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FSA urged to rule on compliance firms

Sesame has called for compliance service companies to be regulated by the Financial Services Authority following the publication of the regulator’s thematic work on the quality of mortgage advice.

Patrick Gale, chief executive of Sesame, says while it is clear that some in the mortgage industry are failing to take regulatory obligations seriously it is important the FSA is constructive when dealing with small firms.

Gale says: “Small firms need the reassurance that they can rely on their service companies to give robust advice that will stand up to FSA scrutiny. We cannot see why any service company would be reluctant to support a move towards regulated status, in the pursuit of higher standards.”

Gale suggests the mortgage industry is becoming polarised between a small group of mortgage brokers that are reacting to the spiralling cost of regulation by seeking direct authorisation in the hope that they will go unnoticed by the FSA and those struggling to comply with the regulatory environment.

The FSA reviewed 252 firms of differing sizes through mystery shopping, visits and questionnaires between June and October last year. Areas of concern to the regulator included the assessment of customer needs including affordability, training and competence, overall systems and controls, and record keeping.

The FSA found more than three-quarters of small networks and brokers did not have robust processes and both the visit findings and mystery shopping identified instances where the lack of robust processes led to the risk of unsuitable advice being given.

Clive Briault, managing director of retail markets at the FSA, says the regulator found “significant failings in the advice-giving processes in a number of mortgage firms”.

He adds: “Poor processes increase the risk of unsuitable advice being given. It is essential firms have robust processes in place, so that they treat their customers fairly and provide suitable advice. It is crucial that customer needs are assessed properly. Customers should consider what they can afford both now and in the future, taking into account any likely changes to their circumstances.”


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