There is no doubt that the Financial Services Authority (FSA) is going to get tough with brokers who fail to comply with mortgage regulations during 2008.
We have now seen plenty of evidence that the FSA is willing to impose hefty fines and even prevent brokers from trading if they continue to flaunt the rules.
Some of the areas which the FSA is inevitably going to take a closer look include self-cert, the sale of payment protection policies, Financial Promotions and record-keeping.
It’s easy, when the market slows down, to focus on new business activities at the expense of regulatory and compliance issues, but that would be a big mistake this year. Especially with important ‘Treating Customers Fairly’ (TCF) deadlines looming on the horizon.
Here are some helpful hints to staying on the right side of the FSA during 2008:
Self-cert
Self-cert is always going to be a product which comes in for its fair share of regulatory scrutiny and you therefore need to ensure you get the basic right.
- Affordability – affordability must be proven, whether income is or not. Always ask clients to state their monthly net income and normal expenses so that their mortgage payment is shown to be affordable.
- Income – if clients have inadequate income then you cannot advise them. You must also ensure that information clients give you about jobs and income are reasonable.
- Record-keeping – make sure you record, and explain to your clients, why self-cert has been recommended. If they are on PAYE then you need to demonstrate why self-cert was appropriate.
- Suitability – any recommendation given to clients must tie up with the information given in the client factfind. If a client wanted a fixed rate with no penalties and you recommend a tracker with penalties then you will not have satisfied the appropriate rules.
- Fast-track – never confuse self-cert with fast-track.
Always ensure you fully explore a client’s protection needs and document the outcome.
Not only is this a necessary part of the advisory process, but the sale of buildings and contents, accident, sickness and unemployment, life, income protection insurance and so forth can help increase your income per mortgage completion.
Protection must, however, be appropriate to the client’s circumstances – ensure you document your recommendation and reasons why.
Financial Promotions
Check all of your promotional material to ensure it remains compliant.
Make sure your advertising is balanced and doesn’t contain misleading statements and ensure you use the correct risk warnings and APRs.
Pay particular attention if non-conforming mortgages are being promoted and that APR figures are up to date and relevant.
Website
Don’t just check your website to ensure it is compliant, but also check that it is promoting your services as effectively as possible.
Remember, websites are excellent at providing potential clients with additional information which you cannot hope to include in advertising, so make sure your advertising and website are as effectively integrated as possible.
TCF
2008 is a big year for TCF with key deadlines looming at the end of March and December. Don’t leave TCF work to the last minute, because you need to be able to demonstrate how you have been implementing TCF within your business.
Training & competence
Review how you can prove that your advisers and staff are competent to do their jobs.
Make sure your records show appropriate training. Check that the work your advisers do is regularly monitored and consider additional qualifications.
Client contact
In a slow market it is important to be able to work your existing client base as effectively as possible. So make sure you have permissions from your clients to contact them on a regular basis.
Lifetime mortgages
If you provide advice regarding lifetime mortgages, review your practices to ensure you can adequately prove the suitability of your advice.
Business plan
Planning is even more important in a slow market than in a buoyant one. Regularly reviewing your business plan will not only keep the FSA happy, but will also help you keep the income flowing in.
Disaster recovery planning
Ensure you have a good disaster recovery plan in place and that it is kept up-to-date. Don’t make the mistake of thinking ‘it will never happen to me’ because it can.
More than 90 per cent of businesses which suffer a disaster such as an office fire never open their doors for business again, simply because they have no plan in place.
All of these points are simply common sense and good business practice.
The danger, however, is that as you get taken-up by the day-to-day demands of clients and chasing new business and compliance procedures and good practices get put on the back-burner. Make sure it is not a trap you allow yourself to fall into.
