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Time to prepare

  • 27/09/2002
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Preparation for authorisation by the FSA needs to begin now, as this is one deadline that won't be flexible

It seems most mortgage broker firms are getting to grips with the compulsory qualification requirements, both for themselves and their advisers. This is encouraging news because past history would suggest things are usually left until the last possible moment and then an extension is expected ‘ if not demanded ‘ out of necessity.

However, one deadline that will not be extended is the two-year period the Government will have from the date the Council of the European Union finally accepts and signs the proposal for a Directive of the European Parliament and of the Council on insurance mediation. The clock will start ticking on that date and no extensions will be allowed.

The best ‘guestimates’ to date suggest around 300,000 existing general insurance and mortgage sales outlets will need to become authorised by the Financial Services Authority (FSA) in order to allow them to continue to sell general insurance or mortgages. For many this will be their first encounter with regulation. If the implementation of the statutory regulation of the sale of investments, life assurance and pensions is anything to go by, there will obviously be many businesses that fail and do not make it through to statutory authorisation.

Some of these ‘casualties’ will fail as a result of a conscious decision by the owners or managers, many are already indicating this will confirm their thoughts about their early retirement. Sadly, however, many will fail because the owners or managers of those businesses have not had the sense to plan ahead and prepare well in advance for the inevitable. This is not the time for advisers to bury their heads in the sand; it is the time for positive management decisions and action.

Winners and losers

As well as casualties there will be winners. Many businesses will be put up for sale or merger and, as with previous regulatory experience, many will look for umbrella cover through networks. The winners will be those intermediary businesses that have prepared ahead and are best placed to purchase, merge with, or provide a network membership facility to those businesses who have not prepared well enough or have left it too late to become authorised by the FSA.

Unfortunately, there is a lot of incorrect information floating around as well as apathy based upon the mistaken belief there is nothing mortgage intermediaries can do before the FSA publishes its rules. There are also many who believe it will never happen. They could not be more wrong; it is already happening and now is the time to prepare to take maximum competitive advantage of the situation.

With this in mind, it would be useful to look at what preparation mortgage intermediary owners and managers can begin to do in order to commence internal discussions and planning for their transition from voluntary Mortgage Code Compliance Board (MCCB) self-regulation into statutory FSA regulation.

Initially, and urgently, intermediary businesses need to prepare a ‘project plan’ for their transition from voluntary into statutory regulation. Fortunately, there is already a robust framework for the statutory regulation of investments, pensions and the investment aspects of life assurance policies in force that can be studied in order to prepare effectively.

Close and detailed examination of the FSA Handbook and the current FSA Application Pack publications will clarify the requirements of the FSA and identify the concepts that need to be tried out by potential FSA applicants over the next two years. These new concepts will need to be tried out in order to build an adequate portfolio of evidence to support the answers needed for the FSA application form. It will not be sufficient to answer ‘yes’ to a question. Documentary evidence needs to support the assertions. Remember, if it isn’t written down, it didn’t happen.

The handbook, together with the Library of Publications supporting it and the legal instruments, ensures there is enough information written down to provide intermediaries with what almost amounts to tablets of stone. It is important for owners and managers to examine and understand these documents as the mortgage industry prepares to join its financial services sector colleagues within the well-established regime of statutory regulation.

To summarise, in order to prepare for statutory approval and regulation by the FSA, mortgage intermediaries should immediately:

• Work to the current best standards available ‘ remember the MCCB only provides minimum standards.

• Prepare where you can against the existing FSA high level and generic rules, for example, approved persons, management controls, generic training and competence, complaints procedures.

• Develop with the rulebook and consultation process ‘ especially Conduct of Business Rules and mortgage-specific training and competence.

• Ensure you meet the threshold conditions ‘ joining requirements for FSA, for example, resources ‘ financial, suitability ‘ fitness, continuity ‘ systems and controls.

• Become familiar with the FSA application form and the associated guidenotes. You can obtain them by post at a cost, or download them from the FSA website for free ‘ prepare early by examining the forms now and begin to understand what they will require from you when you apply. This will include a business plan, so if you do not have an up-to-date one available, prepare one now.

Ian Langley is a tutor with Incisive Training, a professional training organisation set up in conjunction with Mortgage Solutions to help mortgage advisers to pass the MAQ qualification. He is also a director of IFAct Mortgage Framework which specialises in compliance solutions for the mortgage industry and is part of the IFAct Group of Companies.


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