We have recently become aware of the fact that former networks remain responsible for all the mortgage sales made by their ARs and that this responsibility does not pass over to the new network. This is set out in the Financial Services Authority’s (FSA) rules on principals and their ARs, found in the Senior Management Arrangements, Systems and Controls part of the FSA handbook.
There are few firms that have not been affected by the current credit squeeze and this is increasingly true of smaller mortgage networks. Packager-backed networks have often been operating on the slimmest of margins and the current fall off in business levels is starting to trigger increased consolidation, with smaller mortgage networks being the most likely to exit the market.
If non-compliance and/or mis-selling by a former AR comes to light, directors and/or approved persons of the former network will become liable for any fines subsequently imposed by the FSA or compensation awarded by the Financial Ombudsman Service. This means that the approved persons of the original network should, in the first instance, make sure they have a watertight sales and compliance system in place. Then, they need to retain indefinitely all of the network’s records of how it managed and supervised its ARs, to prove that its sales were compliant with the FSA’s rules and principles.
At a time of continued uncertainty in the mortgage market, it would make sense for all networks and ARs to make sure of the full scope of their regulatory obligations and put in place systems and records to provide themselves with a safety net.
Richard Angliss
Managing director
Home Buyer Systems
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