Mortgage Advisers
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1.
Treating Customers Fairly (TCF) update / FSA workshops
2.
Principles-based regulation – Initial implementation due fourth quarter of 2007
3.
Update on retail distribution review
4.
Financial Promotions Guidance
5.
Consumer Credit Licence (CCL)
6.
Supervisor Skills Workshop
7.
ATEB Mortgage Workshop – A success!
8.
FSA reviewing Self Certification
9.
FSA identifies firms still using goodwill in their accounts
10.
FSA remove age 70 rule with effect from 6th June 2007
11.
General insurance cold calling – Mixed Standards
Ladies & Gentlemen
Please find enclosed the latest compliance and industry news.
As usual, sit back and enjoy!
Kind Regards
ateb consultants
Which article applies to me?
Please use the following table to decide which article applies to you, if any:
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1.
Treating Customers Fairly (TCF) update / FSA workshops
The FSA conducted telephone survey with 659 firms during first quarter of 2007.
Many firms did not meet the March 2007 deadline (to be implementing TCF in a substantial part of the firm’s business)
The percentage of firms not meeting the deadline was as follows:
- 78% of small mortgage firms
- 55% of small GI firms and
- 48% of IFAs
The FSA puts the above down to lack of commitment of senior management
So what action are FSA taking?
They will visit those that ‘failed to engage with TCF’ i.e. those with substantial failings or showed no evidence of any attempts towards TCF. The FSA will also visit 10% of firms that have done some work but had failed to meet the deadline or are making slow progress
The FSA will conclude the visits by the end of June 2007.
They are now setting further deadlines. By the end of December 2008, all firms must be able to demonstrate that they are consistently treating customers fairly.
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2.
Principles-based regulation – Initial implementation due fourth quarter of 2007
Past experience suggests to us that prescriptive standards have been unable to prevent misconduct. The ever-expanding rule books of predecessor bodies and the FSA
Handbook have not stopped further mis-selling, market misconduct or other poor practice. Instead the FSA believe that detailed rules have become an increasing burden on their own and the industry’s resources.
The FSA believe that any set of prescriptive rules is unable to address changing market circumstances and practices at all times, and it inevitably delays, and in some instances prevents, innovation. In a quickly changing marketplace, principles are far more durable.
This does not mean the FSA will be a purely principles-based regulator. In certain areas they will continue to rely on detailed rules and prescriptive processes. For example, when implementing EU legislation they are likely to need to include more detailed rules in their Handbook. So, in reality, therefore, there will always be a mixture of detailed rules and principles in the regime.
| Ateb view: |
| There is no doubt that an increasing volume of detailed, prescriptive and highly complex rules will continue to divert attention towards adhering to the letter, rather than the purpose of the regulatory standards. Firms need to be careful though because the FSA are indirectly giving firms a longer piece of rope. |
| Action required by you: |
| You can read more at: http://www.fsa.gov.uk/pages/Doing/small_firms/general/pbr/index.shtml |
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3.
Update on retail distribution review
The FSA will set out the key issues for discussion on its major review of the retail distribution market at a conference on 27 June 2007.
The review covers the activities of the full range of market participants involved in the retail distribution of investment products. Whilst the focus is on investment products, there may be some read-across to other product areas such as general insurance or mortgages, reflecting the emerging industry view that the market should be service-oriented rather than product-oriented in its approach to consumers.
Overall, there seems to be some preference for a move away from the focus on products towards the range of services that reflect consumer needs.
The outcomes the FSA are looking for might include:
- Services that are clearly defined and can be explained to consumers
- Remuneration structures that reflect both the services provided and the responsibility of those providing the services
- Standards of professionalism that are proportionate to the service offered and enhance the reputation of the industry
- Products that are more transparent and, where appropriate, simpler and more accessible, reflecting consumer needs
- Regulation that provides incentives for firms to treat their customers fairly and is proportionate to the risks presented
- Capital, liability management and other prudential requirements that result in sustainable businesses
| Ateb view: |
| As ever with this type of major change I suspect that there is a hidden agenda. No doubt time will tell. |
| Action required by you: |
| None - for information only. However, interested parties should be alert to an FSA Discussion Paper in to be issued June 2007. |
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4.
Financial Promotions Guidance
A recent FSA bulletin aims to help firms understand FSA requirements to issue ‘clear, fair and not misleading financial promotions’, and help raise standards further.
