As we await the final policy statement from the FSA on the mortgage market review, feelings are running high in some parts of the industry.
The proposal that all verbal interaction should be seen as providing regulated advice brought many smaller building societies and some larger lenders, who have only ever delivered a non-advised service, to challenge the impact on their business models and customers. Many of the smaller mutuals have never seen the issues that the proposals are trying to address.
The proposals will still allow lenders’ staff to talk to consumers on an information only basis. Customers will still be able to ask queries about their options and deal with administrative issues without being captured under these new advice rules. Dealing with arrears and financial hardship will still sit outside this part of the rulebook.
What is rightly captured is where a discussion leads to the recommendation or purchase of a particular mortgage contract or that contract is varied to a material degree.
What might be material is established by the FSA in other parts of their proposals as the draft rules set out the key issues that need to be considered in any advice process. Material issues include the loan amount, term, affordability, capitalisation of fees and the relative impact of interest rates and different fees.
Explained at this level, it is hard to see why any individual, organisation or consumer group would not want the person providing that assistance to take responsibility for their input to that discussion. Indeed, responsible firms should want to ensure that those talking to customers are appropriately skilled and supervised to deliver good outcomes.
Where consumers really do know what they want, then they can go down the execution-only route, confirming that they know they are taking responsibility for their actions, so limiting their ability to complain about any resulting issues.
Similarly, where a lender alters the contract sold by a broker by offering a new “deal”, varying term, or adding to capital, it must be accepted that the lender is then taking responsibility for the subsequent performance of that loan and therefore the broker is no longer “liable”. The volumes of such business alongside volumes of execution-only business can be monitored and reviewed.
The other area of concern is the failure of the regulator to introduce the approved persons aspects of the regime where we have had near final rules for some time.
The intermediary community has been consistently asking for implementation. The need for a register of all who “advise”, whether through direct or intermediated channels, is essential to track and eradicate rogues and to allow consumers to know they are dealing with legitimate firms and people.
The challenge for Lord Turner and his team is to find the right priorities and implement quickly.
The industry has long argued that this will help reduce all types of fraud and could introduce its own process, but we have an active regulator which has already deemed it with in its remit.
If we as a trade body stepped into this area we would need to define the rules we would be adopting and establish a disciplinary process. This would raise the issues of double jeopardy and precedence so it must remain in the FSA’s power to do. We just need it done.
Robert Sinclair is chief executive of the Association of Mortgage Intermediaries