FSA wants to see improvements in Key Facts documents
Key Facts documents are important as they are intended to deliver clearer, simpler and more user-friendly information to consumers but the FSA has identified variable quality and widespread inaccuracies in many of them and wants firms to undertake a review of their own documentation.
The watchdog, which began regulating mortgage sales in October 2004, has written to the Chief Executives of all mortgage lenders and published a Factsheet for intermediaries, following a review of mortgage disclosure documents. The review found that although there were some good examples, the quality of documents varied and many needed improvement.
These documents, including the Initial Disclosure Document (IDD) and the Key Facts Illustration (KFI), are central to the success of the FSA’s mortgage regime and its aim to help retail customers achieve a fair deal. It is vital that firms provide consumers with clear, straightforward and comparable information to help them understand the services and products being offered, shop around more easily, and make informed decisions.
Clive Briault, FSA Managing Director Retail Markets, said: "We acknowledge the effort firms have made to produce the new mortgage disclosure documents and in our review we have seen some good examples. However, we also found cases where documents were not in line with the format and content required by our rules or were too long and written in overly-legalistic language. Some Key Facts documents do not contain all the required information, and some include more information than the rules require, making them longer than necessary.
"We want to promote and reinforce a 'less is more' strategy to disclosure. Of the KFIs we reviewed around half were five pages or fewer. Based on these findings, we consider that good practice, for a standard mortgage, would be a KFI no longer than five pages. However, we accept there may be exceptions for more complicated mortgages."
A similar concern was noted on IDDs, where 80% of the firms sampled had 5 or more errors in connection with their IDDs. Although individually the errors were not major, taken together they can undermine the purpose of the documents.
The FSA will contact the firms sampled to provide individual feedback and will work closely with firms, trade associations and other stakeholders to communicate its detailed findings and to help achieve better quality documents for the future. And because disclosure is such an important part of the mortgage regime, the FSA will re-visit this area and take appropriate action in the future if there has not been an improvement.
