Are the risks adequately conveyed alongside the benefits? And are customers made aware of the permanence of any decisions they’ll make?

Make your incentive structures work in customers’ best interests

One of the most alarming findings from the FCA report was the revelation of sales being incentivised over providing quality advice in some cases – which highlights the need for internal incentive structures to be designed, first and foremost, to drive good outcomes for customers.

It goes without saying that encouraging a customer to choose a product against their best interests – particularly one with a lasting impact such as equity release – is against both the principles and stipulations of the Consumer Duty. And so firms need to act now to amend any policies that could lead consumers down this path.

Pay attention to the Customer Understanding requirements

The Customer Understanding outcome is a holistic principle, encouraging mortgage lenders to consider the communications needs of their customers from initial advertising through to post-sales support. This covers everything from verbal conversations and written correspondence through to social media, website content and contractual documents.

Once again, vulnerability is a critical concern here, and so firms should be mindful when using technical language – for instance, surrounding fees and charging structures – that may be difficult for sections of their audience to understand. And you’ll need to consider the placement of any Financial Promotions and advertising to ensure it’s appropriate for the target audience.

Actions to take

Five ways to address the FCA’s expectations

Each of the firms involved in the initial review have since adapted their sales and advice processes to ensure customers’ needs are placed front and centre across the lifecycle.

And now, as the FCA now turns its attention to the wider market, it’s critical that all firms re-assess their current strategies to align with the regulator’s priorities:

• #1 Step up your customer communications
• #2 Enable effective decision making
• #3 Focus on meaningful conversations
• #4 Set out best practice guided by the Consumer Duty
• #5 Spotlight on processes and governance

Recommendations

With the stakes so high, naturally, there’s a greater need to consult and seek external validation.

Make sure your processes and actions deliver the outcomes that matter to the regulator and your customers. TCC’s professional consultancy team of advisory and remediation specialists can help ensure you’re on the right track to deliver advice that truly meets customers’ unique needs whilst achieving the best possible outcomes.

Whether you’re looking to overhaul your entire framework for long-term regulatory compliance, or want to identify gaps in your processes to manage risk more effectively, our regulatory experts have got you covered.

The TCC difference is delivered through our range of personalised services – from quick, targeted examinations to full-scale governance transformation projects.