The regulator denied a move to PBR is coming too early for small mortgage intermediary firms, despite accepting these same firms face significant regulatory challenges.
Speaking at the Mortgage Business Expo Manchester, Dominic Clark, manager of small firms at the FSA, said businesses should be able to cope with the changing environment.
Clark commented: “We are not making a significant shift in the way firms need to run their business, but they do need to think more about how to match the principles that have always existed with their own processes.
“You know your clients better than we do and it is up to you to decide if your processes and practices deliver the best outcomes for consumers.”
However, Clark accepted small firms had had problems in complying with FSA regulation to date and highlighted recent research which found over 75 per cent of small mortgage intermediaries did not have robust procedures in place when it came to giving advice.
He also said the progress made by small firms to introduce the regulator’s Treating Customers Fairly initiative had been disappointing and showed the sector in a poor light.
Despite this Clark gave no indication there would be any shift away from a move to principles-led regulation for smaller firms.
He said: “Rules have not stopped mis-selling on the IFA side and so I do not think they are necessarily better placed to protect consumers.”
Clark also warned poor record-keeping continues to be the biggest regulatory failing of small firms in the mortgage intermediary market.
He said: “The most consistent failing is a lack of record-keeping and firms need to improve on this now.”
Unless firms have solid procedures in place to record the advice given to clients, Clark said it would be difficult for intermediaries to justify their actions at a later date and defend themselves against potential complaints.
This was a massive problem for mortgage intermediaries, according to Clark. However, he was quick to point out that this didn't necessarily mean consumers were being poorly advised. He said:
“We are not saying the advice being given is unsuitable, but that the records did not back up the decision.”
Meanwhile, the regulator urged all firms not fully committed to the equity release market to exit it now.
Speaking in the Equity Release Seminar Theatre, Sonja Dullaway and Nuala Harber of the FSA warned firms about their commitment to the equity release market and to ensure they committed to delivering quality advice.
Dullaway commented: “We are saying to firms that they must go into the market and commit to doing it properly or stay out and refer their business forward to those that have.”
Dullaway also reiterated FSA’s focus on firms writing only occasional lifetime mortgage business and outlined its key concerns following its July 2006 review of intermediaries’ quality of lifetime mortgage advice. These concerns included:
• Limited exploration of client’s needs.
• Failure to assess the clients’ appetite for risk.
• Failure to explain the potential impact of lifetime mortgages on a client’s future options.
• Advisers putting too much of a positive slant on house prices.
• Failure to explain sometimes complex early repayment charges.
There was also a warning for those firms carrying out lifetime mortgage business in light of the FSA’s continued focus on this sector and the information it has put out to those firms involved in the market.
Dullaway said: “There are now no excuses about getting lifetime mortgage work wrong. If we are to go out into the market again and find firms still getting it wrong we will be very unhappy.”
