FCA chief executive Nikhil Rathi’s recent comments on the Fairer Finance podcast suggest the regulator intends to rely far more on Consumer Duty and far less on writing new rules to address market problems, which marks a clear shift in tone and approach that mortgage and protection advice firms cannot afford to ignore.
An outcomes-based regime only works if the regulator is confident firms across the chain are actively delivering good results for customers rather than simply meeting technical requirements, and that raises an obvious question for our market: is everyone, particularly direct to consumer lenders, genuinely structured to produce consistently good outcomes?
It is easy to assume fewer new rules might mean lighter pressure, but will that truly be the case, especially as Consumer Duty becomes the primary lens through which the FCA judges behaviour, product design and distribution strategy.
If the Duty is expected to “do a lot of the work” as Rathi said, then we must all hope it is applied fully, and in the round, not selectively as I fear it has been up until now, and certainly not just for advisory firms.
Direct distribution and the outcomes test
One area that demands closer scrutiny is the growing emphasis on direct distribution. We are seeing more lender investment in direct channels, digital journeys and single-lender decision pathways, often aimed squarely at borrowers, particularly first-timers it must be said.
The commercial logic is clear enough – cost of acquisition lower without payment of a procuration fee - but the Consumer Duty question is different: does this model reliably deliver good outcomes when compared to an advised, whole-of-market route?
A customer who only sees one lender’s affordability model and product range may believe they have been shown what is available to them, when in reality they have been shown what is available from one provider, and that distinction matters greatly.
Under a strict reading of Consumer Duty, firms must avoid foreseeable harm and enable customers to make informed decisions, which means it may not be enough to say the journey was execution-only and therefore the responsibility lies solely with the borrower, if the design of that journey shapes behaviour in a way that narrows choice or discourages comparison.
If thousands more first-time buyers are entering the market as affordability and criteria eases, as Rathi has acknowledged, then the risk of poor outcomes sits precisely at the start of the journey, where knowledge is weakest and confidence is often misplaced. An outcomes-based regime cannot ignore where customers are most exposed.
Protection gaps and foreseeable harm
The same logic applies to protection. Mortgage advice firms are already under pressure to demonstrate protection conversations are meaningful, documented and based on clear needs assessment, yet direct mortgage journeys take away the protection conversation at source.
If a borrower secures a larger loan due to looser lending conditions but exits the process without any meaningful discussion about life cover, income protection or critical illness cover, it is difficult to argue the overall outcome has been properly assessed.
Consumer Duty requires firms to consider the total customer outcome, not just the successful completion of a transaction, and that must include whether foreseeable risks have been highlighted in a fair and balanced way.
Where direct models rely heavily on prompts, tick boxes or passive signposting, lenders will need to be confident these mechanisms genuinely support informed decision-making rather than simply protecting the firm from complaint.
If distress rises in a future rate cycle, as Rathi has openly accepted is possible, questions will not only be asked about affordability at the point of sale, but also about the absence of appropriate safety nets.
Shared responsibility across the chain
What we might sometimes be overlooked here is lenders are just as bound by Consumer Duty as advisers, and if Duty is now the main regulatory lever, then product design, pricing structures, distribution strategy and customer communications all fall squarely within scope.
An outcomes-based system means lenders must be able to evidence their direct propositions, digital journeys and marketing strategies support good consumer understanding and fair value, rather than simply increasing volume and widening margin.
Equally, advisory firms must continue to demonstrate the tangible value of advice, particularly for those such as first-time buyers who may underestimate the complexity of mortgage and protection decisions.
The key test for the FCA will be consistency. If the regulator expects advisers to evidence holistic outcomes, including protection suitability and vulnerability considerations, then it might wish to apply the same scrutiny to direct distribution models that remove or reduce those touchpoints. Consumer Duty cannot become a principle that is enforced rigorously in advised channels but interpreted lightly in direct ones.
A defining moment for outcomes-based regulation
Relying more heavily on Consumer Duty is not inherently problematic, and many in the industry support the move away from constant rule-making towards a clearer focus on real-world outcomes.
However, this approach only works if the FCA is prepared to interrogate how distribution choices affect those outcomes, especially in the mortgage channel where the long-term consequences of poor decisions can be extremely damaging.
If Consumer Duty is to carry more regulatory weight, then it must shape behaviour across the entire mortgage and protection ecosystem. That means asking difficult questions about direct sales, about product framing, about protection take-up, and about whether customers genuinely understand the limits of what they are being shown.
In an environment with fewer new rules, the substance of the Consumer Duty matters more, not less. The challenge now is ensuring it is applied evenly, and that positive consumer outcomes are not assumed, but demonstrably delivered.
