On 24 April, Chris Cummings, on behalf of the Association of Independent Financial Advisers (AIFA) and the Association of Mortgage Intermediaries (AMI), hosted a lunch in London.
The principle speakers were Cummings himself, Dame Deirdre Hutton, deputy chair of the Financial Services Authority and chair of the Food Standards Agency – yes, they are both the FSA – and Sir John Gummer, Member of Parliament and chairman of the AIFA group of trade bodies.
I was pleased to be invited to the lunch as both a sponsor and a member of the AMI Board. The speeches were of particular interest coming at such an important time and probably the most critical statement of the day came from Cummings, who said that AIFA and AMI had never been so busy. Why?
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AMI does an excellent job in supporting the mortgage intermediary sector through the maze of regulation. So what did he mean by his comments of being so busy?
Isn’t the Mortgage Code Of Business (MCOB) done and dusted? Over coming months mortgage intermediaries are facing a tidal wave, perhaps not a tsunami, of new regulation coming from Canary Wharf, Whitehall and Brussels. Allow me to give you some idea of some of the key changes that we are all facing.
The timing of the luncheon was noteworthy because it followed the day after the FSA’s conference to introduce the new principles-based regulation agenda – one of the key days in the FSA calendar. Principles-based regulation will impact mortgage business, but we will not see the full effect until the MCOB rules are possibly changed in Q1 2008. But the FSA’s message is clear – it wants to see principles-based firms focusing on outcomes.
The reason for delaying changing to a full principles-based system in the mortgage market is the uncertainty of what will be said in the mortgage and credit White Papers to be produced by the European Parliament. Publication of the new directives has been delayed until September, but we are expecting the EU to produce directives for an integrated consumer credit market in Europe where mortgages and secured loans will be treated as one and unsecured loans will be a separate sector. European member countries have shown enthusiasm for this approach; but it will certainly change the sophisticated market that we enjoy in the UK.
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The Markets in Financial Instruments Directive (MiFID), has crept in as far as mortgage intermediaries are concerned and we now await the new conduct of business rules where these will apply to our sector, as well as IFAs. Mortgage intermediaries can expect to see some changes in complaint procedures and Financial Promotions over the next few months. In this quarter a further announcement from the regulator is expected to confirm any specific rule changes for firms not subject to the scope of MiFID.
General insurance
Most brokers are also involved in the general insurance (GI) sector. At the present time reviews are taking place in respect of mortgage effectiveness; a continuing enquiry into payment protection insurance (PPI) and an investigation into GI cold-calling.
Some brokers may not be aware that the FSA is reconsidering its conduct of business of rules for GI and we can expect to see some significant changes. These are likely to add more complications to the current sales and disclosure process and firms need to be particularly alert to understand what is happening and to communicate with the FSA if they are unhappy with the proposals that are emerging.
Retail review
Cummings and the industry trade bodies are spending much time involving themselves in the regulator’s forthcoming Retail Distribution Review. This review impacts all sectors of financial services. There are five strands to the enquiry and the FSA has put in place teams of senior people selected from the industry to carry out these enquiries.
Among this work is a question being raised by government and the FSA as to the role of commission in sales and how commission should or should not be included in any sale. Central to this is the question whether we should be moving to a fees only basis?
This is a substantial review which has developed since a speech by the chairman of the FSA last summer and many leading officials in the FSA and in the Treasury have picked up this theme. Do take time in reading about that enquiry as it is our livelihoods that may be affected by these debates.
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While this has all been happening, we have seen the introduction of the changes to the Consumer Credit Act and the responsibility of mortgage intermediaries in respect of the consumer credit business to the Financial Ombudsman Service (FOS). Mortgage intermediaries will need to become familiar with some of the rules regarding unfair contract terms as this is an area now being used in respect of complaints by both the FSA and FOS.
Extensive
If you add to this already extensive list the matter of PPI and the Competition Commission enquiry recently referred by the Office of Fair Trading, the new Capital Requirements Directive, New Conduct of Business Rules, the Mortgage Effectiveness Review in respect of higher risk mortgages, Approved Person Competence Standards and of course full integration of the regulator’s ‘Treating Customers Fairly’ rules’ you will see why you should be very busy as well.
