The Financial Conduct Authority has warned lifetime mortgage providers that their relationships with advisers could be a “conflict of interest” and pose a “challenge for the sector” going forward.
In a letter addressed to lifetime mortgage providers published yesterday (June 29), the City watchdog laid out its concerns for consumers hit hardest by the living cost crisis who may be more susceptible to buying “unsuitable” equity release products.
The regulator cited Institute of Fiscal Studies estimates which suggest UK households could face inflation levels as high as 14 per cent. It also noted a quarter (27 per cent) of the population currently have “low financial resilience”, a figure it reckons is likely to increase over the coming months.
“We continue to see challenges for the sector, particularly around customer vulnerability, product design and governance and its relationship with intermediaries,” the letter reads.
“Particularly where this may be subject to conflicts of interest, for example to providers that offer the highest procuration fees or where there is an adviser – provider relationship.”
The regulator said a lack of ongoing due diligence by lenders as to their relationships with intermediaries, “particularly where these are part of the same group or have exclusive arrangements”, may lead to products being offered outside their target market.
Lenders relying on intermediaries should have “clear policies” and be able to evidence the due diligence carried out at the outset of any relationship, the FCA said.
“This due diligence should be reviewed on an ongoing basis to ensure firms minimise the risk to themselves and consumers in terms of operational resilience, exposure to financial crime and business continuity,” the regulator added.
A firm would not be acting in accordance with the FCA’s consumer duty where it seeks to “exploit customers’ lack of knowledge, understanding or behavioural biases”, the letter read.
“We have seen examples of exploitation and misleading information.”
In April, the FCA warned advisers it needed to look again at the equity release market to make sure it is working in the best interests of consumers. Back in 2020, the FCA sounded alarm bells over unsuitable equity release advice following a review.
The Financial Services Consumer Panel also published a study into the sector in May, which found advisers using “persuasive sales techniques” and language used by advisers which “inhibited participants’ understanding” of the product.
In its letter, the FCA said: “We will intervene where we consider that there is a potential distortion to the market or that firms’ systems and controls are not operating effectively to help ensure positive outcomes for customers.”
The letter to lifetime mortgage provider chief executives was signed by David Raw, the co-director of the FCA’s consumer and retail policy division supervision, policy and competition division.
ruby.hinchliffe@ft.com