The bulletin outlines some of their findings and failings relating to the promotion of:
- Direct mail
E.g. the covering letter should prominently display risk and drawbacks.
- Sub prime mortgages
E.g. the range of fees advertised should be the same as the fees the client eventually pays.
- General insurance
E.g. claims should not state that most customers would be eligible for a price saving when the saving is based on an unrepresentative sample of the target audience.
- Venture Capital Trusts (VCTs)
E.g. when describing the risks, firms should bear the target customer in mind and adapt the language so it is clear and meaningful from their point of view.
- Self-Invested Personal Pension Schemes (SIPPs)
E.g. Promotions should clearly state the disadvantages of a SIPP.
- Home Reversion Plans
E.g. Give no less prominence to the possible disadvantages than to the benefits associated with a feature.
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5.
Consumer Credit Licence (CCL)
We continue to receive questions regarding whether a consumer credit licence is required.
The requirement to have a CCL depends on the business you do. If you arrange second charge mortgages and other loans not within the FSA mortgage regime you are likely to continue needing a Consumer Credit Licence.
A licence covering category C is needed by those who introduce their customers or clients to sources of credit in order to sell their own goods or services.
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6.
Supervisor Skills Workshop
Content:
- Overview of general T&C requirements on regulated firms
- Setting customer facing sales process standards
- Consistent and accurate assessment skills
- Theory of coaching and training
- Training Needs Analysis completion
- Constructing SMARTA development plans
- Structuring one to ones
- Monitoring performance
Who should attend?
- Qualified supervisors wishing to top up existing supervisory knowledge
- Newly appointed supervisors
- Supervisors who had previously been classified as ‘self supervising’ (under PIA)
Timings:
9.30am until 4.00 pm
Location:
Newcastle upon Tyne
Cost: £175 plus vat per person
| Ateb view: |
| Although we often quote the regulatory requirements, don’t forget that quality supervisor training will certainly have a positive impact on your business. |
| Action required by you: |
Before we announce dates can you first respond identifying your interest in attendance AND dates in July and August that will not be possible (i.e. due to holidays), this way we can maximise numbers. Please aim to respond within 7 days of this newsletter if possible and, following your responses, we will confirm definite dates.
Please let us know by email or telephone using the contact details in this newsletter. |
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7.
ATEB Mortgage Workshop – A success!
The inaugural ATEB mortgage workshop took place Wednesday 22nd May at St James Park and was very well received by the 32 attendees. Many thanks to Active Lending Solutions (the UK’s fastest growing mortgage club) who presented their excellent proposition and helped organise the day.
Subject covered were;
- TCF
- Self Certification
- Sub Prime
- Affordability
- Debt Consolidation
- Interest Only
- First time buyers
- Retirement ages
- Lifetime mortgages
We had a presentation from Accord Mortgages and a new exclusive self certification style mortgage from Scottish Widows and thanks also to the Halifax for their mortgage presentation together with an insight into their competitive building and contents product.
| Ateb view: |
| Some would argue that it was the only success at St James Park this season!! |
| Action required by you: |
| In order to continue running these workshops we need to guarantee a minimum attendance. For our part, we will make every effort to ensure we only present on topics that are relevant and useful in your role. All that we ask is that firms make the effort to commit to future workshops. We intend to run 2 more by the end of the year and move to quarterly for 2008. We will also write to you shortly to gauge subjects that you would like in future workshops. |
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8.
FSA reviewing Self Certification
The FSA are currently following up the self certification project work completed in 2005 during which they;
- Visited 39 small mortgage brokers
- Examined 249 client files in detail
- Conducted 40 mystery shopping exercises
The outcome showed that:
- 36% of firms recorded no reason or justification for self certification
- 42% of files were for employed customers and 83% of these had no reason or were unclear
- Affordability was not assessed adequately in 47% of the files
FSA are now conducting telephone calls to firms.
The results of this project will be announced in September 2007
| Ateb view: |
| Very simple – DO NOT LISTEN to the LENDERS (they have a very different agenda) the buck stops with YOU, the ADVISER. Ensure that you fully document your rationale and have evidence to back up your advice. |
| Action required by you: |
| Ensure that you profile your clients and only advise self certification for the right situations. Always record the self certification cases that you turned away or where you declined to act. This will help demonstrate a compliant approach to this sector of the market. |
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9.
