FSA will focus on dodgy promotions

One of the more emotive areas of mortgage regulation is financial promotions and the rules that surround them. There is a widespread perception that the Financial Services Authority has done little to police promotions and that nearly two years after Mortgage Day a significant number of firms continue to flout the rules.

This month the FSA has attempted to counter suggestions of inaction by publishing a report entitled Financial Promotions: Progress update and future direction. It stresses the importance the regulator places on the standards of promotions, gives an update on its work over the past two years, outlines its plans including how promotions will fit within principles-based regulation and details the areas it will focus on.

In terms of mortgages – and specifically brokers – one of the main criticisms levelled at the FSA is that it has yet to name the firms breaking the rules or dish out fines to perpetrators. The FSA cannot fine or publicise its actions unless breaches are referred to enforcement and have gone through that process. Its approach to promotions is based on their potential risk to consumers.

The regulator’s action depends on the risk profile of the promotion and can involve approaching firms to withdraw the promotion or alter it, conducting thematic work around wider market issues or, for those classified as lower risk, writing a letter or integrating them into broader its thematic work.

The FSA is keen for the industry to make it aware of potentially non-compliant promotions – a responsibility the industry has been active in fulfilling as 52% of all reports to the Financial Promotions Hotline come from firms and 59% of those concern mortgages.

The FSA has focussed on mortgage promotions in three areas – sub-prime brokers, equity release and lenders. It says it has seen limited improvement in the promotions of sub-prime brokers, improvements in equity release promotions and many improvements from lenders.

Given this, one of the FSA’s key areas of focus will be mortgage brokers. It wants to see improvements in the standard of promotions issued by smaller firms, especially in the sub-prime market. It will focus on repeat offenders, more serious breaches and firms who have failed to grasp the rules. Firms who continue to produce non-compliant promotions will face enforcement action.

To help members, AMI will publish a factsheet on promotions for sub-prime mortgages. It will give an overview of common errors and how these can be addressed. The FSA has made clear its intentions. Now is the time for firms to use the information available to make themselves aware of the rules and ensure their compliance.