As a mortgage broker, or packager, or lender, if you advise customers on non-conforming mortgages at all, then you need to know that the Financial Services Authority (FSA) has arrived and it is now taking non-conforming mortgage sales very seriously indeed.
In the past week alone, we have seen two separate articles in the trade press, both of which contained ‘FSA’ and ‘non-conforming’ in the same sentence. The first was specifically about a ‘non-conforming mortgage broker’ being fined by the FSA. The firm was fined £50,000 by the FSA for ‘serious failings in its systems and controls’ (reduced to £35,000 when the firm agreed to settle at an early stage of the investigation). Failings meant, among other things, the firm had not kept suitable records about the reasons for recommending products, and had potentially put as many as 1,000 clients at risk of not receiving the most suitable products for their circumstances. The article pointed out specifically this was the first ‘pure mortgage brokerage’ to be fined, as opposed to an ‘independent adviser who does mortgages’.
FSA director for small firms, Stephen Bland, said: “Where and when appropriate, the FSA will use its enforcement powers to ensure management take seriously the requirement on firms to comply with regulatory requirements and treat customers fairly.”
Getting down to business
Two days later, a different article confirmed the FSA will be conducting further non-conforming investigations this coming September, as a follow up to its work which ended last year. To remind you, last September, the FSA visited 31 small brokers active in the non-conforming market and looked in detail at 210 case files, to assess whether advisers were taking reasonable steps to ensure that recommendations to take out non-conforming mortgages were suitable to the needs and circumstances of the customer. The FSA said that in 80 per cent of these cases, there was insufficient record-keeping to prove it one way or another and so it would be re-visiting this area in 2006. Now we know when.
So, with the first fine of its kind for a ‘pure mortgage firm’, and with confirmation of further non-conforming investigations to come in September, it is now time to sit up, smell the coffee and realise the FSA has now found its feet and is very seriously getting down to non-conforming business.
Many would argue the FSA’s approach is, at last, spot on – examples of poor or unfair practice need to made and highlighted. If not an element of fear, then at least an element of realisation does need to be instilled. Mortgage brokers, like IFAs before them, need to truly understand what it means to be regulated.
True confidence
However, it is widely accepted that rules-based regulation can be restrictive and expensive. The regulator has said it wants to move away from a rules-based approach and regulate the industry via principles that allow room for entrepreneurialism, opportunity and growth.
This would be great news for everyone in the industry, but what the FSA needs first, before such a beneficial move can be made, is to have true confidence in the mortgage industry – confidence in all of us.
The FSA has repeatedly said regulation is not about absolving customers of the responsibility to conduct their own financial transactions sensibly, reasonably and legally; provided they have sufficient information and understanding to enable them to do so first.
So, the answer to the question of how to instill confidence in the industry (in the context of this article at least) and the key to safe and fair business is not new – understand your clients’ circumstances and needs, research the market properly, maintain records to prove you did and justify your recommendation based on evidence that a product satisfies your clients’ needs. Likewise, when a case is declined, don’t hit that ‘yes’ button to get the next best option from a lender’s cascade system, but do research the market again in light of the new information. Do all this, and then you can sleep peacefully at night, knowing your business remains safe and protected.
