Sticking to the letter of the Code

Following a review of existing non-statutory mortgage rules, regulations and processes, Sarah Wilson, director of the FSA&#39s high street firms division, praised the endeavours of the MCCB in a letter to its chief executive Luke March. Wilson confirmed that MCCB registered firms who are in good standing with the current regulator will enjoy a smoother journey through the FSA&#39s authorisation process and receive a level of scrutiny which reflects the standards previously set by the voluntary regulator. This is great news for firms who have accomplished and maintained Mortgage Code compliance standards and a further example of the way the MCCB and FSA are working closely together.

However, the FSA has overlooked the standards set by the MCCB (and indeed its own standards for investment business) in the requirement for an approved person to be in place with overall compliance responsibility. Couple this with its decision not to make suitability letters compulsory (although you must provide evidence for your reasons for recommending a product, and what better way to do that than with a suitability letter) and you have some rather paradoxical messages. Nevertheless, the MCCB&#39s role remains important as the countdown to statutory regulation continues. Significantly, the FSA has confirmed that in order to maintain the credit for having a good standing firms must maintain their MCCB registration until Mortgage Day. Although the Whitechurch Network successfully underwent an MCCB compliance review a few months ago we have not precluded a further MCCB visit prior to Mortgage Day, something all prudent firms should consider.

There is considerable dialogue between the two bodies. Last week I received a letter from the MCCB informing me it has already provided the FSA with most of the information it requires in order for the network to register for receipt of an authorisation application pack. Despite its non-statutory powers and the fact the MCCB is soon to be defunct, to provoke it now or at any time prior to Mortgage Day would be dangerous. With this in mind, and continuing the theme of recent articles, here&#39s a word of caution regarding sourcing software-produced mortgage suitability letters, with reference to the MCCB&#39s good practice notes.

The MCCB does not endorse any mortgage sourcing software company&#39s produced suitability letters. I have yet to see a sourcing software-produced suitability letter that would achieve the MCCB minimum standards as laid down in the good practice notes. Despite a clear statement to the effect that sentences such as “following a detailed financial review, I have recommended…” and “the product matches your needs and requirements” are not acceptable, examples of these types of statements are commonplace. Although it&#39s possible to use some standard paragraphs when relevant, the letter should be a standalone document. When you have provided advice and recommendation, level 3.1 of the Mortgage Code states the reasons for recommendation should be provided before the mortgage completes. Failure to provide sufficient information or inadequately demonstrating how the mortgage recommended matches the client&#39s recorded needs and attitudes will result in a breach of the Code.

To make your letters client-specific I would suggest they:

• Relate the remortgage term to the client&#39s circumstances – for example, the term was chosen to match the existing term

• Relate the reduced interest rate or incentive period to the client&#39s circumstances for that period

• Identify how the recommended product features match the circumstances as identified in the fact-find, particularly if a flexible or portable mortgage has been recommended

• Explain how the repayment method relates to the client&#39s attitude to mortgage risk

• Give reasons for the choice of lender, particularly if you have recommended from a panel or occasioned due to the client&#39s particular circumstances.

This should ensure adherence to Mortgage Code requirements for the product recommendation section of your suitability letter. For further guidance on Code-compliant suitability letters look at the Mortgage Sales Process Guide in the industry section of website