The probe, undertaken between June and October last year, found that more than 75% of small mortgage networks and advisers did not have robust processes in place, leading to the risk of products being mis-sold.
Banks, building societies and larger mortgage networks among the 252 firms surveyed fared better, with the FSA citing the majority as having robust processes in place.
Particularly poorly performing firms that fail to improve their pro-cesses will face stiff penalties such as fines, public censure and the removal of their permission to conduct regulated business.
The FSA, which says it will work with these firms to improve their processes, has been called on to commit more resources.
The Association of Mortgage Intermediaries has published a factsheet in response to the probe.
Rob Griffiths, associate director at AMI, says: “Many larger intermediary firms feel FSA resources are not evenly spread between small and large companies. They are concerned that many small firms are below the FSA’s eye level and therefore beyond the reach of regulatory scrutiny on an daily basis.”
Lee Birkett, chief executive of Prestbury, says: “With the FSA’s report stating that two-thirds of small firms not up to the job, what is it going to do about it?”
Prestbury’s solution is for smaller firms to sign up for FSA-standard compliance packages from networks.
Ray Boulger, senior technical director at John Charcol, agrees.
He says: “The FSA needs to push resources away from big firms and towards smaller ones. If quite a few small firms are doing things wrong, the impact on consumers is significant.”
But the regulator says it is already focussing its energies on smaller firms.
A spokeswoman for the FSA says: “We put on roadshows and surgeries targeting small companies. We have focussed on our communications with small firms over the past 18 months.”