Questions from hell has always been intended as a forum for readers to ask specific questions about day-to-day compliance issues and then try to supply them with practical, down-to-earth answers. At the same time, we should never forget that the Financial Services Authority’s (FSA) approach is very much principles-based – and it’s no good worrying about the details if your grasp of the principles behind them is not secure. Principle number six of the FSA’s 11 Principles for Business is all about ‘Treating Customers Fairly’ (TCF) and it’s become one of the key focuses of the FSA’s activity. At Complete, we have come to the conclusion that it’s not only our appointed representatives (ARs) that need to understand about TCF – the customers also need to understand they are being treated fairly. After all, the whole point of regulation is to protect customers, so they need to feel properly treated through the whole process. To achieve this, we have produced a ‘Plain English’ guide (approved by the Plain English Campaign) that sets out some basic TCF standards for customers – not rocket science but, we hope, practical.
Here are the key points that we believe customers should understand about TCF. First, customers are clearly informed that the adviser’s aim is to treat them fairly and make them understand all the parts of the product they are buying. There is also an appeal to the customer to ask for a better explanation if they don’t understand. Next, the customer is told about the aims of the adviser firm. These include a commitment to absolute clarity on the recommended product, all rates and charges and likely timescales. Customers are also reassured the adviser is aiming to deliver what has been promised, with no surprises, and will do everything they can to put matters right if anything goes wrong. There is an acknowledgement that the customer is not an expert on mortgages or insurance, so every effort will be made to help them understand the product before it is committed to.
Thirdly, we tell customers about the duties of the adviser regarding three key elements of the regulatory requirements that aim to ensure fair treatment of customers. The first is the duty to recommend only products that fit the customers’ needs; irrespective of how much money they will make for the firm. The second is the duty to recommend to the customer products that they can afford, and the third is the duty to make it easy for the customer to complain if they are unhappy. Finally, we appeal to customers to give honest and accurate information on three key issues; their financial commitments; how they plan to repay the loan if an interest-only payment option is chosen; and, if no proof of income is available, the need for an accurate and realistic earnings figure.
We believe this approach will be helpful in fostering the true spirit of TCF, and we will be delighted if our AR’s clients respond positively to a genuine attempt by their advisers to show them what TCF means for them.
Q1.Much has been written about ‘self-cert’ mortgages either employed or self-employed and the impression given is that an adviser cannot put enough on record somewhere to prevent accusations of mis-selling from the regulator. What do you think the FSA expects to see and where?
Bill answers: It’s certainly well known that the FSA sees this sector of the business as high-risk and has done for some time. I do believe that it does accept that self-cert has a place in the market, for the self-employed especially. Where the FSA, and I, would suggest many compliance officers struggle is the justification for employed self-cert mortgages. Having said that, there are always exceptions – for example, someone with a second income from evening work perhaps, which could be difficult to confirm. To answer your question, there has to be recorded, as a minimum, the income details plus confirmation that the applicant understands the implications of supplying the adviser with rogue information. The factfind would be the ideal place to record the information giving reasons/an explanation as to why the case is self-cert.
The adviser must ensure there is sufficient detail for their compliance officer and/or the FSA to pick up the file and see clearly what the applicant’s position was and why a self-cert mortgage was most appropriate. Nothing new in that, but the point remains that the adviser’s sales system, the suitability letter if one is issued, plus their own paper file contains the same detail and clarity of information.
Q2.Recently there have been rumours about the difficulties some regulated firms, networks especially, had and are having still in initially completing Section J (fee income) and supplying information subsequently to the FSA. Do you know what the issues are?
Bill answers: I have, like you, heard some firms have had difficulties, but have not spoken to one that has been able to obtain any facts. It has been well aired that at the time of authorisation some firms, with good and honest intentions, overstated their anticipated income from regulated activities and have had to pay fees based on these numbers. In the context of the latest RMAR reports, it would seem to be common sense that, where the numbers reported are somewhat lower, there could be queries from the FSA. However I also heard there were technical difficulties in January-early February with the RMAR reporting system, but I have no facts to support that rumour. With the FSA getting to grips with the volume of firms reporting and the data supplied, especially for such a key section of the report, it is perhaps inevitable there are some problems. Sorry I cannot be more specific.
Q3.Within MCOB and elsewhere there are differing timescales for the retention of documents. Do you have a view as to the ideal timescale for document retention?
Bill answers: My view is that all records should be retained for the life of the mortgage involved at least. It’s still early days in the new regulatory world and no doubt after two or three years have elapsed, the number of complaints received might increase from the very low levels now. Better to be prepared by erring on the side of caution until we individually and collectively have some experience perhaps.
