Stroud & Swindon Building Society has had a team of four working full-time on regulation for the whole of this year, and is confident that it is ready for regulation.

While the society – which has 22 branches and 293 full-time staff – is in favour of the regulatory changes, it is clear there is strong feeling that some of the processes have been made more complex than necessary.

Michael Jarratt, chief solicitor at Stroud & Swindon, and member of the mortgage regulation team, says: “Regulation is ultimately a good idea – it will certainly be beneficial for borrowers. However, from an industry point of view, there seems to be an awful lot of details and prescriptive rules, which are going to make the system much more complicated.

“When it all beds down, it should be positive for both lenders and consumers. The difficulty is getting it right in the first place. Lenders will give more of a steer and will be more transparent and open with their clients, but borrowers will certainly have a lot of paper to get through when they take out a product.”

It is little wonder, therefore, that Jarratt is concerned whether the less sophisticated members of the public – those who regulation is supposed to help the most – will be able to grasp all the information they will be given.

Complexity has also had an impact on product innovation. As a result of the time spent on trying to get to grips with regulation, Stroud & Swindon has had to put on hold various projects, including lifetime mortgages, so that it can ensure its existing products are compliant.

Despite these pressures that the move towards regulation has created, the society has not had to take on any extra staff to cope, although there has been a vast retraining effort.

Jarratt explains: “Different areas of the business have been trained for different lengths of time. For example, the financial promotions staff and sales staff have a major part to play, so have taken a lot of time to get fully up to speed with the regulatory changes. Most of them will have spent more than a week in training. Various other departments have spent a lot less time, although all employees are involved in the process and will at the very least have sat in on a series of briefing sessions.”

Some staff have found the retraining too demanding, and two or three employees have left as a result. Jarratt admits that recruiting replacements is difficult, as there is now such a premium on people who are suitably qualified to cope with the challenges of regulation.

As well as training staff, reprinting all the documentation for financial promotions has also contributed to the cost of preparing for the new regime. Jarratt says: “I cannot give a monetary value as to how much regulation has cost us so far, but my suspicion is that it has cost more than the original estimates.”

Mortgage regulation has also prompted Stroud & Swindon to review its IT infrastructure, deciding that developing its existing system would not be cost-effective. As a result, earlier this year the society has opted to standardise its systems using Attentiv Systems technology. This automates the work involved in processing a mortgage application from an initial client enquiry and quotation through to completion, and ensures that the building society presents information to borrowers consistently across all its branches.

In the final run-up to Mortgage Day, the society has concentrated on producing specimen documents to check that everything is ready. As far as key facts illustration (KFI) documents go, Jarratt said that the society was still in negotiation with the sourcing systems to verify data. “This has probably got to happen as advisers will demand detailed information to pass on to borrowers,” he says.

So does he think that it is harder for a smaller lender to cope with regulation than its larger rivals?

Jarratt says: “My guess is that the problems are probably slightly different. In the case of larger societies, they probably have more resources to put into implementing processes, but more difficulty getting down to the lowest level, so to speak. Smaller societies are more constrained by resources, but the lines of communication are shorter, so it is easier to get it down to the borrower service level more quickly. Once Mortgage Day is over, we are looking forward to enhancing our existing products. Next year, we will be looking more closely at Sandler products.”

The Nationwide view

Preparing for regulation has cost Nationwide Building Society an estimated £10m.

“That sounds awful until you put it into context,” says John Sutherland, divisional director at Nationwide. “But you have to remember that it includes training people and all the system changes. Until recently, advisers could not apply for mortgages on the internet, but regulation has speeded this process up and, as of six months ago, advisers can now apply online. Our advisers have had to go through several days of intensive training. In total, 18,000 training days have taken place, with 500 members of staff being trained for five or six days and other members being trained for half days.”

Compliance is now the number one priority, according to Sutherland, and with this in mind, from today, Nationwide will offer advisers the ability to source a ‘penny perfect’ KFI – either directly from the Nationwide website, or from the Mortgage Trading Exchange. Nationwide will also support other sourcing systems so that they can provide their own KFIs.

“The logical sequence was to make sure all the domestic information was live first so we could make sure the infrastructure was in place, before moving on to third parties,” explains Sutherland.

Nationwide has been updating advisers on what steps they need to take in order to continue doing business with Nationwide under the new regulations. This includes urging advisers to ensure their registration details are up to date and that they have submitted their company Financial Services Authority (FSA) number and authorisation level. Sutherland says: “We have invested a significant amount of time and resources preparing for the new regulations. For everyone involved in the industry, especially advisers, this is a time of great change, and we have carefully considered what we can do to make advisers’ lives easier.”

However, in common with Stroud & Swindon, regulation has affected product innovation. Sutherland admits: “The cost that has probably hurt us the most has been putting various projects on. One area we would like to move on is offset mortgages, but that has been pushed to one side thanks to regulation.”

Despite this, the society is confident that for consumers, regulation will lead to greater transparency, making it easier for them to compare products and charges. Sutherland says: “The KFI document is a very detailed quotation. We have started using it already in branches and call centres and have sent out around 20,000. So far, the feedback we have had from consumers has been very positive and suggests that they find it very straightforward.”

Ease of use

As Britain’s biggest building society, Sutherland believes that it is probably easier for Nationwide to cope with the demands of regulation compared to its smaller rivals. “It must be easier for us to ensure that we are compliant as we have people who can focus on regulation full-time,” he says.

Preparation for regulation has involved a lot of discussion about what advice can – or cannot – be given by unqualified advisers. However, when the voluntary code for mortgage regulation was introduced in 1997, Nationwide decided to treat it as though it was FSA-recognised. Sutherland says: “This has meant that rather than having to switch from black to white to prepare for Mortgage Day, Nationwide has really only had to switch between two different shades of grey. Regulation has simply codified much of what was already in place.”

The next move for Nationwide is to pick up the projects that are currently on hold. Sutherland says: “We have always tried to make sure that we have a very simple product range, and we will continue to do this. Our approach will be to continue to have a fair and transparent approach to mortgage lending, with no hidden fees or charges.”