Understanding the FCA’s Discussion Paper: The other side of the SWOT analysis
Bob Hunt
12 August 2025Now, as promised, let’s turn our attention to the other side of the SWOT analysis, examining the potential weaknesses and threats that, if unaddressed, could seriously undermine both adviser confidence and consumer outcomes.
One underlying issue is regulatory ambiguity. The DP’s emphasis on ‘flexibility’ risks becoming regulatory vagueness. As we’ve already seen with Consumer Duty, outcome-based frameworks can leave advisers second-guessing decisions and documenting everything in a defensive manner.
Without detailed FCA guidance or case examples, advisers may find themselves wrestling with interpretation rather than focusing on client relationships.
Ambiguities, such as when enhanced advice – if it’s ever introduced, and I would caution deeply against it – is triggered or how rent-based affordability aligns with stress testing, could lead to inconsistent application across firms and operational headaches.
Then we have the issue of advice requirements. Crucially, and extremely disappointingly, the FCA has already moved ahead with part of the Mortgage Rule Review that removes the automatic advice trigger – despite widespread criticism from the intermediary sector.
In effect, once there is interactive dialogue between provider and consumer, firms no longer have to default to regulated advice, provided customers affirmatively choose to proceed execution-only.
Listening to the industry
Trade bodies and advisers warned that these risks would weaken consumer protection and undermine the Consumer Duty by reducing access to professional advice. While industry feedback led to the retention of a ‘positive election’ safeguard, the FCA has effectively judged that the benefits of this change outweigh the risks, even though many in the sector strongly disagree.
This is particularly concerning because it signals a mindset that regulatory benefit calculus may downplay consumer or adviser concerns.
Yes, there were two wins for the industry: the retention of the positive election safeguard and clarification around ‘causing’ foreseeable harm procedures. But the overarching approach still reflects the FCA’s belief that the benefits outweigh the risks, even when the industry argues the opposite.
We should hope the FCA does not apply the same logic when considering responses to DP 25/2. Our feedback must be taken seriously before assuming that flexibility trumps fundamentals, particularly when it comes to the value of advice and the protections it affords.
Enhanced qualifications could be seen as presenting another threat. While ensuring holistic advice requirements across all customers, including in later life, is a welcome signal, the industry will need to be given time to secure those.
We don’t want to see smaller firms or sole traders excluded, not least because adviser capacity is not enough as it stands. Plus, this would be a paradox at odds with the FCA’s own aim of broadening access to advice; only the recent rule changes might call into question whether that is truly what it is trying to deliver.
It should also be acknowledged that there are risks inherent in moving to more permissive lending arrangements. While we all accept we’re not in the same environment as post-credit crunch, a move towards affordability relaxations may expose borrowers to harm if the economic or their personal financial situation worsens.
Indeed, this presents the case for advice again. Ensuring such borrowers have the requisite protection policies in place to deal with such potential problems, be that unemployment, sickness, etc. If more individuals are going to be able to secure a mortgage/get on the ladder, they need to have advice to ensure they are adequately protected.
Plus, the FCA itself has previously acknowledged trade-offs for such an approach, warning of higher potential arrears, suboptimal consumer outcomes, and broader systemic consequences as part of its growth-oriented agenda.
Innovation and digitalisation also bring their own perils. While artificial intelligence (AI) and onboarding tools promise efficiency, advisers remain ultimately accountable. Poorly designed technology can magnify errors and undermine consumer outcomes. Without aligned compliance frameworks, new tools risk creating liability gaps masquerading as progress.
Lastly, we must acknowledge the macro context: boosting access without tackling supply risks, inflating house prices faster than affordability catches up. Advisers could soon find themselves advising clients whose borrowing power has improved on paper, but who remain unable to actually purchase due to price escalation.
In essence, DP 25/2 contains exciting potential, but not without peril. Advisers must be alert to ambiguity, oversight gaps, and mismatches between regulatory intent and real-world impact. As we feed into the consultation, the FCA should hear clearly that pursuing economic growth must never trump robust advice standards or consumer protections.
