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Dear Board of Directors | Release Date: 10th August 2021

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

To access the original FCA document, click here.

Long Summary

The Financial Conduct Authority (FCA) recognises the ongoing challenges posed by the COVID-19 pandemic on consumer finances and the heightened risk it presents. This communication aims to update Mortgage Third Party Administrators (TPAs) on the supervisory focus, emphasising the necessity for robust management in handling consumer interactions and maintaining operational resilience. The letter delineates the FCA’s expectations, articulates the perceived risks, and outlines strategic measures to safeguard consumer interests effectively.

Key Risks of Harm to Consumers

Customer Treatment

Vulnerability Awareness: There is a substantial concern that TPAs may not adequately identify or address the specific needs and challenges of vulnerable consumers. Such oversight can lead to these consumers not achieving outcomes comparable to other consumer groups.

Forbearance and Financial Difficulty: Amidst ongoing economic uncertainty, consumers may not be appropriately assessed, which could result in them not receiving necessary forbearance options when facing financial hardships.

Communication and Dispute Resolution: A significant risk is present in the lack of clear and effective communication with consumers. This inadequacy can lead to unresolved disputes, incorrect debt collection practices, and general consumer dissatisfaction due to repeated and unfruitful engagements with firms.

Operational Resilience

Systems and Controls: The lack of robust systems, comprehensive controls, and effective governance can lead to operational mishaps. These can manifest as system failures, incorrect billing, and the issuance of inaccurate financial demands, all of which contribute to consumer distress and potential financial loss.

Financial Resource Management: In the context of the pandemic’s economic impact, the necessity for firms to monitor their financial health rigorously is paramount. Adequate liquidity is crucial not only for the firm’s survival but also to ensure ongoing obligations to consumers are met. Inadequate resource management could precipitate disorderly market exits, leaving consumers confused and unsure about their mortgage statuses.

FCA’s Expectations and Areas of Focus

Fair Treatment of Consumers

Consumer-Centric Practices: Firms are expected to prioritise the fair treatment of all consumers, paying particular attention to the needs of vulnerable customers and those termed as mortgage prisoners. The FCA has provided guidance on these issues, which should be integral to the firms’ operational strategies.

Operational Oversight and Complaint Management: The ongoing poor treatment of customers often stems from weak operational oversight and ineffective systems. This situation is exacerbated by inadequate management information systems which fail to support the delivery of consumer-centric outcomes.

Ensuring Financial and Operational Resilience

Robust Governance and Systems: Adequate governance frameworks and systems are essential to ensure operational compliance and the fair treatment of consumers. This includes maintaining a strong and effective relationship with any outsourcing entities involved in mortgage administration.

Continuous Monitoring of Financial Health: Firms should actively monitor their financial stability through effective tools such as cash-flow forecasts. It is crucial that firms maintain sufficient financial resources at all times to prevent any risk of failure that could disrupt their services to consumers.

Supervisory Strategy and Enforcement

Proactive Supervision: The FCA intends to closely monitor the activities of TPAs to ensure that they are meeting the regulatory expectations set forth. This will involve direct engagements with firms to discuss their business models, strategies, and the integration of robust systems and controls.

Regulatory Reporting and Accountability: Firms must adhere to the principles of openness with the FCA, reporting any significant operational issues or changes promptly. This is part of fulfilling the obligations under Principle 11, which emphasises the need for firms to keep the regulator informed about pertinent issues that affect their business operations or risk profile.

Conclusion and Next Steps

Mortgage TPAs play a pivotal role in ensuring the financial wellbeing of consumers, especially in a market still reeling from the effects of the pandemic. The FCA expects these firms to uphold high standards of consumer protection and operational resilience. Firms are urged to assess their current practices against this guidance and adjust their operational strategies to prevent consumer harm and promote market stability. Continued dialogue with the FCA is crucial for navigating the evolving landscape and ensuring compliance with regulatory expectations.

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