In setting criteria on what constitutes an advised interaction and what must be considered when giving advice, the paper is clear.
It also gives specific standards for what customers need to know to be able to complete an execution-only transaction.
Many thought this delivered clarity, but it does throw up issues for how lenders transact with their customers.
Many lenders use the non-advised aspects of the rulebook to undertake what they view as transactional tasks.
This is how they process a range of administrative changes such as converting a borrower from interest-only to capital repayment, extending or shortening the term or agreeing a retention deal which may be a further fixed rate or a move to a tracker, which does not, in the lender’s eyes, vary the mortgage contract.
At the moment, people doing this do not need to be CeMAP qualified, be subject to ongoing competence measures or satisfy customer best interest standards.
But under the new rules, how will this operate? Such tasks are rarely execution-only as the customer arrives with a problem and the lender representative provides a solution usually through verbal interaction. That this verbal interaction must be advice is a logical conclusion based on the new rules.
In addition, the lender may be varying a fundamental part of the advice provided by a broker on the appropriate product based on the consumer’s needs and circumstances.
If the lender varies the product and therefore the advice, surely this means it is taking on that responsibility.
If so then surely that must be on the basis that this is advised and brings with it rights and protection under the Financial Ombudsman Service. If not, the new rules indicate that the customer must acknowledge they are losing these benefits.
In the area of forbearance and dealing with arrears and repossessions, there is a similar concern as to whether all those who work in this area need to attain competence as the work they will be doing could be captured under the advice definition.
All this has a significant impact on lenders and is about the type of standards and market the MMR wants to deliver. In particular it is about ensuring advice and protection for consumers through the life of their mortgage contract. But this will bring significant costs in training, qualifications and monitoring.
So there is a lobby forming to argue that there should be a third way. Under this there would not only be the simple binary world of advised and execution-only, but also transacting.
This potentially adds another layer, which exists today, but which the Association of Mortgage Intermediaries thought was being removed by the proposals.
If this was not the intention, then the Financial Services Authority needs to be clear now. If it was the intention of the consultation to add this, then there needs to be more open discussion as it will influence the shape of the market, with risks attached.
Should these unqualified transactors be allowed to recommend, say, a new fixed rate and consolidate the fee into the loan?
Given the new MMR proposals on how this must be addressed in an advised sale, it seems illogical to allow this to be repeated on a number of occasions during the rest of the life of the loan without proper explanation and advice.
It is therefore difficult to see how this cannot be captured in the new advice framework, if one is applying the logic of consistency and a level playing field.
But regulation is never that, as it stems from statute, a regulatory activities order and its own evolution.
This is a debate being conducted on a limited basis, but which merits an open discussion. The conclusions will have far-reaching consequences for consumers, lenders, brokers and the market.
All parties need to shed light on this as we are now on the final straight of consultation and responses must address issues such as this one.