The FSA has released the following statement:
'There has been some misunderstanding about the proposals in CP05/1 and their impact on players in the mortgage market. The proposals only apply where an authorised firm carries on regulated activities on behalf of another authorised firm under an outsourcing agreement.
For the mortgage market, we aimed the proposals in the CP at firms who undertake the regulated activity of mortgage administration on behalf of authorised lenders. (The regulated activity of administration means notifying borrowers of changes in interest rates and payments and/or collecting payments due under the mortgage.) These administrators act on behalf of lenders in dealings with consumers under the terms of an outsourcing agreement.
Any firm which carries on a regulated activity needs to be authorised by the FSA and comply with our rules. Under these rules, the administrator needs to disclose its identity to consumers it deals with. This is a change from previous practice where the administrator acted in the lender's name and its involvement in the transaction was invisible to the consumer.
CP 05/1 proposes changes to our disclosure rules to allow the administrator's involvement in a transaction to remain undisclosed. The draft rules achieve this by allowing an authorised firm, which we call a "third party processor" or TPP, to act in the name of the lender where there is a properly documented outsourcing agreement between the TPP and the lender. This agreement must provide that:
- The TPP must only act on the instructions of the lender;
- In any communication with a customer, the TPP must represent itself as the lender;
- The TPP must undertake to co-operate fully with the lender in relation to any complaint which arises in respect of the outsourced activities; and
- The lender must accept responsibility for the actions of the TPP when carrying on the outsourced activities.
Where these conditions are not met (or the parties concerned do not wish these conditions to form part of their outsourcing agreement), the proposed rule changes will not apply. Any firm carrying on regulated activities under an outsourcing agreement where the conditions are not met will have to disclose its involvement in the transaction to the consumer. The proposals do not apply to unauthorised firms which have outsourcing agreements with lenders – the definition of a TPP requires it to be an authorised firm.
This means that:
-The proposed rules do not apply to unauthorised packagers; and
-The proposed rules will only apply to authorised packagers if the conditions are met.
Firms should bear in mind the guidance in SYSC 3.2.4G on outsourcing generally. This makes clear that firms remain responsible where they outsource their regulatory obligations. Banks and building societies must also meet the prudential rules on outsourcing in IPRU(BANK) and IPRU(BSOC) respectively.'
