"The impact of Covid-19 may exacerbate the risk of unsuitable advice, particularly if consumers seek to address any short-term financial pressures caused by the crisis "
The regulator says it found 'potential harms' around the suitability of advice, the risk of fraud, and potential excessive fees before the pandemic, but that "awareness of these is even more important in the current environment, as each has the potential to exacerbate the difficulties customers are facing".
The FCA said: "The impact of Covid-19 may exacerbate the risk of unsuitable advice, particularly if consumers seek to address any short-term financial pressures caused by the crisis without understanding any longer-term implications. We are also concerned that advisers seek to address their own income shortfalls by providing services where they may not have the relevant experience."
In the letter, the FCA said it found "several areas of concern" which may lead to consumers and markets being harmed.
Firstly, it noted the potential for customers to purchase an unsuitable product which does not meet their needs. The FCA said firms should be able to clearly demonstrate why their customers have been advised to take a product and the customer should also understand the reason for the recommendation.
Secondly, it says customers are still potentially paying excess fees and charges for the service they receive. The FCA says there is also a risk that customers are unclear about the fees they are paying and the implications when they are added to the loan.
Thirdly, the regulator stressed the ongoing risk of fraud, both in terms of firms having inadequate systems and controls and risk management frameworks (leading to them being used to facilitate financial crime), and firms not being fully aware of the threats of cyber-attacks (leading to consumer data being compromised).
The FCA says it will review a sample of firms' advice in the second charge mortgage area, to consider the suitability of advice, if customers are getting a product that meets their needs, and if they have understood the product and have been treated fairly throughout the process.
It will also be considering how the fees and charges payable by the customer are described to them and whether these may be considered excessive.
In the lifetime mortgage space, the FCA recently found 'areas of concern', including the personalisation of advice, insufficient challenging of customer assumptions, and lack of evidence to support the suitability of advice.
The FCA is now following this up to assess if firms have made any necessary changes as a result of its published findings.
The FCA aims to carry out the work in 2021.
Concluding the letter, the FCA said: "We expect you to take notice of the areas of concern we have set out. You should look at your business, consider whether there are changes you need to make and act to reduce harm or potential harm to consumers. We will seek to identify firms across the portfolio, large and small, who appear to cause such harms."
