Now that the deadline for firms to implement ‘Treating Customers Fairly’ (TCF) has come and gone, many readers may be thinking ‘what next?’ The answer is that regulated firms are going to be held to account with regard to their TCF performances, along with all the other principles and rules, under the Financial Services Authority’s (FSA) supervisory function. Firms are supervised according to the risk they present to the FSA’s statutory objectives, according to the likely effect on consumers and the market and the probability of a particular issue becoming a problem. One of the ways in which the FSA assesses risks is its thematic approach and it has told us in advance about the themes that it will be concentrating on – including TCF – in the April 2007 plan.
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The 2007/2008 thematic priorities for TCF are grouped under the general heading of ‘ensuring firms are delivering fair outcomes for consumers’. They include a reminder of the six desired consumer outcomes, which are: TCF being embedded in firms’ culture; targeting of products to specific areas; suitability of advice for individual consumer circumstances; products meeting consumer needs; clear information; no post-sale barriers and fair treatment over the whole product life cycle.
The first part of the 2007/8 TCF thematic project is to look at the continuing progress of firms in implementing TCF including assessment against the March 2007 deadline. There will be verification visits to firms and information gathering, and the results of will be published across the second and third quarters of 2007.
A lot more mortgage-related work appears on the forward thematic agenda. There are four continuing projects under the general topic of debt and affordability: sales practices in the non-conforming market; mortgage self-cert; interest only mortgages; and mortgages into retirement
A new project, affordability in mortgages is to be started, which will be reported on in the Q4 of 2007.
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Regarding improving the quality of advice, thematic work for 2007/8 includes follow up on the Quality of Advice Review and its outcomes, and continuing work on the Retail Distribution Review, including conclusions and solutions arising out of the discussion paper scheduled for Q2 2007. Under the topic of dealing with specific issues, two themes that are related to the mortgage and general insurance sector are payment protection insurance phase three and finance into retirement.
With all this information to hand on the FSA’s thematic focus over the next twelve months, I expect the Questions from hell postbag to be more overflowing than ever following this issue of Mortgage Introducer.
Financial Promotions
Q1: I have received what looks like a standard letter from the FSA’s Financial Promotions team enclosing a promotion we issued a few months ago. The letter says that the FSA does not think the promotion is totally compliant but it doesn’t say what’s wrong. The FSA has listed a number of common breaches of MCOB 3. Is this normal and what sort of thing could it be concerned about, as we thought the promotion was compliant when we signed it off? The FSA also says it is happy to discuss the letter but doesn’t actually need a reply!
Bill answers: The letter is quite common and is a good way of forcing us all to rethink and maybe learn from the circumstances. If the FSA thought there were major breaches I am certain it would ask you for immediate action.
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Without seeing the promotion or the letter I cannot be 100 per cent sure, but I suspect the promotion has become out-of-date. This could be for several reasons, one of which could be that if you are quoting an APR, with the changes to interest rates in recent months, the rate you are showing is probably too low and no longer representative of the market. The FSA has issued guidance and a paper on the effects of MiFID especially on Financial Promotions so it is well worth looking at your promotion in the light of this. The other factor to consider is your own management and control of the promotions you have approved in the past – is your review process as robust as it should be? If you approved a promotion a ‘few months ago’, how many times have you checked it since? Every 28 days is considered to be good practice.
A case of libel?
Q2: We have been told that a partner in a competitor firm of ours has been criticising us as a firm incorrectly, via both an internal e-mail system and using external e-mail. The firm involved is authorised by the FSA and my inclination is to report it to the FSA under its principles for business, as it shows a lack of integrity and poor standards. It has also been misusing information gained indirectly from us. Do you think the FSA would take action?
Bill answers: If the issues are important and you feel strongly about them you should complain about the firm to the FSA. However if you do, make sure your report is factual and cross-references to the FSA’s handbook including principles of business as you refer to in your question. We all know it is a competitive world but the law of slander and libel still apply.
Getting confirmation
Q3:With so much being written about the negative implications for advisers if they recommend an interest only mortgage, would it be a good idea to ask clients to sign some form of confirmation that they have had the full implications and risks explained to them and an agreement that we manage their mortgage arrangements using regular reviews to ensure the risks of interest only are minimised?
Bill answers: Your suggestion is a good one, although no absolute guarantee that either the client or the FSA may take issue at a later date. However it provides strong written evidence of events at the time – as does a good suitability letter – and attempts to treat the client fairly, assuming that interest only was the route that best meets the clients’ requirements.
