FSA fines mortgage broker for advice failings

This case is the second of a number of enforcement cases to arise from a thematic project looking into the quality of advice processes in mortgage brokers undertaken by the FSA's Small Firms and Contact Division in 2008.

Between October 2005 and March 2008 Orchid failed to:

obtain and record from customers all information likely to be relevant to the suitability of its advice, including financial information;

record how or why recommended mortgage contracts were suitable;

implement adequate arrangements for supervising and monitoring its advisers; and

make and retain adequate records to demonstrate how it carried out training, supervision and monitoring of its advisers.

Jonathan Phelan, head of retail enforcement, FSA said: "Orchid's failings meant they could not demonstrate that their mortgage advice and sales were suitable. This fine sends out a clear message to brokers that their advice must be of good quality - otherwise there is a likelihood that they will not be treating customers fairly."

In setting the penalty the FSA has taken into account the following mitigating factors: Orchid cooperated fully with the FSA's investigation and has implemented changes to its practices and procedures after the FSA highlighted the failures during a visit to the firm in March 2008; the FSA has not found any evidence of actual consumer detriment; and the firm has conducted and is completing a file review and customer contact exercise.

Orchid agreed to settle at an early stage of the FSA's investigation. It therefore qualified for a 30% reduction in penalty. Were it not for this discount, the FSA would have imposed a financial penalty of £49,285 on Orchid.