View more on these topics

FSA starts to focus on the big ideas

The FSA’s shift toward a principles-based approach to regulation makes sense of the big ideas that underpin the system and is therefore not something to be feared, says Bill Warren

As we enter the second year of statutory mortgage regulation, the phrase “principles-based approach” is increasingly appearing in communications from the Financial Services Authority.

In his recent speech on the subject of the Treating Customers Fairly initiative, Clive Briault, the FSA’s managing director of retail markets, told delegates: “The more principles-based approach to regulation that we want to move towards requires that we, as the regulator, avoid a prescriptive approach to telling firms how they should discharge their responsibilities to treat their customers fairly.” Pulling back from the everyday necessity to act within the rules in order to focus on the principles may seem a tall order for hard-working mortgage advice firms but it’s a way of thinking we must all take on board.

A few weeks ago I looked at some of the eleven Principles for Business set out in the High Level Standards part of the FSA Handbook which form the backbone of what the FSA expects of approved firms. These were the principles that dealt with the ‘what and how’ of dealing with customers, as well as managing and controlling your business. This week, it’s the turn of the remaining principles that deal with attitude and commitment.

The principles that are grouped around the way we think and behave – as opposed to those that refer to the way we organise and perform within our businesses – are numbers 1, 2, 6, 9, and 11. These deal with concepts such as integrity, due care and diligence, fairness, trustworthiness, and openness and cooperation.

Looking at these five principles it is also important to remember the close relationship that the Principles for Business have to the other set of principles within the FSA’s High Level Standards – the Statements of Principle and Code of Practice for Approved Persons.

Business Principle 1 is that a firm must conduct its business with integrity. While this might seem to be a rather open-ended category, with integrity meaning different things to different people, the Code of Practice for Approved Persons is more specific when outlining what is meant by the Statement of Principle 1: “An approved person must act with integrity in carrying out his controlled function.” In the Handbook, section APER 4.1 gives a comprehensive outline of what does not constitute integrity. A few selected highlights include deliberately misleading a client, falsifying documents, destroying documents, failing to inform a customer that his understanding is incorrect and deliberately misusing confidential information.

Business Principle 2 is that “A firm must conduct its business with due skill, care and diligence” – and is also repeated in the Approved Persons Code of Practice. Behaviours laid out as not conforming to this principle include failing to inform customers of material information, failing to disclose details of charges and making a recommendation without understanding the liability of that action. The final point in section APER 4.2 mentions training and competence. I think T&C is the cornerstone of compliance with the “due care and diligence” principle. Only with proper training and knowledge can this principle be adhered to – without this there is little chance.

Business Principle 6,”A firm must pay due regard to the interests of its customers and treat them fairly”, is the basis of the FSA’s TCF initiative, on which there is currently plenty of published comment and information.

Moving to the last two principles that deal with more intangible topics, Business Principle 9 is about the relationship of trust with customers. For mortgage firms, the relationship of trust is linked to quality and suitability of mortgage advice, and whether it matches the needs of the client.

Principle 11 is about dealing with the regulator in an open and cooperative way and disclosing everything about the firm of which the FSA would reasonably expect notice. These requirements are reflected in the Approved Persons Statement of Principle 4, which gives useful examples of when approved persons will be considered to be transgressing.

The watchdog’s declared shift of emphasis to a principles-based approach is not to be feared. Instead, it starts to move the focus from the mere mechanics of regulatory compliance to the big ideas that underpin the system and make sense of it.


71% of the public unaware of A Day changes

Research from the Association of Investment Trust Companies suggests that while active investors are geared up for pensions A Day, the message is still not getting through to the general public. Some 83% of active investors are familiar with the upcoming pension changes, with a significant 25% of these poised to change their pension portfolios […]

Haart predicts 5% increase in property prices in 2006

Haart is predicting UK property prices to increase by 5% in the first half of 2006. Its 2006 housing market forecast also reveals annual growth in the housing market is set to be 2-3%.It also anticipates Self Invested Pension Plans and Home Information Packs will boost the housing market. Paul Smith, chief executive of haart […]

Leeds introduces 100% mortgage with cashback

The Leeds has added to its range of 100% mortgage products with an 100% loan that aims to help first-time buyers get a foot on the property ladder. The product comes with a cashback of 1% of the loan amount, no application or completion fees and a free valuation up to 335.The interest rate is […]

Shining a light into columnist’s darkness

In a recent issue (Mortgage Strategy, November 7), Richard Griffiths stood on the shoulders of giants by quoting Benjamin Disraeli, no less. The original quotation went: “There are three types of lies: lies, damned lies and statistics.” But today, as politicians substitute spin for wit, he might have also added a fourth – press articles. […]

The future of active management is now

Fees under pressure. Regulatory moves against closet indexers. Rapid advances in financial technology. Shifting sentiment among investors. Such mounting challenges have led to widespread speculation about active management’s shrinking future. But a closer look inside intelligent portfolio construction today tells a story of expanding roles, added value, and innovative risk-adjusted, lower-cost solutions. Four investment experts […]


News and expert analysis straight to your inbox

Sign up