Moving to outcomes focused regulation

In March, the FCA launched its 5-year strategy to 2030, focusing upon being a smarter regulator, supporting sustained economic growth and helping consumers navigate their financial lives.

On 7 May 2025, the FCA published CP25/11, a consultation paper proposing changes to simplify and increase flexibility in its rules for mortgage lending.  The regulator aims to make it easier, quicker and less costly for consumers to speak to a mortgage provider about their mortgage needs, to reduce their mortgage term and to remortgage with a new lender. The FCA also proposes to retire non-handbook guidance on maturing interest only-mortgages, instead relying upon the Consumer Duty principles to ensure firms deliver good outcomes for consumers.  Several of the proposals within the consultation signal a shift from prescriptive regulation to an outcome focused regime showing how the FCA intends to use the principles of the Consumer Duty to give firms the flexibility to tailor their approach based on customer needs.

What you need to know

The FCA is consulting upon the following proposals:

• Giving firms more freedom to interact with consumers

  The FCA proposes amending MCOB 4.8A7R(3) and associated Rules and Guidance to remove the interaction trigger, giving firms more freedom to interact with consumers during an execution only sale or contract variation.  Instead, a new rule would require firms to assess whether they have appropriate processes to identify those execution only customers who need advice or support so that foreseeable harm is avoided.

• Removing the requirement for a full affordability assessment

  The FCA suggests removing the requirement for a full affordability assessment when reducing the term of a mortgage. This change aims to help more consumers to shorten the term of their mortgage, reducing the risk of being unable to make repayments later in life. The FCA again proposes to rely on the Consumer Duty requirements on firms to act to avoid foreseeable harms and to equip consumers to make properly informed decisions.  Whilst there would be no prescriptive requirement on firms, in order to achieve a good outcome for the consumer, firms will still need to assess affordability, but this could be done in a tailored and proportionate way.

• Amending affordability assessments when remortgaging

  The FCA notes that customers may face barriers to shopping around for a remortgage and so many remortgage with their current lender, even when it may be cheaper to switch.  Developments in the digitisation of the conveyancing process and the sharing of information via Open Banking could make the remortgaging process more efficient and easier to navigate, however affordability testing may still be a barrier.  The FCA proposes to amend the current optional Modified Affordability Assessment (PS 19/27) to allow lenders to enter into a new mortgage contract which is more affordable than either the customers current mortgage or a new product that is available to that customer from their current lender.

• Easing remortgage barriers

  To address barriers that prevent customers from shopping around for remortgages, the FCA proposes to retire FG13/7: Dealing fairly with interest-only mortgage customers who risk being unable to repay their loan, non-Handbook guidance issued in 2013 ahead of the Mortgage Market Review (MMR).  Since the MMR, firms have been obliged to ensure that interest only borrowers have a credible strategy to repay the capital owing and that this strategy is reviewed at least once during the term (MCOB 11.6.49R).   FG13/7 set out how firms could treat customers fairly to reduce the risk of non-repayment via customer engagement throughout the mortgage term and this has been effective as interest-only mortgages are being repaid faster than the FCA expected.  The FCA predicts that 2031 and 2032 will be peak years in terms of interest-only mortgages maturing but after that maturity figures will fall sharply.

  The FCA proposes to rely on the Consumer Duty requirement on firms to avoid causing foreseeable harm and to deliver good consumer outcomes in respect of firms’ communication strategies for interest-only borrowers.

• Retiring unnecessary guidance      

• The FCA also proposes to withdraw FG24/2: Guidance for firms supporting existing mortgage borrowers impacted by rising living costs. This guidance was introduced in response to rising interest rates and increases in the cost of living.  It restated that Handbook requirements upon firms towards their customers but did not create any new protections for consumers. The FCA proposes to retire the guidance to streamline the requirements on firms.

The consultation is open until 4 June 2025.  Following this, the FCA plans to launch a public discussion on the future of the mortgage market considering consumer needs, the UK economy and the role of the regulator.  A Policy Statement is expected in Q3 2025.

What it means for you

CPP25/11 exemplifies the FCA efforts to be a smarter regulator by reducing prescriptive compliance requirements on firms.    The proposals could allow firms the flexibility to adopt a proportionate and tailored approach to each customer enabling better consumer outcomes and to reduce compliance costs for firms .  However, the switch to outcomes-based regulation is fairly new and untested, therefore many firms may still base their approach on previous prescriptive requirements to avoid customer harm, at least until there are some examples of good and poor practices to draw upon.

Contributors: Amy Earlam, Graham Walters