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Expo 2010: FSA to limit broker role in checking affordability

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  • 12/11/2010
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Expo 2010: FSA to limit broker role in checking affordability
The FSA has revealed it is considering limiting the role that brokers play in assessing customers’ affordability to see if they fit lenders’criteria.

Speaking to a packed conference room, Sheila Nicoll, director of the conduct policy division of the FSA, gave an insight into the regulator’s imminent Mortgage Market Review (MMR) consultation paper on distribution and disclosure.

She said: “We understand that an intermediary will need, at point of sale, some degree of comfort about whether the lender will agree the mortgage. It would not be in the customer’s best interests for the intermediary to put them forward for a product for which they would be turned down.

“Our view is that intermediaries do have a role to play in assessing affordability but that it should be limited to checking whether the consumer fits within the expected parameters of the lenders’ affordability criteria. After all, it is the lender who has access to customers credit history and who can request additional information if required.”

To avoid “blurring the lines” of who is responsible for checking affordability, the FSA intends to remove the detailed affordability requirements placed on brokers and replace them with rules that intermediaries must check that customers are eligible for products and that the deals are appropriate.

Nicoll said: “While we see this approach making the intermediaries’ responsibilities very clear, we understand that this a new concept which needs careful thought. This will be a consultation and we are keen to invite feedback on the advantages and disadvantages of this proposal and what the consequences, intended or otherwise might be from taking this approach.”

Nicoll dismissed “unhelpful rumours” suggesting that brokers will become merely lead generators for lenders as a result and was adamant of the FSA’s belief in the importance of intermediaries’ role in the mortgage market and lender reliance on the sector.

She said: “Given that intermediaries are often the preferred point of face-to-face contact for many borrowers, we expect most lenders will continue to use intermediaries in future to obtain information about a consumer’s income and expenditure and to gather all the supporting documentary evidence so the lender can meet its obligation to check affordability.”

In addition, all mortgage sales, whether advised or non-advised, will likely be subject to an appropriateness test.

As such, all mortgage sellers, not just advisers, will need to hold an existing Level 3 mortgage qualification, although not an enhanced level.

Nicoll also said that the FSA will remove the need for an Initial Disclosure Document (IDD) after its research showed it had little impact on consumers’ behaviour.

Instead, it will focus on the early disclosure of key information, but will not prescribe what form that information takes.

In addition, Key Facts Illustrations (KFIs) will be retained in their current form, but the need to provide the customer with multiple KFIs at different stages will be removed. The FSA again found customers did not use the KFI to shop around. However, its contents is highly valued by both consumers and firms as a record of their purchase.

To clarify its position, the FSA is to hold a series of free MMR roadshows for intermediaries across the country in December and January.

Read Sheila Nicoll’s full speech here.

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