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A failure to communicate?

Guy Anker says small firms have been heavily criticised in the FSA’s probe but some are asking if the regulator is getting its message across effectively.

The New Year got off to the worst possible start for the intermediary market after the regulator came down hard on small firms in its quality of advice probe.

It revealed that over three-quarters of small brokers did not have the correct procedures in place to ensure customers were getting the correct advice, with many set to face the wrath of the enforcement division.

Bigger intermediaries, networks, banks and building societies fared much better but the overall picture was disappointing, as only one-third of the 252 firms sampled had the correct processes in place.

What is next for the industry and where can it repair the holes exposed by the FSA? The regulator has pledged to revisit the issue in the future although it did not put a timescale on when. It will also check some of the firms where problems were encountered although it was equally vague on giving any further information such as how many firms or when they could expect a visit.

The Association of Mortgage Intermediaries has pledged to help improve standards but says the FSA must do more to communicate its requirements to small firms.

AMI associate director Rob Griffiths says: “We are concerned about the findings of the FSA’s thematic work on the quality of mortgage advice and it is clear that some mortgage intermediary firms have work to do to meet the standards required, particularly in the areas of adviser competence and supervision, record-keeping, and monitoring procedures.

“The regulator has a role to play in helping firms to understand how to fulfil its regulatory responsibilities and, in doing so, providing an effective regulatory regime for consumers.

“Many bigger mortgage intermediary firms feel that FSA resources are not evenly balanced between small and large intermediary firms. They are concerned that many smaller firms are below the FSA’s eye level and therefore beyond the reaches of regulatory scrutiny on a day-to-day basis.”

The AMI will continue to issue factsheets and guidance notes to help its members such as the equity-release guide issued last week.

Mortgageforce managing director Rob Clifford is keen to stress that small brokers should not necessarily jump at the opportunity to join a network to help their compliance needs but that the AMI should continue its good work in issuing guidance notes and that lenders can also help by sharing their expertise and helping their distributors.

He says: “Some lenders do a good job but as a sector they do not do as much as they could. The broker industry is made up mainly of small firms. They are not just a feature, they are the market so they should be careful not to think they must become part of a network.”

Among some of the worst abuses were advisers who were given responsibility by firms to investigate their own complaints.

The FSA lists the assessment of customer needs, including affordability, training and competence, overall systems and controls, and record-keeping as areas of most concern.

The results of the study were similar to research carried out by consumer body Which? in 2005. It found that, of the 54 advisers visited, only one gave the researcher acceptable advice. Which? found that 41 per cent of advisers visited did not explain the deals offered adequately, 43 per cent did not explain the repayment methods adequately and 63 per cent violated FSA regulations in some way.

Which? is demanding that the regulator names and shames brokers that are giving poor advice so customers know who to avoid.

Personal finance campaigner Teresa Fritz says: “It is shocking that a considerable proportion of the mortgage industry is showing significant failings. This is simply unacceptable.

“The FSA’s reticence to name and shame firms from its mystery shopping exercises leaves people unsure about whether they are receiving the correct advice when dealing with complicated financial products. The FSA needs to become a more formidable force to reckon with, sending a strong message to the industry to buck up its ideas.”

But Sesame chief executive Patrick Gale is calling for calm. He says: “We share the regulator’s concerns about industry standards and it is clear that some firms have failed to take their obligations seriously, to the detriment of confidence in our industry. However, it is important that the FSA and big players are constructive and measured in their responses. Small directly authorised mortgage firms need help and support, not brickbats.”

The results of the FSA’s latest probe hardly came as a shock to the industry as the regulator had trailed the disappointing findings in the various speeches and statements during the last quarter of 2006.

What many have found startling, however, is the scale of the problem in that less than a quarter of small firms were found to have got everything right.

What some may point to as a mitigating circumstance is the relatively recent mortgage regime as the sector has only been regulated for two years. Also, as the AMI has questioned, some believe that the FSA’s requirements are not always being communicated to smaller firms, not necessarily the quality of advice required but subsequent record-keeping and other admin duties.

Mortgage intelligence managing director Sally Laker says: “I don’t think any broker is trying not to do things right but it might be an interpretation of what is required that is going wrong. They want to run a business properly but it is like anything – there is a lot to do and it is difficult if you are on your own or are a small firm.”


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