“Oh crystal ball, crystal ball, save us all, tell me life is beautiful.” So sing popular beat-combo Keane at the moment – well not as we speak as one of the poor mites has been struck down with exhaustion. Anyway, I am loathe to dissect these lyrics, as I believe them to have been thrown together simply because they happen to rhyme, although if we are to take this to it’s natural conclusion, ‘ball’ and ‘all’ should really be followed by ‘beautifall’. But what are the cherub-faced popstars trying to tell us? Should we really be looking to fortune-tellers to ‘save us all’? Can we work out that life is really beautiful by looking at tarot cards or, heaven forbid, the tea leaves?
I hope not. But, it did get me thinking, wouldn’t it be rather handy to have a ‘heads-up’ on what the future might bring? To be able to prepare and plan knowing what was coming around the corner. It would certainly make picking the winning lottery numbers rather less tricky. Although this shouldn’t be taken to mean I would like to see the return of Mystic Meg to a lottery show any time soon.
Well, wouldn’t you know it, mortgage intermediaries have been given a ‘heads up’ on the rest of the year and into next by none other than the FSA itself. The regulator has recently produced details of its major thematic work programme for the second half of 2006 and also information on what it calls its ‘smaller pieces of thematic work of wider interest’. There are numerous pieces of planned work which will be of interest to mortgage intermediaries and should be used by brokers as a kick-start to ensure they are fully compliant in these areas.
First up is the regulator’s work on its ‘Treating Customers Fairly’ initiative. Last month it published its TCF suite of papers including its work on the quality of advice from retail financial advice firms; the use of management information to ‘monitor and measure TCF’; the progress of firms in implementing the principles of TCF in their businesses; and we are expecting further information on its view of provider/distributor responsibilities.
The papers include useful case studies and examples of good and bad TCF practice for firms to consider. The ‘headline’ to come out of the paper concerned the March 2007 deadline date the FSA has announced for all firms to be implementing TCF in their businesses by. This stage should follow a formal review of TCF practices throughout the firm. AMI members can use the two TCF factsheets currently available on our website to help them with their reviews and implementation. The ‘Developing TCF’ factsheet will be of specific use to smaller firms and contains a risk analysis tool to determine those areas where specific work needs to be done. FSA has said it will continue to focus on TCF and clearly they will be reviewing how firms are implementing it up to, and beyond, March 2007.
The regulator is currently finalising its research results into the effectiveness of the mortgage review. Essentially it is attempting to find out if MCOB is delivering the benefits it intended for consumers. This has been undertaken through consumer research, desk-based reviews and mystery shopping, and the results of this work are due to be communicated in Quarter 3 this year, probably September. From this work FSA might make recommendations for rule changes or amendments, although AMI expects any changes to come out of this work to be minimal. The FSA’s stated aim to move to a more principles-based regime will bring about simplification of COB, but the mortgage sector needs a period of stability and we expect MCOB to remain as is, unlike ICOB which could be subject to a number of amendments.
The FSA’s team looking into payment protection insurance (PPI) is due to report next month with details of its key findings and any further action it may take in this area. It is working closely with the Office of Fair Trading (OFT) which has also conducted a market study, the emerging issues of which have recently been published. AMI has been working extensively with both the FSA and the OFT on PPI and has an upcoming action plan to deliver which includes factsheets and good practice notes for members.
Following on from the regulator’s work on the quality of advice in retail financial advice firms will be a similar piece of work looking specifically at firms offering mortgage advice. It will look to outline good and bad practices in the quality of advice through desk-based reviews, mystery shopping and supervisory visits. FSA will also look again at the self-certification sector reviewing standards, specifically amongst intermediary firms. It is a follow-up to its 2005 review which found particular concerns around the issues of affordability and suitability.
In the smaller pieces of thematic work FSA plan to look at, mortgage intermediaries will be interested to see programmes planned for interest-only mortgages without repayment vehicles (the FSA’s Consumer Panel has been particularly concerned about the sale of interest-only products), mortgages into retirement and sub-prime mortgages. These areas will be covered by consumer research, desk-based reviews and supervisory visits, and are due to report findings at the end of 2006/start of 2007.
These outlined areas are, of course, not the only ones FSA will focus on but they do give us an idea of the bigger priorities over the next six months. Firms giving advice and conducting business in these areas should ensure their systems and controls are robust and their practices compliant. You can’t always see into the future but you can certainly prepare for it.
