In each of my articles over the last few months I have focused on a specific area in which firms could consider their current practices in the light of the concerns identified by the Financial Services Authority’s quality of mortgage advice review. This month I would like to consider how these areas should be drawn together in your firm’s management controls.
The FSA expects senior managers to understand and monitor the business flowing through their firm. A key element in this process is the collection and proper use of management information, which should enable managers to form an opinion on whether advisers are giving quality advice and treating customers fairly. In small firms the term senior manager applies to the directors or partners.
This all sounds like the sort of activity most managers of businesses would undertake – collecting information to determine how the business is doing. However, the FSA found over half of smaller firms did not have adequate systems in place and larger firms have systems but in some cases they were unable to show the systems were being used.
While the point of being in business is to make money, there can often be a disproportionate focus on business volumes and sales figures without looking at the information underlying the figures. In the FSA-regulated environment it is important to devote attention to the quality of business and any risks that may arise from this.
The following are a summary of the key points senior managers need to think about:
– Use your information – the FSA identified a number of instances where firms were collecting information each month but not reviewing or using it. To have information that may identify a risk or a business trend and not act upon it could be regarded as seriously as not having the information at all.
– Identify trends – a good means of evidencing control is to pick out trends from your management information and investigate the reasons for the trend to determine whether quality and treating customers fairly standards are being maintained. A trend could be a particular adviser starting to write different categories of business or a tendency to use a particular lender.
– Focus on risk – pick out any areas of your business that may present a higher risk and devote more resources to monitoring and controlling that area. This could be business-wide, such as focusing on all advisers’ sub-prime or self-certification cases, or at an individual level where depending on the outputs of training & competence reviews and file checks, different advisers are subject to different levels of monitoring.
– Implement controls – make sure you have a T&C scheme and monitoring plan in place. Do not allow advisers to self-supervise, as this can lead to poor advice not being identified.
– Assess quality – this can be difficult to define, but it means moving beyond a completeness check that simply ensures all documents are in a file. Good indicators of quality advice could include a high level of detail collected in the factfind, the assessment and demonstration of affordability being expressed in a way that links well to customers’ circumstances and other indicators such as whether existing lenders’ deals were considered in a remortgage situation.
– Act on issues – you may delegate tasks but the responsibility to ensure they get done stays with the senior manager. For example where remedial action is identified from file reviews, you may ask the T&C supervisor or advisers to undertake the work, but you should conduct a check to ensure it occurs.
Going back to my first article in this series, I would encourage firms to consider involving a professional compliance consultancy to assist in reviewing their management controls and to work with them on an ongoing basis to ensure they are picking up issues and acting on them.