The disclosure documents needed for compliant mortgage and general insurance sales have grabbed the headlines from the early days of regulation through to contemporary developments. The Initial Disclosure Documents are relatively straightforward, with clear examples to follow and little room for doubt provided firms have clear policies relating to refunds of fees, for example.But Key Facts Illustrations have provided plenty of material for debate. Would lenders get their online KFIs up and running in time for Mortgage Day? Would sourcing systems have to take responsibility for correct KFI information? How many pages long should the document be? And how easy would it be to produce a combined mortgage and general insurance KFI? These topics are still to some extent unresolved and the debate continues. Rounding up some of the most recent developments will illustrate what I mean. It is still far from plain sailing when it comes to lenders making reliable and accurate online KFIs available to mortgage advisers and, as I write, Cheltenham & Gloucester has taken its KFI facility offline pending the redesign of its website. Regarding the availability of compliant combined mortgage and general insurance KFIs, there are still claims that glitches occur in those from the major sourcing systems. Disclosure documents – and KFIs in particular – have been the subject of a flurry of research. The Association of Mortgage Intermediaries conducts regular research among members. Its July survey covered the topic of KFIs and the issue of responsibility for their accuracy. The majority of those surveyed (52%) said their favoured method of generating KFIs was through sourcing systems, 35% preferred lender websites and 12% preferred to produce the documents internally. Unsurprisingly 57% of respondents felt sourcing systems should be responsible for the accuracy of the information provided in KFIs whereas only 38% felt lenders should be responsible. At the moment, lenders are responsible for the accuracy of KFI information but this clearly does not reflect the needs of the marketplace, where 50% of business flows through intermediaries. The FSA’s stated objective is to protect consumers without unnecessary detriment to the efficient running of the markets it regulates, so there must remain some room for a better allocation of responsibility to meet intermediaries’ needs. At the beginning of August the Intermediary Mortgage Lenders Association published the results of a membership poll that included the subject of KFIs. This showed that 86% of IMLA members believed KFIs have not helped, nor made any difference to consumers and their approach to the mortgage process. Although KFIs undoubtedly improve transparency to the consumer, it was felt that this did not increase borrowers’ shopping around activity. If disclosure documentation is about getting the consumer to shop around more and it is not achieving this, what’s next for KFIs? I don’t believe the government can force consumers to shop around more so the only alternative must be to make the KFI more user-friendly so consumers use it for its intended purpose. In early 2005, the FSA conducted a review of mortgage disclosure documentation and wrote to chief executives of lenders stating: “These disclosure documents are central to the success of the mortgage regime.” The core message of this letter was that a five-page KFI should be sufficient to convey the key facts about a mortgage product with enough clarity to allow for useful consumer comparisons to be made. At the time of the review – May 2005 – only 50% of lender KFIs were five pages or less. Anyone who works in financial services knows of the classic mismatch between customer communication (meaning sales and marketing) and compliance (meaning detailed attention to the letter of the law), with the compliance function almost certainly being the factor that controls the KFI format. If the FSA can succeed in closing the gap between these two opposing forces, it will be an achievement to celebrate.
KFIs are not having the intended effect and the FSA must think of a way of making them more user-friendly so customers can use them to shop around for mortgages, says Bill Warren