The Mortgage Code Compliance Board is now a memory – albeit one with a cool £1m surplus at its disposal – but we will soon begin to establish what impact Financial Services Authority regulation will have on our industry.
Because the FSA views most small mortgage and insurance intermediaries (those with incomes under £3m) as low risk, many firms will not have had any communication with the new regulator since receiving full authorisations. So it will be business as usual with no interference from the FSA. But firms should be aware that the FSA is quietly but actively monitoring the mortgage market, ensuring compliance with the new requirements. It is collating information from sources (complaints data from the Financial Ombudsman Service; sales data from lenders) to identify company and industry trends. Then it will take any necessary action.
For many, the next contact with the FSA will be the provision of information required for the half yearly reports, known as the Retail Mediation Activities Return. Firms will not have to begin collecting information relevant to their RMARs until April 2005, but they would be well advised to prepare for this reporting function as it is going to take considerable time and effort to collate required information.
In July 2005 firms have to report their information in accordance with their accounting reference date. It was proposed that RMARs should be submitted every six months, but transitional arrangements cater for smaller firms in that there is exclusion for them in the first year. To qualify for this concession, firms must have a maximum annual income of £60,000 in relation to their retail mediation activities.
The information required within the RMAR, which will need to be submitted electronically, is as follows:
Section A: Balance sheet
This will help establish the firm’s financial standing.
Section B: Profit and loss account
Identifying the sources of income through commissions and fees from both regulated and non-regulated activities.
Section C: Client money and assets
Identifying all monies held by the firm which belongs to the client (although this does not include deposits where a firm acts as deposit taker). Firms which carry on mortgage activities only will not be required to complete this section.
Section D: Regulatory capital
Dependent on which types of regulated business is undertaken by firms (and whether or not holding client money) will determine the required level of capital resource needed.
Section E: Professional indemnity insurance
Identifying whether the firm is in compliance with the prudential requirements in accordance with PII
Section F: Threshold conditions
Identifying whether the firm has adequate resources in relation to its regulated activities and confirmation of approved persons and controllers.
Section G: Training and competence
Identifying the number of staff advising and arranging mortgages and non-investment insurance, those who are competent and those who have passed approved examinations.
Section H: Conduct of business (COB) data
Identifying the sources of the firm’s business, for example referrals and sales over the internet, together with the sources of advertising and whether the firm has in place a complaints handling procedure.
Section I: Supplementary product sales data
Identifying supplementary data on transactions where this is not collected by product sales data reporting.
Section J: Data required for calculation of fees
Information contained in this section is used to calculate fees payable by firms in respect of the FOS and FSCS.
Firms involved in other regulated activities may find they do not have to cover all these areas because they will already be expected to supply similar information as part of data requirements for those other activities. However, firms which also undertake other regulated activities and which were meant to start submitting the new form of returns from July 2005 will not do so until a later, as yet to be announced, date. Firms falling into this category must continue to submit existing returns.
More details on reporting requirements can be found at www.fsa.gov.uk/pubs/policy/04_09