Back in the days of short trousers and scabbed knees, a piece of string, a compass and a handy pocket knife were essential pieces of kit. That's right, I was a Scout. As anyone old enough to smile at their own memories of these times will know, our motto was: “Be prepared.” I would like to think I have kept true to the motto. So, what can Lord Baden-Powell teach mortgage intermediaries?
The first major lesson has to be about preparing today for regulation tomorrow. There has been a great deal of press speculation about the readiness of mortgage intermediaries for regulation. Do they fully appreciate the scale of change sweeping the industry, have they considered the routes through regulation seriously enough and have they acted in time?
Thanks to the regional meetings the AMI holds and the regular contacts we have with members, I firmly believe that most mortgage intermediaries have carefully considered what their options are. As at March 31, 5,945 mortgage firms had registered with the FSA while 2,960 had applied for direct authorisation.
The vast majority had sent in their applications in the last few days and it seems sensible to expect another rush at the end of this month as firms ensure they meet the guaranteed period when the FSA must consider your application. Others will apply during the summer months in the hope that the FSA's systems have settled down by then.
A word of caution here – those involved with general insurance or non-investment life general insurance are also being regulated but not until January 14, 2005. They have a six-month period, too. So, if you are leaving it late, try to avoid July 14 as this will be a very busy time at the FSA.
I know many intermediaries have decided to buy the “FSA insurance policy” – that is, apply for direct authorisation – but also speak to the various networks to see what they offer. This means that even if they do not like the network option, they can continue trading from October 31.
We understand that the FSA is spot-checking some firms that have applied for direct authorisation. They are being asked to supply details of, for example, their training and competence regime or their management controls.
This has taken a few firms by surprise as their systems are MCCB-compliant at the moment but they thought they had until the end of October to get ready for the extra rigours of the FSA regime.
The key message to take on board is that the FSA will expect intermediaries to be completely compliant by the end of October. If it helps, think of the summer period as being a transition time, a grandfathering period to make sure the commitments you made on the application form actually get carried through.
There are some areas that every intermediary should consider including:
Training and competence. Is every member of the firm competent to do their job and how will they stay that way? What records do you hold that proves this is the case? A job description, a copy of a CV and up-to-date training records are a good place to start.
Senior management systems and controls. How is your business organised? How are decisions taken, recorded and passed on to to staff?
Capital and professional indemnity insurance. Do you have sufficient capital in the correct form? Is your PI cover up to date and compliant with that demanded by the FSA?
Sales process. Are your advisers suitability trained, qualified and monitored? Do you have record-keeping procedures in place for IDDs and KFIs as well as suitability letters? While suitability letters are not FSA requirements, the AMI recommends that all members issue them.
Regulatory reporting requirements. Is your firm up to date with these? I think it would be sensible to ensure that any IT systems and management reports automatically produce what you will need for the new reporting system, otherwise you may find yourself repeating work.
The good news is that the AMI can provide you with a number of useful, practical guides to help you identify what needs to be done and how best to do it. These are free to our members and we have had very positive feedback on just how useful they really are.
For all firms, there will be some work to do but for many it may not be too much. One thing is certain – it must be done. As Lord Baden-Powell would say: “Be prepared.”
Chris Cummings is a director of the Association of Mortgage Intermediaries