Although the impending regulation under the FSA is likely to spell the end of the Mortgage Code as we know it, with change unlikely to take place before 2004, Code compliance and MCCB monitoring must remain an important priority for brokers.
The principal aim of the Mortgage Code Compliance Board’s (MCCB) compliance function is to raise standards by obtaining agreement and consensus from firms for improvement in the mortgage sales process, with enforcement and an effective disciplinary process being used as a last resort.
The compliance function has developed a new monitoring process to identify real and potential consumer detriment and is active in building relationships with firms to improve controls and compliance. An example of this partnership approach can be seen with the publication of the Good Practice Notes: Mortgage Sales Process Guide on the MCCB’s website.
These have been designed to help smaller firms produce documentation of the standard required. Other examples include the MCCB compliance roadshows and speaking or exhibiting at conferences.
The MCCB’s approach to compliance monitoring is risk-assessed and based on principles and guidance, allowing firms flexibility in adapting their sales processes within the guiding framework of the Code. The visits programme itself is risk related and great value is placed on developing close links with all sectors of the industry and consumer bodies.
To build closer contacts with all lender firms, account managers have now been designated. The account manager’s role involves liaising closely with firms to ensure compliance is supported ‘ where necessary ‘ by in-depth compliance monitoring.
This process will also cover large intermediary firms which can demonstrate a robust internal compliance function.
Monitoring of smaller intermediary firms will continue to be undertaken mainly through an extensive visit programme conducted by the MCCB’s team of compliance inspectors. About 1,650 visits were conducted last year and a similar number are planned for 2002.
Identification of the target population for monitoring remains a critical activity and a risk-assessment model has been developed to take weighted account of a greater range of input data. New processes are also being introduced to enable greater focus on those firms where a higher potential consumer risk exists, particularly in respect of the provision of mortgage advice.
This monitoring process has so far resulted in the identification of a number of key issues ‘ areas where brokers were failing to operate in accordance to the Mortgage Code. The key issues are:
• Failure to adequately indicate the level of service being provided to the customer ‘ whether ‘information’ or ‘advice’.
• Failure to properly provide information and explanation in respect of mortgage products.
• Failure to adequately disclose fees and refund fees as required under the Code and Section 155 of the Consumer Credit Act.
• Failure to adequately explain or demonstrate provision of a robust internal complaints process.
• Failure to implement data protection and privacy requirements.
Analysis of comparative results shows an improvement in the compliance results of intermediary firms visited in the six-month period ending 31 January 2001, when compared with the previous six-month review period. The result of this improvement is an overall reduction in the number of ‘breaches’ of Code requirements and Mortgage Board registration rules. However, there are some notable exceptions. The MCCB remains concerned that, in several areas of assessment, a quarter of the firms visited failed to meet important Code requirements ‘ such as failing to adequately indicate the level of service being provided and failing to provide proper information and explanation of mortgage products.
The Board is also particularly concerned that the refund of brokers’ fees remains a key area of customer compliant and Code breach, notwithstanding the fact that legislation is well established and good practice has been communicated widely on several occasions. We will continue to monitor this area closely.
Details of complaints we receive will be passed to the Office of Fair Trading (OFT), we remain in close discussions with the OFT on this issue.
There are undoubtedly many contributing reasons for the general improvement in Code compliance ‘ one of the main reasons being the increasing evidence of companies formally incorporating Code requirements into sales procedures and giving more attention to training and supervision.
It is believed that the sharing of good practice ideas, greater access to information ‘ for example, through the website, and the educational approach adopted at compliance visits ‘ has also contributed to this improvement.
Nevertheless, further improvement is still required if effective consumer protection is to be provided. The MCCB will continue to focus on these key issues and ensure standards continue to be raised.