Forthcoming projects and thematic work affecting the mortgage industry

May 2006

1. INTRODUCTION

   As part of its ongoing supervisory work, and also by way of specific thematic work, the FSA undertakes reviews of certain areas of business. These include areas where problems have previously become apparent, and also additional areas that it considers present a risk to the FSA's statutory objectives being achieved.

   The results of the work enable the FSA to deal with particular sector or industry-wide problems and deficiencies in a risk based and proportionate way.

   Results of most of the reviews will be used to provide guidance to firms, including examples of good and bad practices, to enable them to identify areas of concern within their own businesses and address the risks.

2. SCOPE AND PURPOSE OF PROJECTS

   Firms should be aware that the FSA has published on its website details of:

   • the areas that it will particularly be looking at during the conduct of its day to day supervision of small mortgage firms; and
   • the major thematic work it plans to undertake during 2006/2007 which will be conducted using a combination of consumer research, mystery shopping, desk-based reviews, supervisory visits and monitoring.

3. FORTHCOMING SMALL MORTGAGE PROJECTS

   The areas that the FSA has listed as those, which it will be paying particular attention to during 2006/2007, are divided into three categories, which are set out below:

   • projects that will have particular attention paid to them during supervisory visits that also fall within the FSA's major thematic work for the year;
   • projects that do not fall within the major thematic reviews planned for the year but to which firms can expect some attention during supervisory visits; and
   • projects that fall within the FSA's major thematic work for the year but have not been listed as matter to which specific attention will be given during supervisory visits. Firms should however be aware that this does not mean that the FSA will not look at these matters during supervisory matters, simply that they have not been highlighted as likely to receive specific attention.

   3.1 PROJECTS TO BE REVIEWED IN DAY-TO-DAY SUPERVISION OF FIRMS WHICH ARE ALSO PART OF FSA'S MAJOR THEMATIC WORK IN 2006/2007

   Disclosure Documentation
   This project follows on from the findings of initial thematic work done on the subject in 2005 that showed that mortgage firms were failing to adequately provide customers with Initial Disclosure Documents and Key Facts Illustrations.

   The new work will be conducted by way of desk based reviews and supervisory visits to assess whether accurate and appropriate documentation is being given to clients in a timely way.

   Lifetime Mortgages
   This project follows on from serious shortcomings being found in both:

   • the sales practices adopted by firms selling lifetime mortgages; and
   • the investment advice given following the release of equity in a customer's property.

   The new work will be conducted by way of mystery shopping and supervisory visits to ensure that recommendations appropriate to the customer's circumstances are given and the needs of vulnerable and risk adverse customers are taken into account.

   Review of Electronic Reporting Forms
   The FSA are obtaining feedback on the firms' experience of completing the forms and also looking at the source material and documentation firms use to complete their RMAR return.

   The work will be conducted by desk based reviews and supervisory visits with a view to making the forms easier to complete and more focused, with the aim of improving effectiveness and making the FSA easier to do business with.

   3.2 PROJECTS WHICH ARE NOT PART OF FSA'S MAJOR THEMATIC WORK FOR 2006/2007 BUT ARE LISTED AS AREAS FOR SPECIFIC REVIEW IN DAY-TO-DAY SUPERVISION OF FIRMS

   Controls over Appointed Representatives
   These reviews aim to ensure that deficiencies in firms' systems and controls identified in previous work have been addressed. New work will be undertaken to ensure that firms have adequate systems and controls in place over their Appointed Representatives.

   Quality of Outsourcing
   The FSA aims to assist retail consumers in achieving a fair deal by ensuring that improvements are made to the quality of advice given by compliance consultants to mortgage advisers.

   Self Certification Mortgages
   Reviews are planned to ensure that customers proposing to enter into self-certification mortgages are provided with appropriate and suitable advice before doing so. In addition the work to be undertaken aims to ensure that such customers are not encouraged in any way to inflate their incomes.

   Training and Competence
   Project reviews will include work to ensure that mortgage advisers are compliant with the FSA's Training and Competence requirements.

   Quality of Advice
   Reviews are to be undertaken with the aim of ensuring that there has been a measurable improvement in the quality of advice given to mortgage customers.

   3.3 Projects which are part of FSA's Major Themes in 2006/2007 but have not been Listed for Specific Review During Supervisory Visits.

   Effectiveness reviews
   There is a rolling program of reviews in place to assess how far the FSA requirements are delivering the intended outcomes for consumers.

   The reviews will be conducted by way of consumer research, mystery shopping and desk-based reviews to test the effectiveness of the regimes in the marketplace.

   Treating Customers Fairly (TCF)
   This is a key element in the FSA's retail agenda and includes the following strands:

   • Quality of advice;
   • TCF management information;
   • Relationships between providers and distributors; and
   • Implementation of the principles of TCF into businesses.

   The reviews will be conducted by way of desk based reviews, mystery shopping and supervisory visits to assess the areas above, following which a paper, together with examples of good and bad practice will be published.

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Errors and Omissions Excepted. This communication is for the general information of subscribers. It is not a professional opinion relating to a specific set of circumstances or a specific client. Recipients must not place reliance upon it in relation to their own specific circumstances without seeking professional guidance specific to those circumstances. Unless recipients are current clients (full service or Compliance Counsellor service), Grainger Consulting Limited will not enter into correspondence with recipients in relation to the content of this communication or provide further guidance or opinion.

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