SELF CERT AFFORDABILITY REVIEW

The Financial Services Authority (FSA) carried out a review in early 2007 into the Quality of Mortgage Advice which identified self certification mortgages (Self Cert) as an area of concern for them.

In the summer of 2007 a specific thematic review was conducted into customers use of Self Cert. The review discovered that there was good knowledge of the suitability of this type of mortgage, but found there was insufficient documentation to back up advice recommendations in a third of the files they reviewed. They also found that one in five firms accepted business without making further enquiries even when they doubted the information provided by the client.

When recommending self certification mortgages, firms should consider:

The FSA's Principle 6 - to pay due regard to the interests of its customers and treat them fairly
The plausibility of the income being self certified. The affordability assessment will be fundamentally flawed if the stated income has been inflated
Maintaining effective risk management and controls to counter the risk that the firm might be used to further financial crime
The need for adequate Know Your Customer information to be obtained and recorded on file
All information provided by the client is in order to gain a full understanding of the client's profile.

A useful example of this last point is where a bank statement is provided for identification purposes, the information contained on the statement is reviewed to determine accuracy of other information provided such as income or expenditure.

In its Self Cert Affordability Review the FSA found instances where the levels of income or expenditure shown on the bank statements contradicted that stated elsewhere on the file.

If income is unrealistic the figures should be challenged and additional due diligence carried out.

For the full description of the key messages coming from this Review click here.

Telos is well placed to support firms in the assessment of their previous self cert business for compliance with the FSA's standards. Contact us for an initial discussion.