Seeing last week's Letter of the Week from a disgruntled mortgage broker, I felt compelled to change the subject matter of this week's article. I reckon that the letter is typical of how many brokers are feeling with just a few weeks to Armageddon, sorry Mortgage Day, and I want to try and provide some reassurance.
We know that as far as mortgage regulation is concerned the Financial Services Authority has applied the proverbial sledgehammer to crack a nut. We also know that the regulation will place a heavy financial burden on mortgage brokers. However, we've also known that statutory regulation has been coming since the Treasury's announcement back in December 2001 – ample time to be prepared and make the necessary decisions. My advice is not to panic. If you are compliant within a Mortgage Code Ccompliance Board-supervised industry, the FSA's regulation should not be too much cause for alarm.
Let's look at some of the issues raised in the letter. There is something of a furore concerning the future accuracy of Key Facts Illustrations produced via sourcing software. But is this any different to how things stand now? Whether under MCCB or FSA regulation advisers cannot rely on the accuracy of documentation produced by sourcing systems.
In October 2003, the Mortgage Code Arbitration Scheme made a £12,000 compensation award against a firm which tried to rely on information provided within a sourcing software-produced illustration. The firm was found to be in breach of its duty under section 3.1(a) of the Mortgage Code. MCAS confirmed all firms must ensure that the accuracy of any software is regularly monitored and faults rectified. It also added that although offering a useful tool, sourcing software does not relieve a firm of its responsibility under the Code to ensure that information provided and a recommendation made to a customer is correct.
Software companies have invested heavily in ensuring their KFIs are FSA-compliant in layout and format. However, there are no guarantees on accuracy. In reality the stance previously adopted by MCAS will be no different from the one adopted by the Financial Services Compensation Scheme. It is and always has been advisers' responsibility to ensure the accuracy of the information they provide. The only slight difference is that under the FSA, advisers must prove they have taken reasonable steps to ensure they have verified the information provided. What these reasonable steps involve is open to interpretation as the FSA has used a generalisation rather than a hard and fast ruling.
Compliance support is also a key issue. There are many sources of help available to the directly authorised but signing up to a particular proposition does not mean you must stay with that company for the duration. Check out the terms of the agreement for the notice period – emails not being replied to should obviously give cause for concern. Remember that as a directly authorised firm the FSA will hold you responsible to ensure documentation, processes and procedures are in place. If you are uncertain that you have everything in place contact your compliance support provider – that's what you're paying them for after all.
I can empathise with the network mentioned in the letter for not releasing its manual until October, although as the writer alluded to joining a larger network's compliance service perhaps a copy of the MCC-compliant manual could have been offered as an interim measure so advisers could familiarise themselves with how their network believes mortgage deals should be transacted.
As covered in my article in MS August 23 2004, the rules regarding IDDs are clear, hence the lack of coverage on this subject in the press. There are also many examples of IDDs on the FSA's website which can be used as templates.
Your IDD about your mortgage services must cover certain specified information:
The mortgages offered
The service provided
How much the client will pay for the service and the refund process l Complaints procedures
If there are any compliance issues you would like me to cover in future articles please contact me in the usual way on email@example.com