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Dear CEO | Release Date: 29th June 2022

To read a shorter summary of this Dear CEO letter, click here.

To access the original FCA document, click here.

Long Summary

This letter from the Financial Conduct Authority (FCA) outlines the supervisory strategy and expectations for Lifetime Mortgage Providers. It updates the sector on key risks, expectations from firms, and the FCA’s focused areas in the upcoming supervisory activities. The correspondence builds on the insights and directives shared in the previous communication dated October 2020 and considers the significant impact of the coronavirus pandemic and the rising cost of living on the sector.

Key Risks and FCA Expectations

Consumer Financial Pressure

With inflation rates rising significantly, the FCA expresses deep concern over the impact on consumers, especially those with low financial resilience. Lifetime Mortgage Providers are expected to be particularly vigilant of the hardships faced by consumers, adapting their services to mitigate harm effectively. The FCA anticipates an increase in demand for credit, which may coincide with reduced affordability due to higher interest rates and dwindling disposable incomes.

Treatment of Vulnerable Consumers

The FCA stresses the importance of appropriate treatment of consumers in vulnerable circumstances. Providers are urged to ensure that their products and services consider the needs of these consumers to prevent any disproportionate impact. This involves adhering to the FCA’s Tailored Support Guidance (TSG) and Vulnerable Customer Guidance (VCG), which offer frameworks for supporting borrowers facing financial challenges.

Operational Resilience

Providers must have robust governance frameworks and operational controls to handle increased demands effectively and manage risks related to operational disruptions. This is crucial not only for maintaining service continuity but also for ensuring consumer confidence and compliance with regulatory expectations.

FCA’s Supervisory Strategy

Consumer Protection

The FCA’s supervisory strategy will focus on ensuring that Lifetime Mortgage Providers prioritise consumer protection, particularly in product design, governance, and the management of consumer relationships. This includes meticulous monitoring and management of product offerings to ensure they are suitable and beneficial for the targeted consumer base.

Prudential and Operational Standards

The strategy also emphasises the need for providers to maintain strong prudential and operational standards. This involves adequate financial resource management to withstand potential economic stresses and ensuring that systems and processes are resilient enough to adapt to and recover from operational disruptions.

Focus on Financial Crime

Given the sector’s susceptibility to financial crimes, particularly in times of economic downturn, the FCA will closely monitor firms’ compliance with financial crime regulations. This includes ensuring proper checks are in place to prevent money laundering and other illicit activities.

FCA’s Business Plan and Strategy 2022-2025

The FCA’s business plan for the next three years is designed to guide the financial services industry towards achieving higher consumer protection and market integrity. It outlines the authority’s commitments to:

Conclusion and Actions Required

Review and Adaptation of Strategies

Lifetime Mortgage Providers must review their current strategies and ensure they are aligned with the FCA’s outlined expectations. This includes enhancing consumer protection mechanisms, improving operational resilience, and ensuring all financial activities are conducted within the regulatory framework.

Reporting and Engagement

Firms are required to maintain transparent and timely communication with the FCA, reporting any significant changes in their business model or operations that could impact their risk profile or consumer outcomes. Regular updates and engagements with the FCA will help ensure that firms remain compliant with evolving regulations and industry best practices.

Long-Term Planning

Providers should engage in long-term planning to address potential challenges that could arise from the current economic climate and ensure sustainable business practices that align with both consumer needs and regulatory expectations.

Key Takeaways and Actions

Enhanced Consumer Protection: Continuously improve efforts to protect consumers, particularly the most vulnerable, by adapting products and services to meet their needs effectively.

Strengthen Operational Resilience: Develop and maintain robust systems to manage and mitigate risks associated with operational disruptions.

Regulatory Compliance: Ensure all business practices comply with the latest FCA regulations and guidelines, particularly those related to consumer treatment and financial crime.

Engagement with the FCA: Maintain open lines of communication with the FCA, providing regular updates on business operations, challenges, and compliance measures.

Lifetime Mortgage Providers are encouraged to integrate these directives into their operational and strategic frameworks to ensure they not only comply with regulatory expectations but also contribute positively to the financial well-being of their consumers.

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