FSA identifies firms still using goodwill in their accounts
The treatment of goodwill was consulted on in CP174, 'Prudential and other requirements for mortgage firms and insurance intermediaries' and the subsequent policy statement. The FSA announced a transitional rule in response to industry concerns about the impact on relevant firms of the requirement to deduct goodwill.
The FSA view was that the transitional rule, which applied for a three year period, would give affected firms sufficient time to readjust their finances so that they would be able to meet the capital resources requirement after the deduction of goodwill.
The FSA has identified firms which currently would not meet the capital resources requirement if they were now required to deduct goodwill and have written to them highlighting the need to take the necessary action.
| Ateb view: |
| Unless appropriate action is taken, it is possible that some of these firms may not meet the capital resources requirement from 14 January 2008 onwards, when the transitional period will end, ultimately leading to enforcement action. |
| Action required by you: |
| We strongly recommend that such firms discuss this with their accountants sooner rather than later. The FAQs has more information: http://www.fsa.gov.uk/pages/Doing/small_firms/insurance/faq/goodwill.shtml |
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10.
FSA remove age 70 rule with effect from 6th June 2007
Changes to the definition of a pure protection policy will allow certain business that is currently regulated by the investment-based Conduct of Business sourcebook (COB) to move to the ICOB regime. The effect of the changes will be for all term assurance sales to be regulated under the ICOB regime. In addition, some whole of life policies, provided they do not have a surrender value, will move across to the ICOB regime.
All unit-linked and with profits whole of life policies will continue to be regulated under COB. Any whole of life policy which has the ability to acquire a surrender value at some period in time, even if this is several years into the life of a policy, would not meet the definition of a pure protection contract and so will not be affected by this rule change.
The FSA do not view the products affected by this proposal as highly complex and feel ICOB advisers are adequately equipped to deal with the sale of these policies.
The FSA are of the view that the products affected by these proposals are not widely used for inheritance tax planning purposes. They feel that general training and competency requirements in ICOB will prevent ICOB advisers from straying into the realm of inheritance tax planning advice without possessing the necessary expertise to do so.
| Ateb view: |
| A word of caution: ICOB advisers generally do not have the necessary expertise to advise on inheritance tax planning matters, so be careful. This is a complicated area of tax and firms would be unwise to take a scattergun approach. A strategy should be put in place which could involve nominated experts or a simple process to refer to an IFA. |
| Action required by you: |
Supervisors should continue to remain vigilant that insurance advisers cannot access COB products without the correct training and authorisation.
You can read more at: http://www.fsa.gov.uk/pubs/handbook/hb_notice65.pdf |
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11.
General insurance cold calling – Mixed Standards
The FSA reviewed a sample of 43 firms to look at their sales process, systems and controls and whether they were treating customers fairly when selling general insurance over the telephone.
The project was completed in three stages from September 2006. All 43 firms completed a questionnaire; the FSA listened to over 260 calls from 19 firms and visited 10 firms.
Key findings
- the disclosure of significant exclusions and limitations was inconsistent
- the quality of the sales process of personal accident insurance, health cash plans and accident & sickness insurance was generally poor
- weaknesses were found in training programmes
- lack of ‘compliance’ KPI with focus on sales ‘KPI’
some sales were pressurised The FSA will be undertaking further work to address any similar problems in other firms not included in the original study.
| Ateb view: |
| Firms must improve the standards of cold calling when selling general insurance over the telephone to ensure they are treating their customers fairly. |
| Action required by you: |
The FSA have produced some feedback in the form of a mini report – definitely worth reading if only to give yourself the satisfaction that you are doing it right!
http://www.fsa.gov.uk/pubs/other/GI_Telephone_Sales.pdf |
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Important Note:
The ATEB Newsletter is intended to provide general guidance on areas of compliance and T&C; however it is not a replacement for the main Rules and Guidance contained within the FSA Handbook.
We welcome all feedback. If you have any feedback or questions relating to any articles then please direct them to your local ATEB consultant or the newsletter editor Steve Bailey email steve@atebconsulting.co.uk
Unless you have consulted specifically (as part of a regular visit) with ATEB on a particular issue then ATEB Consulting accept no liability for any actions taken based on the information contained solely within the newsletter. |
Contact Us:
Ateb Consulting
The Old Post House
29 Nedderton Village
Northumberland
NE22 6AX
T: (01670) 822984
M: (07703) 576951
E: steve@atebconsulting.co.uk
W: www.atebconsulting.co.uk
