Few mortgage advisers will have missed the Financial Services Authority’s recent report on the quality of advice processes in mortgage firms. The report comments on both good and poor practice that the regulator has observed in its monitoring of firms and mystery shopping activities.
A major issue the FSA raised for smaller firms is the need to implement control systems and demonstrate that they are using them, as the FSA findings show that over 75% of firms sampled in this sector did not have robust processes to ensure suitable advice is being provided to customers. In contrast, the FSA noted that larger firms often have systems in place, but cannot show they are being used.
Key actions identified for firms to focus on include:
– quality of advisers – reviewing training & competence procedures;
– assessment of customer needs – checking the process used to assess affordability;
– recommendations and research – ensuring adequate research is performed and that the file supports why the recommended product is the most suitable. When recommending a switch between lenders, ensuring penalties and existing products have been considered; and
– management controls – looking at arrangements for collecting and using management information. Using file reviews to consider the quality of advice given rather than just the completeness of the file.
The FSA findings provide a good opportunity for mortgage firms to consider their processes and practices to ensure they are meeting key regulatory standards, as it is certain that the FSA will continue to check up on areas where it has concerns.
It is revealing that when the FSA reaches the point of taking enforcement action against firms, a key element of the required action is frequently that a firm should seek the assistance of a professional consultancy to rectify the errors and prevent future occurrences. While not suggesting that all firms are on the path to enforcement action, it seems sensible to consider the use of consultants as a positive influence on your firm. This is particularly relevant given the increasing trend of firms to seek direct authorisation rather than membership of a mortgage network.” It can be very difficult when involved in the day-to-day running of a business to take a step back and critically analyse processes”Use of consultants is more established in investment firms than in mortgage firms. This is not surprising as independent financial advisers and other investment advisers have been subject to regulation by the FSA and its predecessors for much longer than mortgage advisers. But as FSA activity in the mortgage arena continues, it is expected that more mortgage firms will see the benefit of employing experts in regulatory matters to assist them in ensuring their business is operating on a sound footing.
A key benefit of consultancy input is the objectivity that this can bring. It can be very difficult when involved in the day-to-day running of a business to take a step back and critically analyse processes. Good consultants have the ability to act as a partner to your business and facilitate improvements without becoming embroiled in the finer details that can take up so much time.
The FSA is carrying out a review of the experiences of firms in using compliance consultants and is expected to publish its findings in the next few months. In the meantime, the regulator has published a series of questions that firms should ask themselves if considering the appointment of a consultant. These include a range of points such as:
– assessing the knowledge and experience of the consultant;
– whether the consultant holds professional indemnity insurance;
– adequacy of the consultant’s resources; and
– service level agreements and charges.
Premier Mortgage Services recently announced that it will be launching a new proposition for the mortgage market this month.
The new service will offer the existing full mortgage aggregation services of the PMS club plus mortgage compliance and market leading protection panels. The mortgage compliance offering will make “best of breed” compliance consultancy available to PMS member firms with a clear and transparent service allowing mortgage firms to access the right combination of compliance services.
When working through the FSA’s suggested questions on selecting a compliance consultancy service, we think intermediaries will be able to draw positive conclusions about the new PMS proposition.
By John Malone, Managing Director, Premier Mortgage Service