Keeping up to date with the myriad of proposed regulations facing mortgage advisers could easily be a full time job, so if you don’t feel fully up to speed, don’t worry – you are not alone.
This is a quick summarisation of what’s coming up, with a some pointers on what you could and or should be doing in your business to ensure preparedness.
Let’s start with mortgages.
Following the three separate consultations papers under the Mortgage Market Review (MMR) umbrella – approved persons, responsible lending and distribution & disclosure – the FSA has now said that there will be no policy changes before 2012.
The approved persons regime, which Openwork and most of the major networks were supportive of, is now on hold until 2012 / 2013. This is a great shame as it would have been helpful in driving up industry standards.
While the responsible lending proposals won’t be policy until 2012, advisers should still expect ongoing tightening of lender processes and criteria.
Advisers need to keep abreast of the changes, especially around affordability, proof of income and interest only. Be vigilant in these areas, get the evidence you need and keep it on file. We are now expecting a further consultation paper from the FSA in Q3 or Q4 2011, with a policy statement in Q1 2012.
The distribution and disclosure paper, whilst proposing some changes in procedures around disclosure, KFIs, labelling and a move to advising based on clients “best interests”, is considerably less onerous than it could have been.
Part of the delay in implementing the MMR proposals I suspect is down to the EU Directive on the mortgage market.
This seems to be tackling many of the same issues that the MMR is attempting to, but it is trying to do so across all 27 EU member states. This is a massive and complex task, but the directive is heading our way fast.
So much so, that it is expected to be law by the end of the year. Member states will then have two years to comply.
Whether this timescale will be achieved is questionable given the sheer scope of what the EU is trying to achieve. And precisely what is mandated or will be at the discretion of the member states is yet to be determined, but there is clear overlap with the MMR.
For example, it is likely to mandate the use of a European Standardised Information Sheet, presumably replacing our current KFIs. It also has strong requirements around brokers not having been previously bankrupt or having previous criminal records and having professional indemnity insurance in place.
As such, it will impact the UK, even without the implementation of the approved persons regime.
It will be interesting to see how the FSA deals with the Directive, but it could lead to potentially significant re-working of the MMR.
For advisers operating in the investment and pensions space, the Retail Distribution Review (RDR) is coming up fast.
The RDR seeks to drive professional standards and involves, among a number of other proposals, the need for advisers to achieve higher professional qualifications and the removal of product-based commission.
These changes, which will come into force at the beginning of 2013, will have a profound impact on the economics of providing advice, with many commentators predicting a 20% to 30% fallout in adviser numbers.
A separate issue arising from the RDR is that investment advisers selling life protection will be required to disclose protection commission.
This may well be a precursor to commission disclosure for all protection products, but is not a requirement as yet.
Full financial planners should already be well advanced on ensuring they are on track to achieve the required qualification standards and defining and or implementing their strategy for transitioning their businesses ahead of RDR.
Taking action now in building non-indemnity income streams through selling the likes of protection and GI are obvious moves, which will help insulate businesses from what could otherwise be a significant income drop in 2013.
As if these major developments are not enough, here are a few other regulatory changes impacting advisers worthy of mention:
Payment Protection Insurance (PPI): the Competition Commission requirements for the PPI market are coming into force over the coming months.
For mortgage advisers, this will principally mean changes in the selling of Mortgage Payment Protection Insurance (MPPI).
Firstly, if you are selling MPPI and are not a network member, you should by now have notified the Office of Fair Trading (OFT) who your compliance officer is. This should have been done by April 2011.
If you are a member of a network, then your principal should have already done this on your behalf.
Whilst there are changes in client communications required later in 2011, the key change will be in 2012, when you will need to provide a seven-day prohibition period between delivering a quote to a client and applying.
You’ll need to think through how this will influence your sales process.
Niche lending: a consultation paper is expected in Q2 2011.
We already have specific regulation for the likes of equity release and HPPs (home purchase plans), so it will be interesting to see what other niches the FSA seeks to tackle and how.
Second charge and unsecured lending: these areas of our market are currently policed by the OFT, but they will soon transfer across to the FSA. This is likely to mean tougher regulation.
Protection: The European Court of Justice’s gender directive received a huge amount of coverage a few weeks ago and could have resulted in the need to remove gender as a factor in insurance pricing immediately.
In the end, the ECJ ruled that the changes are required to be made by the end of 2012.
The biggest impacts will be on motor, annuity and life rates, so advisers in these spaces should be considering what action they should be taking within the next two years to ensure their clients don’t lose out.
This is a bit of a whistle stop tour of what is coming over the regulatory horizon. It is often hard to see the positives emerging from the changes, but positives do exist.
For advisers taking pro-active action now to position their businesses ready for the changes, there is no doubt that opportunities will emerge.
Paul Shearman is mortgage, protection and GI proposition director at Openwork
