FCA's AI Vision: A Double-Edged Sword for Mortgage Advisers

The FCA's AI Vision: A Transformative Force in Mortgage Advice

The Financial Conduct Authority (FCA) has published its Discussion Paper 25/2 (DP 25/2), which delves into the future of the mortgage market and the role of AI. While the FCA acknowledges the potential benefits of AI, the document raises significant concerns about the direction of travel for mortgage advice. This article explores the implications and the critical need for a balanced regulatory approach.

The Lender's Perspective: A Push for Direct Journeys

The DP 25/2 frequently mentions 'firms' keen to innovate with AI-assisted sales journeys. However, the identity of these firms remains vague. Given that over 90% of mortgage sales are currently advised, it's unlikely that advisers are the primary drivers of this push. Instead, lenders have a strong incentive to streamline direct, execution-only journeys, leveraging AI to reduce costs and increase efficiency.

Key points:

• Lenders aim to use AI to enhance direct sales, reducing reliance on advisers.
• The removal of the 'interaction advice trigger' this summer underscores this trend.
• AI can improve eligibility checks and acceptance likelihood, making execution-only lending more attractive.

The Adviser's Dilemma: Maintaining Value in a Tech-Driven Market

For advisers, AI represents a double-edged sword. On one hand, it can automate routine tasks, improve compliance, and enhance client communication. On the other, there is a real risk that AI could be used to bypass the advice process altogether, diluting the value of professional judgement.

Key advantages of AI for advisers:

1. Automated document handling: Reduces administrative burdens and speeds up the advice process.
2. Streamlined fact-finding: Ensures comprehensive and accurate client data.
3. Improved compliance: Enhances record-keeping and adherence to regulatory standards.
4. Personalized communications: Helps clients better understand their mortgage options.

However, the FCA's focus on AI-assisted advice and sales suggests a potential shift towards execution-only journeys. This could erode the trust and holistic planning that advisers provide, which are critical components of the Consumer Duty.

The Regulatory Challenge: Balancing Innovation and Protection

The FCA's recognition of AI's benefits is valid, but the emphasis on execution-only processes is concerning. If AI is primarily seen as a tool to facilitate direct lending, the value of professional advice risks being marginalized. This shift could lead to consumers believing that an algorithm's approval is equivalent to human judgement, which is a dangerous misconception.

What advisers should do:

• Challenge the FCA's narrative**: Make it clear that advisers want AI to support, not replace, the advice process.
• Engage with the DP 25/2**: Provide feedback to the FCA to ensure the regulator understands the distinction between AI as an adviser-enabler and AI as an execution-only escalator.
• Participate in industry surveys**: Initiatives like the recently-launched survey on AI can capture the adviser's perspective and provide data to support a balanced approach.

The Bottom Line

The FCA's AI vision presents both opportunities and threats for mortgage advisers. By advocating for a balanced regulatory approach, advisers can ensure that AI enhances their value rather than diminishes it. Engaging with the FCA and industry surveys is crucial to shaping a future where technology complements, rather than replaces, professional judgement.