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Year one needs to brush up on regulation

One year on from the regulation of the mortgage market, the FSA warns it will be getting tough by cracking down on those firms which have not yet come to terms with the new regime.

In an interview with Money Marketing, looking back on the 12 months since M-Day, FSA head of mortgages and credit unions, small firms div-ision Andy Watson says some of the mystery-shopping exercises have been “disappointing” but the regulator will not take any blatant flouting of the rules lightly.

The equity-release mystery shopping exercise and investigation in May was one of the sector’s lowest moments, according to Watson and it is an issue that the FSA will revisit in the new year.

He says: “The equity-release results were disappointing. Equity release is a complex product but it does have a role in a society with an aging population. What we have been reiterating is, do not dabble with equity release. If you don’t understand it and its do not, you should not be advising on it. I believe the investigation caused people to think.”

Similarly, the sub-prime investigation in September was a mixed picture of good and bad practices. Watson advises brokers dealing in this area that they must be able to show evidence of the advice they give to clients whom they believe best-qualify for sub-prime mortgage products. He says: “Evidencing and record-keeping is what advisers, not just mortgage advisers, appear to have the most problems with.”

On initial disclosure documents and key facts illustrations, brokers and lenders are still not grasping when they need to be given to the client and what they ought to contain. Watson says there is evidence of a contraction in the length of KFIs and there is no reason why most cannot be about five pages long.

He does not believe that the FSA should have given more guidance at the start of the regulatory regime, maintaining that while the reg- ulator is willing to work with individual lenders to help them with this, it is ultimately working more to a principle rather than rule-based regime. The issue of KFIs is being revisited at the end of the year.

Overall, Watson says one of the successes of mortgage regulation has been that most of the negative stories have not come to fruition, particularly in terms of consolidation of the market and a subsequent loss of compet- ition and choice.

He says on the intermediary side, there has been very little consolidation and packagers have re-established themselves as compliance administrators. He concedes, however, that some of the networks have not made the numbers at first expected, although the impact has yet to be realised.

Watson says: “Mortgage regulation has been a milestone for us. Admittedly, the understanding of mortgage regulation has been patchy. But we are getting brokers up a learning curve and making sure the industry understands and embraces regulation and to make sure it is embedded. Generally, the industry wants to be informed and to put things right.”


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England vs Australia: pensions

Well, the cricket season is here, and England and Australia are stepping up to the wicket. Although we compete with each other in the sporting world, when it comes to pensions, Australia’s pension programme is held up as a model for our auto-enrolment initiative. Auto-enrolment was introduced because people weren’t saving enough into their pensions, and it is still early days but signs are positive. However, in Australia, saving into a pension is compulsory, and in fact employers are the ones who have to pay in. Employees in Australia can make additional contributions into their pensions, but they don’t have to. Should the onus be on the employer or employee to save? Well in the UK we think it’s both, but to get ‘adequate’ savings for retirement it’s the employee who has to pay more in.


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