A couple of recent new items have linked the Department of Trade and Industry’s (DTI) Office of Fair Trading (OFT) firmly to matters that concern mortgage and general insurance (MGI) firms. The first was an announcement from the Financial Services Authority (FSA) that it is about to produce a joint action plan with the OFT on improving regulation. The second was the news that the OFT had launched an in-depth market study of the payment protection insurance (PPI) sector. Many of us, still trying to cope with the scope of FSA regulation, may well be wondering how another government body has got involved in the regulatory issues, and what the eventual consequences may be for our own businesses.
Taking the PPI issue first, the FSA only published the results of its own thematic work on the sale of PPI in November 2005, so what more could an in-depth study by the OFT add? Isn’t it a duplication of cost and effort? In fact, for a number of reasons, the OFT was compelled by its own constitution to undertake this study.
Under the terms of the 2002 Enterprise Act, designated consumer bodies are allowed to make ‘super-complaints’ to the OFT, where they perceive market features to be harming consumers to a significant extent. In September 2005, Citizens Advice issued a super-complaint to the OFT on the subject of PPI. It set out four main areas for the OFT to consider: the excessively high price being paid for PPI; partial protection with unreasonable exclusion of common causes of credit default; high pressure and unfair sales tactics; and slow and unfair processing of claims. The Act requires the OFT to publish a response to super-complaints within 90 days, so it had to prepare the bulk of its response before the FSA’s thematic work on PPI was published in November 2005. Consequently, it looks as though the organisations have not been talking to each other, whereas the opposite is actually the case.
The aims of the FSA and the OFT are closely aligned, so it’s not surprising that their areas of interest can sometimes converge. The OFT’s goal is to make markets work well for consumers, in a climate of vigorous competition between fair dealing businesses. It plays a leading role in helping consumers understand their rights, while ensuring business practices are fair and competitive. The OFT enforces a wide range of consumer protection legislation – often in conjunction with other regulatory partners – including unfair contract terms and misleading advertising. It also aims to inform and educate consumers, businesses, the media and all the rest of its stakeholders.
The FSA’s aims are clearly similar to the OFT’s when it comes to ensuring fair markets in which stakeholders can have confidence, protecting consumers and promoting better consumer understanding. The announcement of plans for the OFT and FSA to work more closely together on related issues to achieve ‘improved collaboration on matters of mutual interest’ are therefore to be welcomed – especially if they can result in less duplication and lower costs.
Q1: There has been a lot written in the press in recent months about the FSA’s attitude to self-cert mortgage arranging. As a small packager, what should we be doing to protect ourselves from any potential problems our broker business sources might have in the future?
Bill answers: “You don’t say how you operate as a packager and whether you are also authorised. Making the assumption that you are, the first point to make is what checking do you carry out when you receive a self-cert case from one of your brokers. If you are authorised and undertaking a regulated activity, the very least that would be expected in a self-cert case is that you review the application for the stated income in relation to the job type involved, i.e. is the income being self-certified realistic for example? The lenders you are packaging for would expect detailed checking as a minimum I would assume, plus a check of all the other data involved in the case.”
Q2: The FSA’s announcement that it has come to an agreement with lenders to send it details of cases considered fraudulent or highly suspicious received from brokers seems like another case of the FSA and lenders trying to do down the intermediary sector. What can be done about this?
Bill answers: “No one condones fraud as it harms us all, but the FSA does have to meet its statutory objectives preventing financial crime and this is one way it can obtain data to do this. Sadly, there are some lenders who will use the opportunity to try and push responsibility onto intermediaries for things they should have spotted themselves, however I suspect the FSA is wise to those situations from its monitoring of the lenders systems and controls. There are many forms of fraud, some very clever, and some not, so remember the simple act of inflating an income on a mortgage application is fraud, especially in a self-cert case. In answer to your question as to what can be done, supporting your trade body, the Association of Mortgage Intermediaries (AMI), in driving up standards in the market is probably the second step after aiming for the highest standards yourself.”
Q3: I am about to complete, or attempt to complete, my RMAR report – is it best seek help from a consultant or try myself?
Bill answers: “The answer, to some extent, depends upon the size and nature of your business. The FSA RMAR reporting system has a lot of ‘help’ pages well worth reading in preparation for starting the report. In addition, the FSA has recently added guidance notes split into RMAR sections on its website and is well worth reading and printing off for reference purposes. If you use a good mortgage consultancy currently, for any aspect of your business, they will no doubt be able to provide you with guidance. If you don’t use one, I would suggest looking at the FSA’s guidance first before deciding to use one.
