Back in 2006, the Financial Conduct Authority's treating customers fairly principle ushered in a new era. From that moment on, ‘buyer beware’ ceased to be a justification for selling what might prove to be an inappropriate product.
Lenders were required to adopt more of a caretaking role to ensure the right fit of product to client.
Since then, every few years has seen an incremental escalation of rules that have pushed responsibility even further back into the hands of the providers of financial products and services.
Consumer duty turns up the heat
Now we have the consumer duty, which takes caretaking to a much more demanding level. With it, onboarding clients has entered a whole new world of complication. Knowing your client is beginning to require granular insight.
The sort of granularity that we are in for can be seen by considering the focus on vulnerability. The regime demands providers identify vulnerable customers from the outset and focus on their needs at every touchpoint from written comms, text and telephone channels to websites and online portals to ensure a ‘good outcome’.
This may mean that a host of existing touchpoints fail. How can an elderly customer with few digital skills be said to be supported by a chatbot? How can someone who has lost their job be supported by a tone-deaf arrears-chasing protocol?
Given that a recent study by the Vulnerability Registration Service and Outra claimed that 2.4mn UK households were at high risk and 6.3mn were at an elevated risk of vulnerability, ensuring compliance is obviously not going to be easy.
From this one area we get a flavour of what is in store. It might not be immediately apparent, but what we are facing is nothing short of a revolution. The trend towards evermore client scrutiny has only just started, and it is not just going to be limited to the applicant.
In addition to affordability, vulnerability and the other applicant characteristics, we can expect similar focus on many other areas of the transaction.
ESG considerations
Already there are signs of this occurring. Mortgage lenders are now demanding applicants’ properties meet set standards of energy efficiency.
Nationwide Building Society and NatWest want to make 50 per cent of their mortgage customers’ homes EPC rated C or more by 2030, even though the government has backtracked on making this a legal requirement of rental properties.
Elsewhere, the FCA is working with the trustees of the International Financial Reporting Standards foundation, exploring sustainability reporting so that the environmental footprint of every transaction can be assessed.
Apparently, the FCA envisages an onboarding process that is going to take into account a great deal more variables than we have been used to.
The Nigel Farage de-banking furore revealed just how far the environmental, social and governance agenda is being embraced. How long before providers will be required to show that their loan book ticks a lengthening list of ESG-type requirements?
