The Financial Services Authority (FSA) has recently released its draft mortgage rules and, as expected, they are going to have a significant impact on the whole industry. While intermediaries will not be directly regulated by the FSA under the proposed rules they will not escape its reach unscathed.
The increased regulation of lenders will undoubtedly impact heavily on intermediaries, particularly if lenders are responsible for ensuring intermediaries fit in with the proposed disclosure regime. If the cost of monitoring all intermediaries conducting mortgage business becomes too high for lenders, they may decide to only work with larger brokers, effectively driving smaller players out of the market. Likewise, if the cost of disclosure becomes too much of a burden on smaller intermediaries, they may stop advising on mortgages voluntarily.
The impact of this can be focused on two areas ‘ ongoing monitoring of mortgage intermediaries’ training and competence (T&C) standards and increasing compliance obligations, including disclosure.
It is essential for the industry to find efficient ways of meeting these two key challenges and, like many other areas of the financial services industry, technology can play a pivotal role in providing cost-effective procedures to enable this.
History shows that most independent intermediaries and specialist mortgage brokers do not spend substantial sums of money on training and development, although of course there are always exceptions. There are companies in the market who are fully committed to training, perhaps subscribing to initiatives such as Investors in People. But the majority of intermediaries, with all the business pressures they face and the tight margins within which they must run their business, have rarely put training at the top of their spending priorities.
This remains the case despite the increased attention The Mortgage Code is paying to the implementation of training and competence standards within the sector.
With mandatory mortgage advice qualifications being required in 2002, training and competence requirements are going to increase significantly. So why is it that intermediaries have not spent money on training in the same way that many other businesses do?
The answer is not hard to find. The combination of the cost of training, its time-consuming nature and the perceived lack of impact of training upon the bottom line of the business, all coupled with question marks over the relevance of the generic training available to intermediaries, add up to an understandable reluctance to prioritise training.
However, with the range of technology solutions available today there are many ways that intermediaries can benefit from the positive aspects of training without having to suffer high costs, inflexible training courses and time consuming paper-based record keeping systems.
Keeping a record of the training and development that intermediaries and their staff have undergone, and the training and development that is planned for them, is not stretching the use of technology very far. Given that we gather client information, carry out needs analysis, generate reason why letters, research products, promote our services, source mortgages and communicate with our clients all using technology, there are no reasons why we should not meet the requirements of the training and competency rules and successfully develop our people by using these same technologies. Currently there are programmes available that can help in three areas.
First, there are computer-based training (CBT) solutions that offer many benefits over traditional training techniques and there is now a wide variety of methodologies available to the training manager through new technology. The basic training design principles still hold true, but now employees can study on their own PC from a CD-ROM, over a network, across an intranet, or on the internet. CBT can ensure the programme is delivered in a consistent standard to all employees and can produce substantial cost savings compared with traditional training techniques.
Second, technology can help with the ongoing testing of intermediaries. The training manager can use technology to create and maintain databases of questions, generate random test papers, provide tests for candidates to sit on-screen, mark tests electronically, produce detailed reports and analyse the individual questions for quality control purposes. All this can save the training manager considerable time and having the records stored electronically helps ongoing assessment.
Finally, technology can help the one-to-one review process that takes place between managers and members of their team. Levels of activity, business quality, business production and competence measures can be presented in both tabular and graphical format. Measures of performance can be quickly and easily compared against targets and benchmarks, and areas that require further development can be highlighted.
It is not difficult to test someone’s knowledge online, nor is it difficult to record someone’s training and development online. There are many online training programmes available in the market, that have proved both interesting and effective.
While the mortgage advice process remains a voluntary code, the FSA is proposing to regulate a number of other aspects of the mortgage sale, including information disclosure. The FSA’s draft rules will create considerable amounts of work for lenders in vetting and monitoring intermediaries to ensure they meet the disclosure requirements. At a recent Council of Mortgage Lenders (CML) conference, it was clearly a major concern to find a way to implement the new rules in a cost efficient manner. One solution is for lenders to work together with the MCCB, which is already monitoring Mortgage Code compliance, to develop a common mechanism for compliance monitoring of the disclosure regime, using technology to keep costs under control.
Currently compliance officers need to visit intermediaries to review business records in a paper-based format. If we can extend the online training and testing to electronic record keeping of information handed out by the intermediary at point of sale, the next logical step is to give those that have an interest in that information access to it. After all, what is the difference between auditing a paper-based record or file and looking at similar information online?
If intermediaries are going to have to prove to lenders that they have provided the necessary information to their clients before, during and after the sale of a mortgage, they are going to have to keep detailed records as proof of their actions. If the audit trail is kept electronically, not only does it make it easier for the intermediary to monitor, but it is more accessible to lenders or the MCCB.
With most intermediaries already using technology to source a mortgage, produce illustrations and compliance documentation, the move to an industry standard ‘compliance warehouse’ is not that great a step. A number of the leading suppliers to the mortgage market already have well-developed strategies for online record keeping and can provide valuable assistance to lenders wishing to automate the disclosure monitoring process.
What is needed is a commitment from lenders to a common process with some standardisation that enables all the intermediary software suppliers to interface their point of sale systems. This could best be achieved by lenders outsourcing the whole compliance solution to the MCCB. This approach ‘ combining a common technology solution under a single responsible body ‘ is the one route to gaining market-wide coverage and achieving critical mass of future usage.
With the pressures on margins that we all face, anything that reduces the administrative burden anywhere within the business has got to be regarded as a good thing. Perhaps we are a little scared of the ‘Big Brother’ scenario.
It is time that we moved on from that mind-set. Advisers should now be able to check their knowledge in any area, access a website, select an appropriate secure test for the necessary area, sit the test on screen and get feedback instantly.
The results of these tests could then be communicated, if necessary, to the relevant manager within the business and also logged electronically against their training and development record. At any time advisers can view the training and development record on screen and see what activities need to be undertaken in the near future.
Every time advisers give a client mortgage advice, using a mortgage sourcing system to produce required documentation, they can be confident the records are stored centrally and the compliance officer or that of the lender or MCCB can review cases without recourse to time-consuming manual audits.
The first place we should be looking to apply technology within our businesses is where we have a traditional paper-based administrative burden. Here is where the application of technology would free up time, resources and create improvements in terms of the quality of the process. The training and compliance areas within our business are prime candidates for using this sort of technology. We just need the more forward thinking lenders and e-commerce suppliers to work together to bring about an effective solution to the problems currently posed by the new mortgage regulations.
Computer-based training is more cost effective than traditional methods and ensures training is consistent.
Results of tests can be held electronically against advisers’ training and development records.
Holding the audit trail electronically will make information more readily available to regulators.