The Mortgage Event 2003 took in seven venues across the country, and saw over 2,000 intermediaries come through its doors. With Financial Services Authority (FSA) regulation now only 12 months away, intermediaries are beginning to formulate their strategy to comply with the forthcoming regime. Cost, timing, gaps between the old and new regulation, and how products and service will be affected were among the concerns raised. Mortgage Solutions has taken these issues to the various industry bodies concerned and the Mortgage Code Compliance Board (MCCB) and the Council of Mortgage Lenders (CML) are the first to respond to the questions put by delegates.
Mortgage Code Compliance Board
Why is it that the MCCB regime could offer a framework that worked in the interests of the consumer, intermediary and lender at a lower cost than the FSA appears to be proposing?
The FSA has a wider remit than the MCCB. For example, the Code focuses very much on regulating the sales process through advice and information disclosure requirements and has a lighter regulatory touch in other areas – such as the regulation of the firm’s business in general – than will be the case under the FSA. The costs of the FSA’s comprehensive consultations, which it is obliged by law to undertake, should also be borne in mind when considering proposed FSA fees.
Why is the Mortgage Code of Conduct not sufficient for the regulation of intermediaries?
This is a question for the Treasury. The Government announced in December 2001 that mortgage advice and arranging should be brought under statutory regulation. This came about partly as a result of the EU’s Insurance Mediation Directive for general insurance selling. As this directive required general insurance sales across the EU to be regulated, in the Government’s view, it would not have made sense from a consumer perspective if mortgages remained the only major area of financial services outside the jurisdiction of the FSA. We support this position.
What will role will the MCCB have, if any, after October 2004?
The Mortgage Code will be superseded by statutory regulation and the MCCB will close its operations after Mortgage Day.
How will the MCCB be assisting with the transition to FSA?
The MCCB will continue to work closely with the FSA to ensure a seamless handover on Mortgage Day and to provide the FSA with the information it needs about MCCB registered firms for the purposes of the application and authorisation process. With the continued support of the industry during the remaining transitional period, we will ensure that the Code and our rules remain effective in protecting the consumer and further enhancing industry standards.
We will also continue to act as a conduit to ensure that firms receive all communications from the Treasury and the FSA.
After the FSA publishes its final rules, MCCB will run a series of one-day seminars early in the New Year to help registered firms prepare for Mortgage Day. We will announce our plans for the final MCCB registration renewal (to cover the period 1 May 2004 – 31 October 2004) early in the New Year.
Given the importance of regulation and your impending roadshows, does the MCCB believe a cost of £200 per head will encourage as many people as possible to attend or act as a barrier?
This is an area where MCCB is meeting a demand from registered firms for information and helping in the transition to statutory regulation. It is not a ‘core’ activity – unlike for example our compliance monitoring or registration services – and therefore costs for running these seminars cannot be recovered from our budgeted income from registration fees. The seminar fees have been set at £200 (inclusive of VAT) and are designed to cover all associated costs of running them. The fees compare very favourably with events run by some commercial conference organisers currently being advertised.
Why have you never clamped down on advisers who have clearly not passed the required exams and why have you allowed tied agents who use a panel of lenders to class themselves as independent?
To monitor the compliance of smaller intermediary firms with the fitness and competence requirements, a large-scale exercise was undertaken in early 2003. A substantial sample of small single adviser firms (mostly sole-traders) who had indicated at the previous renewal that they provided advice and a recommendation were contacted and required to submit to the MCCB a copy of the relevant professional mortgage qualification certificate, to ensure that none was seeking to operate as unsupervised trainee advisers, having failed to pass one of the accredited examinations.
Themed visits were also undertaken in the first part of 2003 to some 200 firms with between two and10 sales staff, to assess compliance with the fitness and competence requirements.
Monitoring of fitness and competence requirements in this period found minimal evidence that any firms were continuing to give advice without meeting the qualification requirement, but 36% of the firms visited were not fully meeting all of the requirements and, having been made aware of the situation, have been required to take appropriate action to address their weaknesses in the areas of supervision and competence assessment.
Additionally, as part of the data collection process at renewal, firms were asked to provide information on the qualifications obtained by their sales staff. This and other data will be used to inform future compliance monitoring activities as part of our ongoing risk-based compliance monitoring strategy.
In terms of the use of lender panels, firms can currently use the term ‘independent’ where they are not a tied agent of a lender, and act in the interests of their client. Under the FSA’s proposals the use of the term independent will be made consistent across the financial services industry. However, after Mortgage Day, firms offering a ‘whole of market’ service can still use panels provided the panel is representative of the whole market.
Council of Mortgage Lenders
Will future equity lending rely less on income multiples and more on affordability?
Yes – the borrower’s whole financial circumstances will need to be taken into account.
What is the CML’s stance on self certification borrowing and its use by both employed and self employed to get borrowing without reference to income?
There will be times when a lender does not need to verify income (such as for its own employees or existing customers) and others when it is able to check income from bank statements without needing to seek an employer’s reference. Other information is gathered which helps lenders to verify that borrowers are who they say they are, and have good credit records.
Why do lenders not ask for proof of an intermediary’s CeMAP (or equivalent) status when mortgages are submitted?
It would be an unnecessary duplication of the MCCB’s efforts. Lenders do check regularly whether intermediaries are registered with the MCCB – and it has been a requirement of the MCCB registration since 1 January 2003 that all intermediaries have CeMAP or FPC plus CeMAP bridge or FPC plus MAQ. Anyone who fails to meet that requirement gets de-registered.
Should the CML have been more active in regulating the mortgage market to ensure advisers are qualified to give advice?
We fully supported the MCCB’s decision to make obtaining a mortgage qualification an essential requirement of MCCB registration. We similarly support the FSA’s proposal that all mortgage advisers in future should have an ‘appropriate’ qualification – athough we welcome the fact that those who have already met MCCB’s requirements will not have to take another exam.
What role will the CML play post regulation
The CML is involved in a large number of policy areas, of which regulation is only one. Work on those areas will, of course, continue. To name but a few: collection and dissemination of statistics, funding of social housing, mortgage valuations and factors affecting value, fraud prevention and money laundering, European influences, Basel and capital adequacy, measures to reform the house buying and selling process, leasehold and commonhold issues, conveyancing and land registration, de-materialisation and electronic signatures, devolution (development of housing policy in the devolved countries), housing defects and regeneration, tax credits, long-term care funding, equity release, new house schemes and non-traditional construction, private renting, right to buy – the list goes on.
So far as regulation is concerned, there will be an important role for us in helping members implement the new rule book, to help with matters of interpretation and facilitate an exchange of experiences across the membership – and to make representations to the regulators where we think there is a need for greater clarification, guidance, and change. Regulation and compliance will not go away once 31 October 2004 has come and gone – there will be more changes, some driven by Europe, some by internal pressures (perhaps as yet unforeseen).
Service is one of the major concerns with Mortgage Lenders – what steps can be taken to improve service?
This is not really an issue which the CML gets involved with – it is a commercial and competitive area, and one which individual lenders actively seek to compete on.
How does the CML see the role of packagers post regulation by the FSA?
The FSA has made it clear that packagers will have to make their own decision as to whether or not they are undertaking a regulated activity, and if they are they will need to apply for authorisation. But if they are only providing an outsourced service to lenders and/or intermediaries, they will stay outside the FSA’s regime.