FCA publishes mortgage portfolio supervision letters

The FCA has published Dear CEO letters to lifetime mortgage providers and non-bank mortgage lenders and  third party mortgage administration firms.

The key themes are:

• how changes in the market are driving many providers to adapt their business models and diversify funding sources, while managing regulatory change;
• how all these changes put a premium on the needs for effective culture and controls focused on leadership and people management, governance and oversight and risk management frameworks – and for lifetime mortgage providers in particular, dealing with the risks of developing new hybrid products;
• the importance of financial resilience and recognising interdependencies between risks which could increase the overall risk profile of the firm – and that tis is not just about always ensuring adequate financial resources are in place but also keeping stress assumptions and wind-down plans up to date;
• supporting struggling customers, in light of Consumer Duty requirements and the FCA’s frequent reminders to firms to improve treatment of customers in financial difficulty;
• ensuring the Consumer Duty is a top priority and at the heart of firm’s strategies – focussing of course on all products and services but the letter highlights in particular second charge and later life mortgage lending, and the importance of sharing information with others in the distribution chain and lending responsibly;
• the need for increased sophistication in testing of operational resilience – the FCA flags key risks such as possible concentration and supply chain risk as well as cyber risks and the risks of reliance on intermediaries;
• keeping up to date with financial crime prevention controls; and
• continuing to support sustainable finance while having in place appropriate governance and controls.

The letter ends with the FCA’s clearly set out expectation that firms will remain open and honest with them and make Principle 11 notifications of anything the FCA might need to know – not least any areas of non-compliance with the Consumer Duty, proposed significant business changes or restructurings or changes to product or service offerings.