Jonathan Phelan, Head of Retail Enforcement at the FSA, commented “AFS’s failings were serious because its sales process enabled vulnerable customers to apply for mortgage contracts that they could not necessarily afford. In giving the mortgage advice, AFS also failed to provide customers with accurate information about the mortgage contracts. The firm’s customer base is largely sub-prime and many of them were seeking to re-mortgage to consolidate existing debts.
"Behind this poor compliance regime, we found that in all the sales files that we reviewed the customers had provided AFS with false income and employment information.”
The FSA identified the following concerns about AFS:
Personal and financial information provided by customers during the fact finding process was not disclosed on mortgage application forms submitted to lenders by AFS;
AFS did not have in place adequate systems to monitor the quality of advice provided by individual advisers;
AFS did not provide its customers with adequate suitability letters and could not demonstrate from its client files the suitability of recommended mortgage contracts;
AFS did not disclose the correct procurement fees to customers. The procurement fee stated in mortgage offers was significantly higher than that disclosed to the customers;
In a number of cases self-certification mortgages were recommended despite the fact that a standard high street mortgage contract was clearly more suitable; and
Behind a weak compliance regime, it appeared that many of AFS’ customers provided false income and employment information in support of their mortgage applications.
AFS co-operated fully with the FSA throughout the investigation and has been proactive in taking steps to remedy identified deficiencies and improve the resourcing and quality of its compliance function. From November 2007, AFS undertook a comprehensive programme of action to improve its compliance controls and sales procedures, and it has agreed to the appointment of a skilled person to report to the FSA on the effectiveness of its new arrangements. Even though AFS may have made unsuitable recommendations to customers, a past business review was not considered appropriate in this case because many of the customers had given false information about themselves.
AFS agreed to settle at an early stage of the FSA's investigation and therefore qualified for a 30% discount under the FSA’s executive settlement procedure. Were it not for this reduction, the FSA would have imposed a financial penalty of £90,000.
