With the current economic climate most brokers would be forgiven for focusing on the viability of their business models and how they are going to maintain stable income levels in an uncertain market. Worrying about another layer of regulatory changes is likely to be the last thing on their minds. However, the FSA has made it very clear that tough market conditions will not alter the agenda for TCF and any firm that comes up short will be punished, indeed the blame culture that is pervading the economy at the moment may, regardless of facts, end up at the brokers’ doors.
The ambiguity about the move towards principles-based regulation has been much debated. Some industry watchers thought the shift would give firms greater freedom giving them more discretion when implementing TCF. Others have pinpointed the conflict that lies in a principles-based TCF approach coupled with a highly prescriptive mortgage rulebook.
Principles
Regardless of your viewpoint there is a universal problem with the principles-based approach in that it fails to give firms clear guidelines and can lead to different approaches being taken for different clients. The difficulty of this approach is the capture and reporting of information in a way that shows a disciplined approach, but is applied in a bespoke manner. An ambiguous principles-based approach, regardless of its correctness for the client, will make it difficult for brokers to demonstrate that they are indeed adhering to TCF.
The FSA has already expressed concern that, whilst it believes most firms are committed to the spirit of TCF, there is little evidence that they are making the cultural changes needed to treat their customers fairly. The FSA says that adherence needs to be demonstrated through a range of measures looking at the customer’s experience, from initial advertising and advice given to the borrower through to after-sales support. Firms that are having the greatest success in delivering TCF are those that recognise it as something that can deliver real commercial benefits, if carried out in the right way.
Standards
Firms will also need to be able to show the FSA that they have been meeting the required standards for the months leading up to the end-of-year deadline.
So what measures can brokers take to ensure that they are able to prove to the Regulator that they are adhering to TCF, especially taking into account the possible ambiguity of a principles-based approach? One solution is for brokers to talk to their technology provider to ensure that they have appropriate functionality in place in order to not only meet the regulatory needs of TCF, but also the management information to prove it.
Our experience shows that much of the regulatory battle can be won if the technology solution can demonstrate a structured process is in place. The process is in reality fairly simple and should allow you to collect the client’s circumstances effectively, research the marketplace for suitable solutions, communicate them effectively (email, letter, face to face) and then document the recommendations efficiently. Ironically, demonstrating that you have a structured process in place and are collecting the right data that allows you to then produce the right metrics is as important as your decision making in order to satisfy TCF.
Appropriate technology takes the effort out of producing a customised suitability letter as a comprehensive set of compliance rules can run on the data collected and highlight pertinent compliance issues along the way ensuring that smaller nuanced issues don’t trip brokers up, it can then detail the client’s circumstances and the adviser’s recommendations along with any other pertinent facts in a client friendly letter.
Point of sale
Brokers need to talk to their point-of-sale providers as soon as possible to ensure that the systems that they use provide a structured process including comprehensive fact finding, compliance rules engines and comprehensive rule-driven suitability documents, which are key in order to be able to produce the necessary metrics required for TCF.
From a broader perspective, brokers should also take advantage of the wealth of information available to them, including training manuals and support material from networks and mortgage clubs. The FSA has also published material illustrating good and poor practice in the measurement of outcomes, using examples observed during previous assessments.
In its last update on progress, published in the summer, the FSA said that of the sample of firms tested only 13 per cent of firms met the March deadline. However, it said it was confident that with a substantial, continuing effort, approximately 80 per cent of the sample was still capable of meeting the December deadline. Whether its findings are a true reflection of brokers’ efforts or not, it is clear that no matter what turmoil is happening in the economy at present, the FSA is still sticking to its agenda. It is up to the broker community now to focus on meeting the December deadline. Times may certainly be tough at the moment, but they will only get tougher if brokers decide to push TCF back down the priority list.
