Many mortgage advisers are failing to complete client audit trails, according to experts, a situation which will need to be remedied before N3 is enforced in 2004.
Tony Morrell, operations director at IFA network Bankhall, said: ‘We need to ensure those giving advice have proper and full audit trails in place, but there is a distinct lack of this at the moment.’
Morrell believes recommendation principles and recruitment practices are the two main areas which need to be maintained on audit trails.
‘Advisers need to justify how they recommended a product to a client. There is an inability to demonstrate why a recommendation for a particular mortgage lender or protection product was made. There are rarely ‘reason why’ letters and there is a failure to clearly set out and justify a recommendation,’ he said.
Nick Baxter, director at Mortgage Promotion agreed, saying product confirmation letters need to be more comprehensive.
‘Mortgage writers need to ensure that products which they have discounted and not recommended are also recorded. In the future, when advisers look back over the past five years, they not only need to be able to say why they recommended a product, but also why they did not choose another product. There is a large gap in most files,’ he said.
With regards to recruitment, advisers need to ensure suitable checks are made on new recruits, such as credit reference checks and previous employment records, with the details being accurately logged.
The Mortgage Code Compliance Board’s (MCCB) 2001 annual report confirmed the problem, with statistics indicating that 23% of firms breached the code on adequate record keeping.
Brad Baker, head of communications for the MCCB, stressed the importance of keeping records up to date.
He said: ‘The criteria is clear ‘ mortgage advisers have to do it and it is spelled out in the code.’
To rectify the issue of incomplete audit trails, advisers need to have the right systems and controls in place.
‘When N3 comes into force, there will be a rude awakening for those who give advice. Advisers need a head start and have the right systems in place which will minimise litigation problems and maintain a more profitable business,’ said Morrell.
Baker said the MCCB can aid brokers with audit trails and has practice notes and sample documentation for record keeping which are available on its website.
Brokers not up to scratch on record keeping need to act fast in order to comply with the impending regulation.
Baxter added: ‘Most mortgage writers are facing a sharp learning curve. This is the tip of the iceberg ‘ the MCCB has gone a long way in ensuring progression, but the Financial Services Authority will take it to a new dimension.’
