The recent proposed changes to the Financial Services Authority’s (FSA) handbook have been introduced to bring the UK in line with Markets in Financial Instruments Directive (MiFID). Although many of us would prefer to ignore the European dimension to regulation, this will be an increasingly unsustainable attitude as the timetable progresses towards implementing European-led changes. The FSA has introduced a section on its website dedicated to how its European work on mortgages has progressed.
One of the EU’s desired outcomes for any intervention in retail financial services is the removal of barriers so customers can shop all over Europe for the best pensions, investments, savings, and mortgages. These barriers include difficulties in lender access to cross-border consumer credit data, no international valuation standards, and no overall European land registry. If there are no common information sources, then pan-European lending and borrowing will continue to be restricted. The July 2005 European Green Paper invited views on proposals to harmonise such matters as advice standards, APR, and standardisation of contracts, and a White Paper containing proposed legislation is expected to be published in the first half of 2007.
The FSA’s new web pages (see the link to what/international/EU/mortgages within the ‘About Us’ section of the FSA website) explain that, although welcoming the Commission’s work, the regulator has strong views on where focus should be. The FSA and Treasury have asked the Commission to look at its goals and suggested new priorities.
First, their view is that better enforcement of existing directives could help lenders to undertake cross-border activity if only all member states would implement them. Secondly, they suggest non-legislative action may achieve the desired goals at less cost than regulation.
The FSA and Treasury are also urging the Commission to ensure any proposal is subject to a full cost-benefit analysis. Their view is that the cultural, traditional and language differences in national markets are not likely to be addressed through intervention, which could have costs that outweigh the benefits. On the subject of legislating for compulsory advice on every mortgage, the FSA believes an integrated market does not mean that it should be mandatory for all customers to get advice – a subject the Association of Mortgage Intermediaries (AMI) has been raising with the FSA for some time.
Brokers taking the blame
Q1: The recent speech at the Expo by senior FSA director, Clive Briault, implied yet again that the broker market is to blame for the bad advice it finds. Does the FSA ever check up on the advice given by advisers employed by lenders? Who’s to blame for allowing the FSA to constantly attack brokers, and shouldn’t AMI stop them?
Bill answers: “The FSA does carry out reviews of lenders, not just via the FSA supervisor assigned to a particular lender, but also by using mystery shopping and including lenders in thematic work. The FSA strives to maintain a balance between lenders and brokers in the work it does, but I do wonder if the number of lenders ‘contacted’ as part of review is of a similar size to the broker market. I don’t think looking to blame someone for the negative FSA feedback helps – the focus must be on giving AMI maximum support through membership or involvement, to help educate the FSA as to how well brokers operate.”
Problems with principles
Q2: Have recent fines and speeches about Financial Promotions and systems and controls, with more to come about quality of advice, made it clearer how hard it will be for firms under principles-based regulation?
Bill answers: “I don’t think so. The bottom line is that we have been given, like it or not, statutory regulation. The huge size of the FSA rulebook makes it very difficult for firms to ensure they are complying with every rule without sizeable compliance functions. If you believe the regulatory environment we operate in reflects the wider social and economic requirements, plus the political attitudes, to be freer to operate with principles must be more cost-effective and capable of ensuring the industry survives to continue delivering sensible cost effective advice and solutions.”
Maintaining competence
Q3: I am the owner of a mortgage and general insurance firm with 10 advisers. I take full responsibility for their supervision including training and competence and the quality of advice. I am a qualified adviser but am struggling to give myself development time and feel less confident that I am leading the advisers as competently as I should. What would you suggest?
Bill answers: “By being honest enough to ask yourself the questions you are challenging yourself in a positive way. My suggestion would be to find a competent compliance consultant in the first instance to ‘audit’ what you are doing with your advisers to grow their competence. Then agree an on-going programme of support from the consultant, with performance measures.”
