So, this is Christmas. I wish it could be Christmas every day. So, why not step into Christmas? Do they (the FSA?) know its Christmas? Is it a time to rejoice in the good (practice?) that we see? Are we simply having a wonderful Christmas time? Or are you hanging up your stockings and/or suitability letters on the wall? The big question is whether the FSA is writing its lists, checking it twice, trying to find out who’s naughty or nice?
You see, I couldn’t even get through a list of Christmas song lyrics without regulation slipping in. What has become of me, Tiny Tim? By the way, that will be the last Christmas song lyric you will find in this article. Perhaps. And anyway, haven’t the killjoys banned Christmas, taking down Father Christmas along with the trees and decorations? It’ll be the Easter Bunny next, you mark my words.
’Tis the season to be jolly but there have been a number of high profile pronouncements from the FSA which will mean anything but a jolly Christmas for those concerned. The last few weeks have seen a number of mortgage intermediary firms fined by the regulator and it should be clear to all that those who ignore or break the rules are being caught and punished, to the tune of thousands of pounds. Christmas can be expensive at the best of times, even more so if your firm has been placed in enforcement.
We have already seen fines issued to firms for poor practices in the sale of payment protection insurance (PPI) earlier this year and last month FSA also issued one firm with a fine for £17,500 for ‘rule breaches including cold-calling potential customers’ – a first for our industry. It may well be the time to deck the halls with boughs of holly but I would also consider checking your calls before you’re sorry.
The fine also included the firm’s failure to treat its customers fairly ‘by being unable to demonstrate that it gave appropriate pricing information on ASU insurance policies it sold’. TCF ‘breaches’ form an increasing part of FSA verdicts and as the regulator looks to ensure intermediary firms have implemented TCF within a significant part of their businesses before the end of March 2007 deadline, it is likely that those firms who are not taking the TCF initiative seriously will be caught and will face sanction. The firm in question was also unable to ‘establish and maintain appropriate systems and controls’.
Another mortgage intermediary firm has been fined £52,500 for management failures and ‘a lack of skill, care and diligence’. FSA found that one of the firm’s advisers ‘had inflated customers’ incomes on mortgage applications and that it did not act quickly and appropriately to deal with the matter’. The firm also showed ‘weaknesses in [its] sales processes, including retention of customers’ income verification documents to show affordability’.
There were also further failings with the firm not disclosing to customers ‘the true cost of single premium PPI policies that it recommended’ and the complaints handling process was not handled correctly and complaints were not dealt with consistently. This fine came down to a lack of management controls in place ‘to monitor [the] business effectively’ and ‘to deal effectively with misconduct by their staff’. FSA want firms to show why their recommendations are suitable and to make sure that all relevant information is disclosed to the customer.
I would advise all firms to take a look at these cases, especially the final notices which can be found on the FSA website (http://www.fsa.gov.uk). The notices go into detail about the way these firms ran their businesses, the areas which drew the regulator’s attention and the reasons why they have been placed through enforcement and eventually fined. In analysing how FSA has dealt with these firms, others should be able to gain an insight into the process and through these cases rectify potential problems in their own businesses.
Use this as an opportunity to consider your firm’s own processes and its systems and controls. Be prepared to ask yourself the following questions: ‘Are we totally compliant across all aspects of the business?’ With the holiday season upon us, this may be the time to take advantage of any ‘seasonal lull’. Any spare time available is of course precious so why not use it to conduct an internal audit of your processes – it may well be worth your while and provide you with the best possible start for the new year.
Before I finish, may I wish all readers of MI a very Merry Christmas and a Happy New Year. Lets hope we’re all walking in the air in 2007.
If any AMI members are in doubt about the rules surrounding cold-calling they should view our factsheet number 6. We also have a PPI checklist (factsheet number 29) for member firms to follow. Both are available at:
http://www.a-m-i.org.uk/closed/cug/publications.asp
Rob Griffiths is associate director of the Association of Mortgage Intermediaries (AMI)
