Advisers reminded of closed book consumer duty requirements

The Equity Release Council is reminding advisers of their responsibilities under the next phase of the FCA’s closed book consumer duty, which comes into force on July 31st 2024.

The ‘closed book’ phase of the duty means consumers on products that are no longer sold or renewed must come under the same scrutiny as those on current products.

It is considered even tougher to implement than phase one, because closed books of mortgages can be decades old and are often sold on without the full client history.

While equity release is subject to the duty, it could provide a lifeline to customers of other products – such as mortgage prisoners and interest-only customers without repayment vehicles – who could be identified under the duty.

The Council recently published guidance for its members, which includes the entire equity release value chain, in collaboration with a member consultancy firm.

It was the latest in a long list of resources aimed at supporting members to comply with the duty, including extensive guidance on fair value, webinars and technical bulletins.

Kelly Melville-Kelly, the Council’s director of risk, policy and compliance, said while providers shoulder the most responsibility, advisers have a key role to play too.

Melville-Kelly said:

“The consumer duty is about fairness.

“Firms must act in the best interests of their customers and take reasonable care to avoid causing harm, at all times.

“Embracing this proactive approach during the open book phase has meant that organisations have had to update and change their processes, but our members have risen to the challenge.

“Applying the same scrutiny to closed book customers is going to be harder still.

“Some firms will have inherited closed books which present an even greater challenge as many of the originator firms are no longer in market.

“For providers, termed manufacturers in the duty, this could mean unpicking legacy systems that have long since been archived.

“For advisers, or distributors, it’s about working with the providers as well as checking client records to see if any are on closed book products and ensuring they are kept informed of their options.

“They also need to ensure that if a client’s circumstances have changed, there is an assessment of the ongoing suitability of the product, with particular attention paid to vulnerable customers.

“Equity release can also provide support for other closed book customers who may be languishing on interest-only products without a repayment vehicle, or who find that they are mortgage prisoners after their original provider left the market.

“Even if the customer sits within a closed book, firms must check whether the product remains suitable, and that the customer still understands the risks and benefits.

“If the answer is no, then firms must have a plan to support that customer.”

“The end of July is also the deadline for firms to submit their annual review which must include an assessment of whether the firm is delivering good outcomes for its customers.”

Kindly shared by Equity Release Council (ERC)