Underlying many of the issues raised in the Questions from hell postbag are the questions, ‘what is the Financial Services Authority (FSA) going to be looking at next,’ and ‘how do I make sure I am doing the right things to comply with this topic?’ The first of these two questions often prompts wide-ranging rumour and speculation, but we do have a solid baseline of information available from the regulator – but we need to seek it out.
The FSA published a table, Forthcoming Mortgage Projects, on 25 April 2006, and here is a short summary of what it sets out. Many of the planned projects refer back to earlier FSA work and aim to see if the required improvements have been made, especially with regard to how well firms are fulfilling the FSA’s principles for business. Topics for review in 2006 include networks’ control over their appointed representatives (ARs) (referring to principle three, which states a firm must organise and control its affairs responsibly and effectively with adequate risk management systems). A fact sheet, Controlling Appointed Representatives was published in December 2005, pointing out the need for a more risk-based approach, improved documentation on compliance responsibilities; more responsible enrolment of ARs/better AR contracts to protect customers; and better documentation of compliance matters.
Principles six (‘Treating Customers Fairly’) and seven (communications that are clear, fair, and not misleading) will be covered by further investigations into disclosure documentation and self-certification (which also involves principle one, which requires firms to conduct their business with integrity). The FSA will also look at the quality of advice given to mortgage customers, under the general scope of principle six, which is an ongoing area of FSA monitoring. Research carried out so far on the quality and suitability of mortgage advice is summarised in a factsheet, which can be found in the mortgage firms/good practice section of the FSA website.
Work in the mortgage sector will contribute to how well the FSA’s overall retail agenda is ensuring TCF, which also includes firms’ management information on monitoring and measuring TCF and provider/distributor relationships.
Also concerned with TCF within the mortgage sector will be an investigation on the quality of advice given by compliance consultants to mortgage advisers, and training and competence (T&C) within mortgage firms. In addition, lifetime mortgages are in line for ongoing scrutiny, following initial mystery shopping and visits in 2005, where serious shortcomings were revealed in the sales practices of firms selling lifetime mortgages. Clearly, the forthcoming year contains a full agenda for mortgage firms to concentrate on – but one that should also contain few surprises.
Bringing website compliance
in-house
Q1: Our firm uses a marketing company to run and update our website. We have been told they are going to increase their charges, which we think are quite high already and are thinking of managing the website ourselves. Do you think we should take it in-house?
Bill answers: It’s a bit difficult to answer your question without more information. However the main point has to be, as I am sure you are aware, that you have to take responsibility for what the marketing company does on your website. That said, if you have a robust contract and closely manage the marketing firm’s changes and improvements they could be a good investment. Having stated perhaps the obvious, if you have both the technical skills and a competent sign off process, including the all-important compliance person, unless you are promoting current products on the website, which currently would be very time consuming with the constant product changes, doing it all in-house gives you more control of course but saves you a not inconsiderable amount of money.
Lead generation worries
Q2: We are currently reviewing our use of and success with lead generation companies. We have asked each of the firms we have approached some basic questions about them as a company, how they generate leads and sell them. We also asked the firms if they had a Consumer Credit Licence and had notified the Data Protection Office, to which we received a very negative response. Should they have a Consumer Credit Licence and be Data Protection registered?
Bill answers: Dependent on exactly what the lead generation companies you approached do business-wise in addition to generating leads, would answer the first question regarding a Consumer Credit licence. If they are only generating leads via the usual methods, I wouldn’t have thought they would need a CC licence. I would expect them to be Data Protection registered as a basic business requirement. I would, of course, expect them to be both aware of and compliant with the FSA’s rules.
Lenders cascade systems
Q3: Much has been talked about relating to lender’s cascade systems. Do you think they are a good tool for brokers and do you think they have a future?
Bill answers: They are a good tool if used properly or should I say compliantly. As has been written elsewhere several times, it is always the broker who has to take responsibility for the advice given. The potential problem with cascade systems is that, if the lender comes back and says the client will fit another product, i.e. not the product the adviser has recommended, the broker should then research the market to check that the product being suggested is actually the best fit for the client, before agreeing to proceed on the lender’s suggestion. The cascade system should also cascade up and down. Do I think they have a future? Yes, if used properly.
