Premier Mortgage Management
To my mind it was the hidden threat regarding the banning of self cert mortgages for the employed. Any restriction here would have made a significant impact on the whole of the market and could have resulted in a property slump. I believe the FSA saw this and decided that it would allow the market to deal with the issue in its own way.
I believe it is time for extreme caution. The cautious adviser and lender will take heed of the warning signs.
The most significant item in the final FSA rules is not found in the 337 pages or in the linked 87-page statutory instrument, but in the accompanying press release of 16 October. In it FSA director Sarah Wilson states that in respect of the decision facing mortgage advisers about whether they should become an appointed representative (AR) of a principal or go for direct authorisation: “Whatever route firms take, they will have to meet our [FSA] standards.”
Firms cannot avoid regulation by becoming an AR. The AR route is not a cop-out. The principal might be ultimately responsible for the advice of an AR, but the adviser still has to follow the rules of the FSA.
Independent Financial Adviser
The final rules clarify the position of principals and ARs. It is less daunting for those of us who are already principals, since there is little or no change. The re-registration should be similar to the grand-fathering system used when the PIA was replaced by the FSA.
There may be some differences imposed by the lenders, who will be concerned to ensure that compliant business practices are maintained by introducers. The lenders may become more accountable for compliance under the new regime. Some people have used this as another excuse to announce the death of the small IFA firm in favour of large networks as the lenders may want to deal with fewer, larger principals.
The Mortgage Group
For those advisers who already take their Mortgage Code responsibilities and customer obligations seriously, the impact of the advice standards will be low. Novel to many advisers in the nonconforming sector will be establishing whether or not a client with a history of payment difficulties, and who is consolidating debts, should negotiate an arrangement with their creditors rather than enter into a new mortgage.
To discharge this responsibility mortgage advisers are going to have to do more than just brush up on the CeMaP syllabus: the obligation could even extend to knowing the reaction of specific creditors to such an approach.
The most significant aspect of the FSA near final rules was confirmation that advisers will only be able to operate through one principal for mainstream mortgages, unless they are directly regulated by the FSA. This polarises the packager market and crystallises the likelihood of panels emerging.
At present, advisers can use any lender or packager. However, post-N4 principal, firms will assume a greater level of responsibility and liability for the advice given and as such will need to understand at a product level the range of advice available. This will be impossible with too many lenders and packagers, not least of which is the possible advice implication of a packager giving advice on the most approprivate product without conforming to the FSA’s ‘know your client rules’.
Genesis Home Loans
The allowance regarding the accuracy of illustrations provided other than by lenders was welcomed by all.
Yet, within the supporting guidance is the statement: “It is the responsibility of the intermediary to ensure compliance [with the accuracy requirements].”
While an adviser may be able to rely on the information provided by another, a recent award made under the Mortgage Code Arbitration Scheme for £12,000 against an adviser who relied on the information provided by a sourcing software company suggests that, with the possibility of the cost of professional indemnity premiums rising or becoming more difficult to obtain, this is one piece of FSA guidance which no adviser can afford to ignore.
The most significant section within the FSA’s final rules is disclosure.
This section lays out in clear terms exactly what, when and how introducers will have to disclose information to their clients. It also determines the term ‘independent’ and how it will affect appointed representatives
The new KFI will require intermediaries to describe exactly what their status is and indeed how they are going to earn fees from the mortgage transaction whether by procuration and or by charging the client directly. It also puts the onus on the sourcing companies and the lenders to ensure that accurate information is provided to the intermediary for them to give to their clients, which I feel has been a long time coming.
Hamptons International Mortgages
It is good to see that the FSA has heeded a lot advice of the mortgage broking industry.
Brokers will continue to be able to transact self-certification mortgages without accepting liability. More sensibly, lenders and brokers will be required to make sure a client can afford their new mortgage commitment.
It is a shame to see the FSA has sidestepped the equity release issue by not regulating home reversion schemes. These schemes are not normally marketed as mortgages. Typically the elderly form one of the most at-risk sectors of the mortgage industry and it would seem logical to provide them with some form of protection. Equity release is a huge growth area, with many lenders rushing to launch products.
The biggest issue brokers will face is moving from a guidance-based to a rules-based regime. It is up to brokers to decide if they prefer to meet the new regulatory requirements by joining a network or by becoming directly authorised but, whatever they choose, they will still have to play by the rules.
They will have to prove they have the necessary control and monitoring processes in place. For brokers who have not worked in a regulated market before, this will be a big transition and require a degree of operational discipline to avoid future problems.