FSA fines broker for promotion failings

The fine was levied by the regulator for poor financial promotions, inadequate sales processes and inappropriate systems and controls to manage its business.

A review by the FSA last year of financial advertising in the non-conforming mortgage market highlighted that Swindon-based Select had issued unclear financial promotions and had weaknesses in its management systems in relation to the sale of mortgage products generally, not only non-conforming.

The subsequent investigation found evidence that Select:

• failed to ensure that its financial promotions accurately described its "Capital Repayment Plan" (CRP), which meant that customers did not receive reliable information to help them make informed choices and achieve a fair deal
• had inadequate sales processes in place for the recommendation of mortgages to customers
• did not have appropriate management systems and controls in place to ensure that the firm met the necessary regulatory requirements.

Margaret Cole, director of enforcement at the FSA, said: "Taking out a mortgage is one of the most important decisions anyone makes during their life. Poor practice by firms in this area therefore poses a high risk to consumers - and this is particularly the case when it comes to non-conforming mortgages, given the vulnerable nature of the target audience.

"It is essential that firms' financial promotions are clear, fair and not misleading, so that consumers know exactly what they are buying. In addition, firms need to have the right sales processes in place so that they recommend suitable mortgages."

Select's failings were identified when the FSA visited firms – in October and November last year – which were found to be falling short of its requirements during an earlier review of several hundred non-conforming adverts and promotional materials (including flyers and classified adverts in directories and regional newspapers). These follow-up visits found that weaknesses relating to advertising and promotions usually indicate wider problems within firms.

Select has put in place controls to ensure that its future mortgage business meets the required standard and has also agreed to write to all of its existing customers to inform them of the risks associated with its CRP (including, in particular, the risks of interest only mortgages and the difference between the CRP and a capital repayment mortgage).

Select agreed to settle at an early stage of the FSA's investigations and qualified for a 30 per cent discount under the FSA's executive settlement scheme. Were it not for this discount, the FSA would have imposed a financial penalty of £15,000.