CONSUMER DUTY NEWSLETTER

Hi, I’m Kate and I manage the File Review team at Paradigm Consulting. The purpose of this article is to debunk some file review myths regarding advice requirements and outcomes, to demonstrate how documenting all stages of the advice process will become more important in the Consumer Duty environment. Consumer Duty is not here to help advisers to work more efficiently, or to lower your regulatory requirements. It is focused on customer outcomes and the evidence an adviser will require to prove that they put the client first, that they considered any foreseeable harm, and that they treat their customers fairly. We know that most advisers act in the best interest of their clients and run firms with a positive culture. The big change here is not the how you run your firm or give advice, it is how you now evidence this to the FCA. That is what the File Review team at Paradigm will be looking for. The documented evidence to support your advice . There is no regulatory requirements for a mortgage adviser to complete a Fact Find. Correct! There is no requirement for a Fact Find (remember, keep reading…!). However, there is a requirement for the file to demonstrate that the adviser has fully obtained all the information required to evidence “Know Your Client” (KYC). This KYC information is the basis for the advice that will be given and supports any recommendation. For example, the term, rate or repayment method. With the introduction of Consumer Duty, documenting the reasons for your recommendations and how you have reached your recommendation is even more important. A 2-year fixed rate may be the recommendation, however, why was a five or ten year not recommended? The KYC information should make this clear. Lending into retirement is another area that is looked at. Is it actually likely that the individual will work into retirement? Using an extreme example; a fireman would probably not work until age 70, so if they said they will, we will expect to see a challenge on this on file, and the clients actual rationale documented. This is the level of personalisation that we believe will be required as part of ensuing a good customer outcome, treating customers fairly and avoiding foreseeable harm. The File Review team will be looking for personalisation going forward in line with the advice process. The Lender assesses affordability. True. Under MCOB 11 Responsible Lending, the Lender will do affordability checks to ensure that the client information provided by the adviser is correct. They will check things like income with HMRC and Fact Checking: File Reviews in the new “Consumer Duty” world 14 CONSUMER DUTY NEWSLETTER Kate Pomfret Consultancy Manager Paradigm Consulting