The Financial Services Authority has revealed today that brokers will still have a role in checking affordability, but that it will be limited to checking how appropriate products are for clients.
Sheila Nicoll, director of conduct policy at the FSA, was speaking today at the Mortgage Business Expo in London.
She says: “Our view is that intermediaries do have a role to play in assessing affordability but that it should be limited to checking whether the consumer fits within the expected parameters of the lenders’ affordability criteria. After all, it is the lender who has access to customers credit history and who can request additional information if required.
“We know that in reality, intermediaries will be unable to make this assessment without obtaining information about what the customer can afford to pay, so we see little reason to risk blurring our clear line of responsibility by placing detailed affordability rules on intermediaries.
“Instead, we are considering removing these requirements, and replacing them with a high-level requirement which requires intermediaries to ensure a customer is eligible for the product and that it is appropriate for them.”
And she dismissed rumours that this would lead to brokers turning into nothing more than lead generators for lenders.
The FSA will remove its current requirements for brokers checking the affordability of products for clients and it will be replaced by eligibility and appropriateness tests.
All mortgage sellers, not just advisers, will also have to have an existing Level 3 mortgage qualification and not enhanced like it is for advisers under the Retail Distribution Review.
She says: “All sellers of mortgages will need to carry out an appropriateness test and will need a mortgage qualification.”
The FSA’s upcoming Mortgage Market Review paper on distribution and disclosure is set to be published imminently and rumours are rife within the industry that it could be out as soon as Tuesday November 16.
Brokers were also told that the regulator sees value in applying the independent and restrictive labels to advice.
Nicoll says: “We see a case for applying the independent and restrictive labels to the mortgage market. We recognise there are differences between mortgage and investment markets.
“For example the mortgage firm might use the labels to explain their position on direct deals.”
She also says that the FSA would be removing the Initial Disclosure Document but keeping the Key Facts Illustration. However it might insist that it’s given to consumers at a different point in the sales process.
She says: “The aim of the IDD was to provide consumers with information to help them to compare fees, charges and services provided by firms.
“Research has however shown that in practice, the IDD has had little impact on consumer behaviour.
“Further evidence has also shown that consumers do not use the KFI to shop around. They do however, value it as a record of their purchase and we have received strong support from both consumers and firms for retaining the KFI in its current form.
“So, while we do not propose to change the content of the KFI, we think that there may be value in removing some of the trigger points for the KFI to be provided to consumers. This should ensure maximum impact and avoid information overload.”