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Know what’s coming from the FSA

The regulator recently published its business plan for the year ahead and brokers should ensure they are up-to-speed with it if they want to stay ahead of the game, says Nick Battersby

A month ago, the Financial Services Authority published its Business plan 2008/09. As mortgage advice and sales are regulated by the FSA, we should be aware of its plans and how they could affect the industry.

The first thing to note is that the FSA’s plan always goes hand-in-hand with its Financial risk outlook, which I looked at last month.

Simply put, the Financial risk outlook sets out the perceived obstacles to the FSA’s desire for an efficient, orderly and fair market and the Business plan is designed to mitigate those risks.

Of course, as with any other business plan, it also contains an estimate of how much it’s going to cost to tackle the risks – £323m – and where the money will come from. The FSA says that £320m will come from the fees paid by regulated firms – up 6.9% from the previous year.

The priorities outlined in FSA chief executive Hector Sants’ overview for the Business plan reflect the less benign economic environment we face. As a result, an extra £5.9m will be invested in an enhanced supervisory strategy for small firms.

Sants says the regulator plans that enforcement will act as a credible deterrent for non-compliant firms. And thanks to the Northern Rock crisis, it proposes to more carefully scrutinise firms’ liquidity and the adequacy of their stress testing and preparedness for unexpected events.

If this looks like a case of locking the stable door after the NR horse has bolted, Callum McCarthy, chairman of the FSA, explains the crisis was not something that took the regulator unaware but rather was the culmination of risks it has long warned the industry about.

He also points out that much of the FSA’s planned work concerns neither NR nor the liquidity crisis. It includes im-proving firms’ financial capability and the Treating Customers Fairly initiative – both priorities carried over from previous years.

As part of the FSA’s TCF work, we are told to expect a re-view of mortgage arrears management in the first half of 2008 and the publication of the regulator’s work on responsible lending in Q2.

These may look like issues that only concern lenders but they lie within TCF’s general affordability component so they could have implications for brokers too.

There will also be a broad review of the MCOB guidelines during 2008/09, including a look at simplifying its high level rules. So more changes to compliance that affects brokers are on the horizon.

A couple of topics regarding small firms are of particular interest to the mortgage industry.

First, the FSA’s enhanced supervision strategy for small firms builds on its established risk-based approach to the subject, with help being given to brokers striving to deliver TCF but action being taken against those not committed to the regime.

Contact is planned to cover most of the 17,000 small firms the FSA regulates every three years, hence the extra £5.9m. The FSA stresses that the quality of regulatory reporting needs to be improved because it provides vital indicators for identifying risks, so companies that persistently submit inaccurate regulatory returns can expect to come under in-creased scrutiny.

The FSA also promises to build on the changes it has made in the way it communicates with small brokers. Its website, newsletters and regulatory round-ups will continue and roadshows aimed at small brokers will focus on practical assistance and spurring companies into action ahead of December’s TCF deadline.

Finally, returning to the topic of regulatory reporting, we have been given advance warning of a new acronym that will appear later in the year.

As with its heavenly namesake, Gabriel is a communications channel and stands for ‘gathering better regulatory information electronically’. Gabriel will go live for companies that complete their Retail Mediation Activities Returns from October 1.

A full programme of training events and an online computer-based training package is also promised.

Keeping a close eye on the FSA’s plans is vital if brokers wish to remain compliant, so we all must listen carefully to its messages.


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