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FSA will watch small firms closely

Judging by announcements from Canary Wharf last week, it seems that the Financial Services Authority has been inspired by Team GB&#39s fine Athens medal haul. There was certainly much flexing of muscles going on.

Not only was oil giant Shell landed with a whopping £17m fine for overstating its reserves but announcements were made on recent enforcement actions closer to home. In particular, firms preparing for FSA regulation should note the announcement that more than 100 smaller intermediary firms have been forced to make major changes to their practices following inspections by the regulator.

The actions were taken following investigations by the FSA&#39s Threshold Conditions Team which monitors small firms&#39 compliance with baseline requirements. These are the same conditions that all directly authorised mortgage firms will be subject to from Mortgage Day. To jog the memory, these conditions cover five core areas: legal status, location of offices, close links, adequate resources and suitability.

The FSA revealed that 50 firms were compelled to address breaches of these conditions following supervisory visits in the year to June 30. A further 59 did the same when threatened with enforcement action and 19 firms had their investment permissions withdrawn entirely because of major breaches. Add to this list additional actions to ban two individuals from further involvement in financial services, and a picture emerges of a regulator that means what it says.

While the firms subject to the TCT&#39s gaze were mostly investment IFAs, the reasons given for the actions indicate some of the likely areas of interest for the FSA after October 31. The first recurring threshold conditions breach identified by the regulator was inadequate resources, and inadequate PII and capital in particular.

This is not the first time the FSA has voiced concern at advisers&#39 PI cover. However, many premiums have increased in recent years, mortgage intermediaries should err on the side of caution in terms of cover and use the criteria in PRU 9.2 as a minimum. Further details can be found at The second recurring problem area related to threshold condition five – suitability. Not to be confused with product suitability, this compels firms to satisfy the FSA they are &#39fit and proper&#39 to carry on the activities they wish to conduct. For the firms named and shamed last week, the main offences were: failure to comply with Ombudsman awards, lack of co-operation with the FSA (in relation to completion of mandatory regulatory returns), and non-payment of FSA fees.

While significant differences remain between the sectors already regulated by the FSA and the mortgage industry, both will have something in common from October 31 – a regulator with clout.

Mortgage firms that are not already glancing over the fence should start doing so now.

For full details of last week&#39s enforcement actions and a list of those firms whose permissions were cancelled, see

I should know but i don&#39t

Q: What exams should advisers take to comply with the FSA requirements?

A: The FSA&#39s rules for advising on mortgages are set out in chapter two of the Training & Competence Sourcebook. Intermediaries who currently meet the MCCB fitness and competence requirements by holding CeMAP, MAQ or MAPC (in Scotland), or will have qualified with one of these by October 31, will be grandfathered into the new regime.

• are, and remain, competent for the work they do

• are appropriately supervised

• have their competence reviewed regularly

• that the level of competence is appropriate to the nature of the business they do.


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