The news that the CML has called for a delay in implementing mortgage regulation beyond the current proposed dates next August can come as no surprise.
What would be very surprising is if they have any success. One of the main reasons being cited to justify a delay is the lack of time available to do the necessary work on computer systems to comply with the new regime.
Such comments sound remarkably similar to the life industry's reaction to hard disclosure when it was introduced as part of the retail regulatory review in January 1995. Such complaints cut little ice with the Treasury and I see little reason to believe lenders will be any more successful now.
Certain elements of the mortgage industry seem to be taking an approach of “if we ignore it long enough it will go away” when it comes to mortgage regulation. Research by Marlborough Stirling reinforces the view that lenders are not doing all they should. Only 7 per cent of lending professionals said they are prepared for mortgage regulation.
One of the main complaints, or rather excuses, seems to be that “we do not know what the rules are going to be”. A more accurate reflection would be that “we do not like the rules and we are hoping they are going to change, so in the meantime we will use that as an excuse to do nothing”.
It becomes fairly easy to predict that towards the end of next year we will see some swingeing fines imposed on a number of lenders for noncompliance. If this does indeed happen, I believe they will have been the authors of their own misfortune. I am not defending the CP98 proposals – some of them show a staggering lack of understanding of how consumers approach getting a mortgage.
My view on the rules overall is that they have more to do with making regulation easy for the FSA than protecting the consumer.
Indeed, I suspect that consumers will be worse off with these proposals than with no regulation at all. But little things such as failing to protect the consumer have not stopped the FSA in the past and I feel it is folly to suggest that they will do so now.
One company that is not taking a wait-and-see approach is the IFonline group which has decided to build tools and services on the basis of CP98 and will modify them in the unlikely event that the current proposals are diluted. It recently showed me a number of the packages that it has been demonstrating to lenders over the last few weeks and that will be available from January.
I had some idea of the things IFonline was planning from some other work I did with it recently. However, I was surprised and encouraged by quite how far it had got in development.
In launching these services, the group is redefining its proposition from being simply an electronic trading platform to providing point-of-sale to point-of-offer tools to for advisers and lenders.
Under the new regulations, lenders will have to take far greater control of how information on their products is distributed to the marketplace. The Product Data Bureau service has been created to allow lenders to take control of the way in which they distribute product details to IFonline, for use in their Trigold Prospector sourcing system, and also to other information sources such as the soon to be introduced FSA tables, internal systems other sourcing systems or even the media.
The system allows different members of a team to contribute to building product information in the service. Details can be created or adjusted at either a general lending criteria or individual product level.
In addition, product can be made available for general distribution, to a limited range of distributors, a single source or to exclude specific channels or distributors.
Once the product details are created, the system then allows them to be approved for distribution by an authorised person or persons as if operating in a post-N3 environment. This can be as many different people as necessary.
After approving a product, the user selects the date they want it to go live and the methods to be used to distribute the information.
Once a product is retired from the service, its details can be retrieved on an “as was” basis whenever necessary for compliance purposes. Produce created in this way can also operate with the Compliance Shield service that is being rolled out to existing users of Trigold Prospector in the new year.
One of the main challenges to lenders post-N3 will be if they carry out compliance visits on individual introducers or find ways to monitor business centrally. The latter clearly will reduce the interruptions of business to both advisers and lender.
Imagine life and pension compliance on the basis, each life office did a compliance visit on each individual IFA they deal with. If lenders cannot carry out their compliance obligations centrally, this is exactly what mortgage advisers face after N3.
Compliance Shield is an off-the-shelf solution to store all the compliance information, pre-application illustrations (PAI), application forms, other lenders PAIs (these have to be shown to evidence the other products offered and that recommendation was made in a fair and equitable way), clients' compliance confirmation and management information on any discrepancies between the documents.
The new business monitor allows lenders to look at various reports on current business in progress. They can produce a list of current new business and sort this by various means, for example, introducers, branches, processing centres. Possibly one of the most powerful is to identify if exceptions have been made, for example, application form and PAI do not match. When looking at a particular client the service will produce a summary with elements of the factfind, PAIs that are applicable, application form and client confirmation if issued.
The physical signature on the client confirmation is captured by the signed form being faxed into a PC, which can then be sent as a digital attachment to the electronic file when it is submitted to the lender.
IFonline tells me it intends to make the compliance shield elements available to other software providers as a component to include in their software if they wish.
Undoubtedly, other products will emerge seeking to provide similar services. It is encouraging that, for those who want it, the technology exists to be ready for mortgage compliance – which rather undermines the CML's view that it cannot be done in time.
Ian McKenna is a consultant and director of the Financial Technology Research Centre, which works for a wide range of industry organisations, life offices and technology companies, including Microsoft, Assuresoft and The Exchange. He can be contacted by email at email@example.com
Tel: 020 7935 2599