Financial Promotions remain a contentious issue for the mortgage industry, with non-compliant adverts continuing to frustrate brokers and the Financial Services Authority (FSA). Yet, the idea that the FSA should name and shame all firms that do not toe the line is one not everyone believes would benefit the market.
The Financial Services Consumer Panel (FSCP) recently called for the FSA to take tougher action and make public the outcome of all complaints, not just against firms where the full enforcement procedure has taken place. The call came after the FSCP found that from a one-day survey of Financial Promotions in newspapers, 47 per cent of mortgage promotions did not comply with the rules, with 5 per cent of these classified as high-risk to the consumer.
This call to name and shame all non-compliant firms was welcomed by some, particularly in light of the length of time that has passed since regulation was introduced. Thomas Reeh, chief executive at blackandwhite.co.uk, believes firms have had plenty of time to comply. “It’s very frustrating from a large firm’s point of view that we’re compliant while others are not. It’s the smaller firms who are not being caught. The FSA is a long way from catching up with one-man bands who are not even close to being compliant with the law.”
He adds: “The reality is that it’s the bigger firms who spend time and money being compliant. It’s not a level playing field and people are deliberately ignoring the rules. The FSA needs to name some names. If the rule is good enough for one, it should be good enough for all.”
Pressure
However, David Whitely, spokesman for the FSA, says: “It is not true that the FSA offers no pressure to make sure advertisers keep to its requirements. The FSA will always name the worst offenders, but only after the processes it is required to follow for formal disciplinary cases. Indeed, a number of firms are currently in enforcement. The FSCP’s release implies the FSA has the freedom to disregard the processes – or invent one – around this, which again is not true. This is laid down in statute.”
But, while Reeh recognises that larger firms have the advantage in being able to have compliance departments, he maintains smaller firms should not escape being disciplined. “Everyone needs to sit up and take notice of the law. It’s not really good enough not to, especially as one-and-two-man bands make up a very big segment of the industry. The FSA needs to be much more proactive.”
Hesitant
But others are hesitant over how useful naming all firms would be. Bill Warren, director of Complete Mortgage and Loan Service, says naming serious offenders is a positive wake-up call to other firms. However, he adds: “The difficulty is not every advert is the same. The FSA could name and shame a firm and do serious damage to its reputation, but it doesn’t affect anyone else, because no one else uses the same approach.
“It will definitely help having the FSA and the Office of Fair Trading (OFT) working more closely, as there are promotions that are covered by both the OFT and FSA regulations. The FSA has sufficient powers and I’m sure it is using them. On the surface, the FSA is doing all it sensibly can to help. It can only go so far, as firms need to help themselves.”
Tony Jones, managing director of Pink Home Loans, adds the FSA has to take a balanced view, but ought to name the worst offenders. He explains: “Where a company is wilfully misleading customers, this is where the focus should be. The FSA is quite reasonable in the action it takes, but it does need to clamp down on breaches that mislead customers. A proportionate response is needed.”
But Jones does understand the desire to name all names. “A lot of mortgage intermediaries are spending a lot of money on being compliant, yet they witness people blatantly disregarding the rules. It puts them at a competitive disadvantage.”
Excuses
Yet, how to help smaller broker firms get a handle on the rules is a difficult topic, with suggestions ranging from clarifying the rules through the regular FSA intermediary newsletter to targeting the newspapers themselves and showing them what adverts should look like.
But Jones believes the FSA can only go so far in trying to educate firms. “You can’t always go back to the excuse of being a small broker. There is a point where, if the FSA doesn’t draw a line, people will always push the boundaries. People have to comply with regulation otherwise it’s unfair on large firms. I think the FSA will eventually say enough is enough and that smaller firms will have to look at other solutions, like joining a network.”
This issue is unlikely to go away quickly. As smaller firms continue to struggle with understanding the regulations or merely flouting the rules wilfully, larger firms will continue to be frustrated at the FSA’s apparent lack of action. But comfort can be taken the small number of high risk adverts running in the media, as it is the customer in the end who will be affected most.
