FSA REVIEWS

The Financial Services Authority (FSA) Quality of Mortgage Advice review conducted in January 2007 identified four areas of concern.

Advisers' procedures and practices for assessing affordability

Customers use of self-certification of income

The procedures and practices used to ensure the training and competence of advisers

The effectiveness of senior management controls.

To study these areas in more detail four separate thematic reviews were conducted throughout the rest of 2007 to obtain more detail about the practices and standard that were being displayed in the mortgage intermediary market.

Affordability

The FSA found most of the firms had a documented process in place and were using it. A large number of files reviewed demonstrated affordability at the lender's Standard Variable Rate. However, there were problems:

Where a mortgage term ran into retirement but there was no evidence of consideration of affordability after that point
When it came to the inclusion of irregular income, where firms annualised one off payments
When it came to the plausibility of outgoings
Where interest only mortgages were recommended on the grounds of affordability without a plan of repayment.

Click here for more detail on the Affordability Review

Self Cert Affordability Review

See our section on the Self Cert Affordability Review

Training and Competence Review

The Review showed that while recruitment and induction of advisers are handled well, supervision and training are not. Less than half the firms visited could demonstrate the levels of supervision appropriate to their circumstances and only a quarter were taking action to address training needs identified through supervision. Click here for more detail.

Senior Management Responsibilities

About a quarter of the firms visited did not have systems in place that enabled them to monitor their staff to ensure that they are carrying out their roles and responsibilities.

However, all firms visited had the ability through their systems to gather relevant Management Information (MI) but less than half demonstrated an awareness of how MI can effectively be used to enhance their business.

Overall, only a third of all firms visited were able to demonstrate that they are gathering and effectively using their MI to identify risks in their advice processes. For more information about this review click here.

The Telos Compliance service specialises in giving support to senior management of financial services organisation to achieve better, more effective and sustainable business results. Contact us for an initial discussion.