Information to be sent electronically to the FSA regarding:
Changes to standing data
Profit and loss (including commission data)
Professional indemnity insurance
Compliance with threshold conditions
Training and competence
Conduct of business issues
Product sales not reported by provider
Large exposures for firms subject to the ISD.
Data to be sent every six months, or quarterly for larger firms In the Mortgage Strategy issues on October 6 and December 8 2003 issues I looked at the FSA's consultation papers CP 197 and CP 198 on regulatory reporting.
Following feedback, the FSA's Policy Statements 04/8 and 04/9 were published at the end of March 2004 weighing in at 244 and 89 pages respectively.
The FSA says that to effectively supervise the large number of directly authorised firms expected by 2005, when both mortgage and insurance regulation will be in force, it will have to receive on a timely basis relevant information about firms and their activities. This will help it to monitor firms' adherence to the threshold conditions and specific rule requirements, and allow it to spot trends in individual firms and the market as a whole.
The reporting requirement will apply to all directly authorised firms and networks as well as the product providers. It does not, however, affect appointed representatives. It is their principal firms that will be responsible for the reporting.
The information will also help the FSA to calculate the periodic fees firms will be required to pay for the FSA, the Financial Ombudsman Service and the Financial Services Compensation Scheme.
The type of information required is shown in the box. Please refer to the October 6 issue for an explanation of the various items. All firms must begin collecting the information required from April 1 2005.
The FSA makes it clear that it is important that income from both regulated activities and non-regulated activities are reported separately in the Retail Mediation Activities Return.
Firms with under £60,000 income from retail mediation activities in their last financial year will be allowed to miss the first mid-year reporting date but must at the end of the first year submit data for the whole 12-month period and at six-monthly periods thereafter.
Firms with over £60,000 income will be required to send in six-monthly returns and larger firms with turnover exceeding £5m will have to send in three-monthly returns.
It is imperative, and must be clearly understood by all firms, that the data is required for all sales from April 1 2005 and you will have to ensure that your IT systems are capable of collecting and storing data from that date for later submission to the FSA.
If your systems are not collecting the data automatically by April 1 you will be digging a deeper and deeper hole for yourself as the three, six or 12-month period passes by.
Returns must be made within 30 days of the end of the relevant period. Limited companies have 10 months after their financial year-end in which to file annual accounts at Companies House so this reporting deadline set by the FSA could well be a challenge, and certainly a wake-up call, for a lot of firms.
Tardiness will not be tolerated by the FSA and mandatory electronic reporting is the order of the day. There will not be a paper-based alternative. This will enable the FSA to keep its own costs down, which would otherwise have to be borne by the industry, and enable it to build automatic verification checks that will help firms submit accurate data.
Firms have the choice of delivering via XML or XBRL batch transfer or via online completion of forms.
Online completion for 12 months' sales data? Dream on. This requirement for electronic delivery is causing a stir in the industry. The MCCB reports that up to a quarter of registered mortgage brokers do not even have online access.
And data submitted by the providers may well lead the FSA to visit your firm. Big Brother is not only watching, he will be analysing you. The FSA says that the output from the analysis will help it target firms or thematic issues for supervisory attention.
The FSA is also enlisting the support of mortgage lenders who will be obliged to report the FSA reference numbers for all firms submitting business as part of the product sales data collection as well as whether the sale was advised or non-advised.
A lot of responses were received on the latter issue and as a result the FSA has given lenders a further 12 months until April 2006 before the advised/non-advised reporting becomes mandatory. However, the FSA found it “surprising that a product provider would insist that it has no high level interest in whether a given product is sold with or without advice”.
This is unusually strong language for the FSA and perhaps a warning shot across the bows of lenders reminding them that they will not be allowed to remove themselves entirely from the responsibilities of mortgage sales by intermediaries.
PS 04/9 also covers the matter of client money and confirms that mortgage intermediaries that hold client money will not be subject to client money rules. However, for intermediaries involved with the insurance market, they will only be exempt from the client money rules provided the money is held in a statutory trust and no more than £30,000 is held at any one time during the course of the year.
PS 04/8 looks at integrated regulatory returns which will also be introduced from April 1 2005. One of the benefits is to reduce the reporting burden by minimising duplication for firms that are involved in more than one of the regulated activities of investments, mortgages, and insurance.
It will involve a transition from paper to MER for the IFAs that are directly regulated for investment business.
So RMAR, MER and IRR become another set of acronyms to add to the FSA's 192-page glossary of terms used in the financial services industry.
Another snippet that appears in PS 04/9 but I had missed in annex one of CP197 is the FSA's definition of a 'micro' firm, which is 'a firm with either one or two advisers'.
And I had been in the habit of calling them small firms. Silly me.