The Mortgage Board will respond in full to the consultation in due course, however it is pleased that a number of recommendations made to the FSA regarding CP146 have been adopted.
1. There are now proposals for a clearly defined process for the provision of ‘suitable advice’. The FSA propose that sales of standard mortgages will either be ‘advised’ or ‘non-advised’. The use of “filtering questions” as proposed in CP146, which we believe could have been perceived by customers as resulting in some form of recommendation or guidance, has been dropped as a distinct process. Mortgage firms will now have to state clearly in initial disclosures whether they provide advice or not, which will make the responsibilities of the firm in relation to the customer much clearer.
Although the FSA is not proposing to make the provision of a Product Confirmation or ‘reasons why’ letter compulsory as part of the advice process, the proposals for record keeping requirements are likely in practice to mean that firms will wish to use such a document both for customer information and to fulfil their record keeping obligations. Our experience shows that this is an important record of the mortgage transaction – usually linked to an analysis of the customer’s circumstances, needs and attitude to risk - and is retained by both the customer and the firm, providing an important reference document for compliance monitoring and dispute resolution.
2. We welcome the FSA’s confirmation that mortgage advisers who already meet the Mortgage Board’s Fitness and Competence Requirements and who have achieved a professional mortgage qualification, will not have to sit a new examination to advise on mortgages after statutory regulation is implemented. This process, known as ‘grandfathering’, acknowledges the impact the Mortgage Board’s Requirements have had in raising industry standards and means that the effort of practitioners in meeting the Requirements will be rewarded.
3. The FSA’s definition of ‘independence’ as it relates to mortgages is now consistent with that across the whole financial services market.
4. We welcome the new proposal that firms must now disclose commission or fees receivable from mortgages sales in line with the existing Mortgage Code requirements. It is important for consumer protection and transparency within the sales process that all potential influencing factors in directing the consumer towards a particular product are clearly disclosed.
Commenting on the publication of CP186, Luke March, Chief Executive of the Mortgage Board said:
“The publication of the draft conduct of business rules is a huge step forward towards shaping the final statutory regime for mortgage regulation. We are pleased that the FSA has responded so positively to considerable feedback from us, as well as from other industry bodies and practitioner firms. The sales process in terms of advice or information provision will now be clearer for the consumer.”
Note: Key Points from the Mortgage Board’s Response to CP146
Drawing on its regulatory experience, the Mortgage Board reviewed CP146 and published its response in November 2002. The Mortgage Board also provided a number of recommendations to the FSA, which it suggested would improve the mortgage selling process and create greater clarity for consumers.
The Mortgage Board’s chief concern centred on the proposed introduction of a new level of service, “non advised sales using filtering questions”, which it feared could be perceived by consumers as offering some form of recommendation or guidance. The Mortgage Board’s experience suggests consumers are often unsure as to whether they have received advice or information.
The Board believed that in the interests of consumer clarity, there should be a clear distinction between advised sales and non-advised sales - something that could be undermined by the use of filtering questions in a ‘non-advice’ sale.
Other key points from the Mortgage Board’s response to CP146 included:
· The proposed Pre-Application Illustration (PAI) should include a requirement for full disclosure of fees, commissions and other inducements which might be an influencing factor in directing the consumer to a particular product. The Mortgage Board’s own regulatory experience indicates an increased potential for consumer detriment where fees are not fully disclosed.
· The FSA’s definition of ‘Independent’ should have the same meaning across the financial services market and the phrase ‘whole of market’ in relation to research/sourcing should be dropped as potentially misleading.
· Firms providing advice should be required to provide ‘reasons why’ letters, indicating to the consumer the reasons why the recommendation was made. The lack of a requirement for written confirmation to the consumer of advice received is a significant omission and may make the complaint and redress process more difficult for both consumers and firms. The PAI, while a useful way of providing comparative mortgage information, is not an adequate substitute for written confirmation of the reasons for the recommendation.
· The Mortgage Board welcomed the FSA’s proposal to introduce transitional arrangements for those individuals who have met its own Fitness & Competence Requirements and give ‘due credit’ to firms of ‘good standing’ registered with MCCB.
