The Equity Release Council has warned advisers to review older lifetime mortgage cases as they will soon fall under the new consumer rights rules.
From July 31, the Financial Conduct Authority’s Consumer Duty rules will cover previously sold products and ‘closed’ cases as well as new sales.
The ERC is publishing guidance for advisors to help them with the second phase of this regulation, which could reportedly be significantly more burdensome for companies.
It is said that this will be more difficult to implement as closed mortgage books can be decades old and are often resold without the full customer history.
However, the ERC points out that equity release products may be able to provide a ‘lifeline’ to clients whose cases are assessed as part of this process. This could include mortgage captives and interest-only customers without repayment instruments – who can be identified under these regulations.
The Council, in collaboration with a member advisory firm, recently published guidelines for its members, covering the entire equity release value chain.
The ERC’s director of risk, policy and compliance, Kelly Melville-Kelly, says that while providers bear most of the responsibility, advisors also play a key role.
“Consumer duty is about honesty. Businesses must act in the best interests of their customers at all times and take reasonable steps to prevent harm.
“Embracing this proactive approach during the open book phase has required organizations to update and change their processes, but our members have risen to the challenge.
“Exercising the same control over customers with closed books will become even more difficult. Some companies will have inherited closed books, which poses an even greater challenge as many of the originator companies are no longer active in the market. For providers, this may mean dismantling outdated systems that have been archived long ago.
“For advisors or distributors, it’s about working with the providers, checking customer details to see if there are closed book products and making sure they are kept informed of their options.”
She adds that advisers should also ensure that if a client’s circumstances have changed, there is a review of the continued suitability of the product, with particular attention paid to vulnerable clients.
“Even if the customer is on a closed book, companies should check that the product remains suitable and that the customer still understands the risks and benefits. If the answer is no, companies need to have a plan to support that customer.”