If there is a recurring theme in the correspondence I receive from the Mortgage Strategy readership with compliance worries prior to Mortgage Day it comes from sole traders asking – what about us?
It would appear that many sole traders are feeling unloved because the various courses, seminars and articles on offer are very much focussed on larger entities. I have to sympathise with the fact that much of the information regarding Mortgage Day is not really sole trader-focussed. In particular the workshops and seminars available can be costly for a one-man band.
Regulation, however, does apply to big and small alike and therefore the same rules apply to one and all. Hence it's been difficult to focus on a particular sector – the regulators are definitely not sizest.
A particular area on which I have received many emails is that concerning guidance on the formation of Initial Disclosure Documents so what follows are some guidelines on the subject.
The IDD must be headed with the Key Facts logo (available to download from the Financial Services Authority's website at www.fsa.gov.uk/pubs/other/keyfacts_logo/) and alongside the logo must be the following text: “About our mortgage services”. Under this wording you must confirm your firm's name and address.
Moving to the main body of the IDD, in section one you have to provide information from the FSA. Use standard text which reads: “The FSA is the independent watchdog that regulates financial services. It requires us to give you this document. Use this information to decide if our services are right for you.”
In section two you have to outline whose mortgages you offer. There are three options here: you must confirm whether you offer mortgages from whole of market, a limited number of lenders or a single lender (which you will have to name if this is your chosen option).
In section three you have to give details of the service you provide. Here you will need to confirm whether you will be offering an advice and recommendation service or whether you will be asking filtering questions to enable a client to make their own choice.
In section four you must detail what the client will have to pay for your service. This section has caused the most confusion and I initially refer you to my article in last week's Mortgage Strategy regarding payment of fees and independent status for clarification.
It is here that you will also have to confirm your remuneration – whether by proc fee or fee or both (and this is what has caused the confusion). As long as you communicate your remuneration in a clear, fair and not misleading manner this will cover your obligations under this section. If you do not include a stated cash amount you must include an example e.g. 0.5% of the mortgage advance (£100,000 mortgage = £500 fee is applicable).
You will also have to confirm that the client will receive a Key Facts Illustration which will also tell them about any fees relating to a particular mortgage.
Section five explains the refund of fees policy. If you decide not to charge a fee and only receive payment from the lender this section should be omitted. Otherwise you will have to confirm the circumstances under which a refund (whether full or partial) is made and also, when applicable, whether there will not be any refund at all.
Section six deals with who regulates you (the FSA) together with confirmation of your FSA number.
Section seven goes on to detail what steps the client has to take if they wish to make a complaint. Here you will have to confirm the address and telephone number to be used by customers wishing to complain.
Then, again using standard text, confirm the following: “If you cannot settle your complaint with us, you may be entitled to refer it to the Financial Ombudsman Service.”
And finally in section eight you will have to point out that clients are covered by the Financial Services Compensation Scheme. Using standard text confirm this in the following way: “Mortgage advising and arranging is covered for 100% of the first £30,000 and 90% of the next £20,000 so the maximum compensation is £48,000. Further information about compensation scheme arrangements is available from the FSCS.”
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