Sitting in one of the seminars at the London Business Expo, one comment certainly rung true for myself and I’m sure for my fellow journalists in the room. Speaking on protection was Jonny Timpson, head of distribution and development for protection at Scottish Widows. His opening remarks went like this.
“One of the things that has struck me is the fact this industry is regulated by speech. You can go to the website of the Financial Services Authority (FSA) or to the various trade bodies if you want information on what the regulator is doing. But if you want to know what the regulator is going to do next, read the coverage of the many keynote speeches in the various trade magazines as these often point to the changes in regulation and the way your business is governed.”
Obviously from our point of view, one of our jobs is to provide you with all the news coming out of the regulator so you can remain one step ahead and in business. However, this point was made more interesting as approximately two hours before, I’d sat in the same seminar room and listened to Clive Briault, managing director retail markets at the FSA, explain what its next round of thematic work would reveal.
While there were apparently many good things uncovered, there were some major concerns which needed to be addressed.
“It is too early in the project to confirm numbers but it is becoming clear affordability is not being adequately discussed and assessed in an unacceptable number of firms,” Briault remarked. “Indeed, in a worrying number of cases, affordability is not being discussed with customers at all.”
A worrying topic
With all the commotion about lenders stretching their criteria and first-time buyers (FTBs) still struggling to get onto the property ladder, worries about intermediaries not giving adequate advice is not a good thing to be hearing from the financial services regulator.
However, according to Stephen Atkins, group company director at Freedom Finance, concerns over the quality of advice clients have been receiving is a topic which has been worrying many within the industry for some time.
“I’ve been on record for ages that if interest rates rise and people get into difficulty, they will go to their lawyer and the first thing they will ask them is, ‘did your broker talk to you about affordability?’. Due to low interest rates, brokers have been getting away with it, but it won’t take much to push many consumers the wrong way.”
It’s not just affordability which has the FSA ruffled. Two topics that have cropped up before, disclosure documents and interest-only mortgages, seem to be causing it trouble and, as has been shown recently, the FSA is becoming more firm in its enforcement action.
As Briault explains: “Through our thematic work earlier this year, we found more than half of Initial Disclosure Documents contained five or more errors. This is a concern, particularly as we have reviewed this area before and published all the information firms need on our website. We are now looking into this area for a third time. If mortgage firms have not made the right improvements in these areas, we will take appropriate action.”
Be aware
Rob Griffiths, associate director for the Association of Mortgage Intermediaries (AMI), says it’s too early to tell exactly what the FSA will find but brokers should be aware of their responsibilities.
“Our members are aware of their responsibilities. It is up to brokers to fully document the process and make clients aware of the product they recommend and the potential consequences of that product. Brokers should document that clients have been made aware of things like interest repayment vehicles. The process is there and if it is followed by brokers, they shouldn’t be lacking in their belief to give advice.”
However, even though Briault’s speech highlighted many of the concerns which the FSA has after two years of regulation, he was also quick to praise some of the improvements which had been made and the good work going on in the mortgage industry. Areas of particular acclaim were ensuring adverse clients are moved onto the prime products when their credit rating improves and taking a wider view of the buying process for FTBs.
But mixed in with this carrot was a fair amount of stick in the shape of a warning to those advisers not living up to the FSA’s standards that they face damaging the reputation of the wider industry if they fail to toe the line.
Briault added: “There are many firms out there giving good quality advice and treating their customers fairly. Consumers are right to have confidence in the mortgage advice industry and we see examples of good practice in mortgage firms every day.
“However, we need those firms that do not treat their customers fairly to act now to improve so that they do not damage the good reputation of the industry for all.”
