The ‘half full or half empty’ question is, of course, not really a question that can be answered definitively. Instead, it’s a neat turn of phrase that encompasses the psychological truth that, no matter how a particular situation actually stands, some people will take a pessimistic view of it, while others will look on the bright side.
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As an example of the ‘half empty’ school of thought, a daily news item appeared on the Mortgage Introducer website recently that reported Steve Walker, managing director of Promise Finance, being decidedly pessimistic about principles-based regulation. He said: ‘I don’t believe the Financial Services Authority (FSA) has set out to disadvantage properly run organisations, strengthen less compliant organisations and increase the potential for customer detriment. However, I fear this may be the outcome if clearly defined rules disappear in favour of a principles-based approach”. Only time will tell if this attitude is justified or not, but it is an example of the way that industry experts, commenting on how regulation of the mortgage market is moving forward, can sometimes be too inclined towards the negative in their approach.
Well over half full
On the other hand, as an optimist, my personal view is that the glass of regulation is well over half full. Now, more than two and a half years on from the start of regulation, if we take stock of the situation we can see that many initially problematic issues are sorting themselves out, and that the FSA’s understanding of how small mortgage and general insurance firms operate has become much more comprehensive, informed and realistic.
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All readers that share my positive views will appreciate the comments made recently by Stephen Bland, FSA director of small firms, in his speech entitled ‘Small firms- under the radar?’. Here, he pointed out that it was not practical to visit and inspect all small retail firms. Instead, a better approach is to ‘concentrate on giving help to firms who want to run their businesses profitably and sustainably in compliance with our requirements, and bearing down on those firms who are not interested in meeting our standards’. While the pessimists may prefer to concentrate on the second half of this statement, the optimists will agree that there is now a lot of help available.
Help and information
Here is a reminder of all the ways in which mortgage and general insurance firms can get help and information, with the FSA’s website being the primary source from which to download publications, book training, or obtain any other details. First of all, the FSA’s dedicated Firms Contact Centre exists exclusively for the benefit of small firms and it aims to answer 80 per cent of calls within 20 seconds and resolve 90 per cent of written correspondence within 12 working days. Experienced advisers are on hand to discuss problems, direct callers to the relevant parts of the handbook, and do further research on more complex issues.
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Next, there are numerous publications that have been written specifically with mortgage and general insurance firms in mind to help them understand the key issues, and these are written in clear, everyday language. There are regular newsletters for both mortgage and general insurance firms, with the most recent of these covering hot topics such as ‘Treating Customers Fairly’ (TCF); general insurance sales and cold-calling; and payment protection insurance. A system has been set up to compile a shortened version of the FSA handbook that is tailored to specific firms and sectors, and there are a couple of publications – Key Rules for Mortgage and Home Reversion Brokers and Key Rules for General Insurance Brokers – that set out the main points of the relevant rulebooks in clear, easy to follow formats and language. For enthusiasts, all reports, reviews and major speeches are freely available, and the entire FSA library now has its own search facility.
Training and workshops
In addition to all this written information, there are a variety of workshops, seminars and training courses dedicated to the mortgage and general insurance sector. Small firms roadshows are regularly scheduled at venues across the UK, with the format for the current half day roadshow for mortgage firms covering topics such as principles-based regulation and TCF; FSA project findings such as Mortgage Quality of Advice; and an opportunity to have your Initial Disclosure Documentation checked. There are several reasonably priced web-based training courses suitable for the mortgage and general insurance sector, including financial crime, the Retail Mediation Activities Report, and complaints handling, with regional workshops also on offer throughout the year. Perhaps most attractive of all is the chance of a half hour, one-to-one surgery, where you can discuss any regulatory topic or concern in an informal environment, and if you are near Cheltenham, Gloucester or Swindon then there is one of these in your area in mid-July.
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When it comes to the second half of Bland’s quote – about bearing down on those firms who are not interested in meeting the FSA’s standards – we should all by now a have a greater understanding of how this works. Taking one example of a non-compliance issue that has caused a lot of resentment in our industry sector in the past, one of Walker’s big objections to principles-based regulation was that smaller firms would be able to continue to get away with non–compliant Financial Promotions, leaving compliant firms at a competitive disadvantage.
Financial Promotions are a good example of how the FSA is gaining a better understanding of our sector, and steadily sorting out the issues. Taking the ‘educate first, punish later’ approach, there is a clear history of FSA investigations into Financial Promotions across all its regulated sectors, concentrating on the areas of greatest risk of consumer detriment. April 2007 saw the publication of an eight-page Financial Promotions Bulletin, summarising all the key points, and reminding readers that there is a hot line for reporting any Financial Promotions that are unclear, unfair or misleading. At the same time that all this help is being given, the persistent wrong-doers are being brought to book –albeit not as instantaneously as some commentators may wish. The bulletin reminds readers that completed enforcement cases have resulted in 12 firms being fined for promotions failings since December 2004, with four non-conforming brokers having been referred for enforcement regarding promotions. Other actions include firms being required to withdraw or change their promotions. The FSA is not allowed to ‘name and shame’ firms until the final enforcement notice is issued, so we need to understand how it all works before complaining that nothing is being done.
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Although my view is generally on the optimistic side, I recognise that there are downsides to the regulatory picture as we view it today. For example, we are all paying fees that we did not have to pay prior to 1 November 2004 – but thanks to the efforts of the Association of Mortgage Intermediaries, we can now pay them monthly which helps to spread the burden and make it more manageable. Another negative issue is that of relatively inexperienced compliance consultants setting up business and claiming to offer a comprehensive service at unrealistically low fees. We’ve recently been reminded by the regulator that compliance responsibilities cannot be delegated or assigned to a third party – so let’s hope that we are not facing a backlash in future where small mortgage firms who thought they were buying-in a compliance safety net find themselves exposed.
Finally, a topic that has good and bad aspects will allow us to end on a positive note. The outlawing of cold-calling for mortgage sales left quite a large gap in the lead generation process and, although this has created the opportunity for lead generation businesses to start up and grow, buying-in leads can be expensive and the quality of leads can be variable and sometimes leaves much to be desired. On the positive side, this situation has helped brokers to think more carefully about how to retain their clients and encourage referrals – sound business practices that perhaps they never had to think about before.
Taking this example as a microcosm of the whole picture, regulation has generally helped firms to organise themselves better, to regularly review their business structure and practices, and to behave in a clear and open way both within the firm and to their clients. As consumers become more educated, they will also become more demanding, so the transparency, clarity and fairness that regulation has forced will become a key business asset rather than a perceived administrative burden.
