The clock is ticking. As the 31 March deadline draws ever closer for intermediaries to reach the implementation stage for the treating customers fairly (TCF) regime, the market is making conflicting noises over its progress to date.
The Association of Mortgage Intermediaries (AMI) has been positive in its outlook, with 85% of its membership confident of meeting the deadline, though less than half claimed to already be at that stage. 72% of firms said that they had conducted a TCF review, with 57% making changes as a result. In contrast, research by Mortgage Next reveals that just 6% of the 50 small directly authorised mortgage brokers consulted are even aware of the deadline, with the majority believing that existing paperwork would be sufficient in proving they were properly implementing TCF. Can there be such a divide between the large and small firms?
Rob Griffiths, associate director at AMI, believes there is some truth in this. “The FSA has focused on the larger firms and networks, but maybe they need to look at how they communicate with the smaller firms,” he commented. “Larger firms can have relationship managers with the regulators, but the smaller guys just do not have the resources.”
When the FSA unveiled its strategy in July 2005, it identified when a firm could be said to have reached the implementation stage – namely, that it would develop plans and processes, allocate TCF resources and responsibilities, and create capability among its staff. The FSA declined to comment on the latest reports, preferring to reiterate the latest guidelines on its website, which states: “We expect senior management to take responsibility for ensuring that their firms treat their customers fairly, including identifying risks, having appropriate systems and controls in place to mitigate these risks, and ensuring that these are effective. Where we detect a breach that requires enforcement action, we will consider taking action against individuals within the firm if we consider that senior management have failed in their responsibilities.” But the FSA’s unwillingness to comment on recent findings may fuel further resentment towards the TCF principle.
Andy Pratt, chief operating officer at Alexander Hall, says that the principles were established at the broker firm long before the initiative was launched. “We work very closely with the FSA, and have had most of this in place for six months,” he said. “The ones that have struggled are the smaller firms, which is all down to a communication issue. When regulation came in, the FSA spent a lot of time talking to the larger firms, thinking that was where the problems lay, but it soon realised that the area of concern is with the smaller brokers.”
Pratt believes that this stems from the more thorough approach that the larger brokers adopt towards the documentation process: “We do more than has been set out by the FSA, as it is best for the customer, not just because the FSA has said to do it. This comes from experience.”
This level of expertise has also prevented the problems that may arise from principles-based guidelines, as opposed to explicit rules. “We have departments filled with good minds who have talked to the FSA, sat down and sorted where to apply TCF. This is where the communication comes in – it is very telling that it is the smaller firms that are suffering,” he said.
It is a similar story at L&C, where David Hollingworth, head of communications, is not concerned about the upcoming deadline. He said: “From our perspective, TCF is something that has been part of what we do for some time; it is pretty entrenched in how we work.”
He acknowledged that the firm’s communication with the FSA had been of benefit, but warned: “If some have not paid notice to the guidelines, then it is high time they did. We have been doing this even before regulation. Really, so should everyone else.”
For the Mortgage Times network, the scheme has already had an impact. Payam Azadi, head of marketing, said: “We take TCF very seriously. We have set up our own committee for how to do this, which then flows down to the brokers we deal with. There has been a lot of noise made about TCF, and rightly so, but the fact is that brokers need to be sat down and told where they are going wrong.”
For Azadi, so long as a broker is aware of the issues they will be performing in a proper manner in the eyes of the regulator: “It is all about training and educating brokers on how to implement the principles properly.”
The contrast in attitude towards the regime is borne out by Kim Barrett, head of sole trader advice firm KS Barrett & Associates. He noted that a broker was recently deregistered by the FSA for his behaviour: “That would suggest that the existing rules deal with the fact that people must not be rude. I do not understand what the FSA is driving at,” he says.
Though confident that his documentation was sufficient, he said: “I would love to say that I have no fear that they would find anything amiss, but I cannot say with certainty that will happen. But if I can justify what I am doing to myself, and to my client. I can certainly justify it to the FSA.” The FSA is clear in its notes on TCF that senior management must ensure they have the right data to satisfy they are putting TCF into practice, as well as supervising training, performance management and remuneration.
With just a month until the deadline, time is fast running out for those not up to standard. Historically, brokers have a poor track record for documenting advice, but with the deafening silence from the FSA over its enforcement plans, the issue remains unresolved. n