The past week has seen the Financial Services Authority (FSA) take action against two brokers with heavy fines imposed for poor advice given. In the first instance, Select Mortgage Services was fined £10,500 for poor Financial Promotions, inadequate sales processes and inappropriate systems and controls to manage its business.
Meanwhile Hadenglen Home Finance plc was fined £133,000, and its chief executive £49,000, for inadequate systems and controls when recommending remortgages and payment protection insurance (PPI) to customers. This double whammy of fines, within the same week, has led to some concern in the intermediary world, with brokers strongly reminded to not only keep within regulatory guidelines, but to ensure that their clients are given the correct information and are left satisfied with the service they have received.
So what does this mean for the mortgage broker and financial adviser? Are they now waiting in a line of worry, unsure of when the FSA is going to strike next? If the regulator does bite again, will the next fine be enough to ensure that the offending firm is put out of business altogether?
Dysfunctional
Simon Burgess, managing director of British Insurance, claims that Hadenglen Home Finance plc should have been kicked out of the industry. He says: “The problem with PPI is that it is dysfunctional and people are making too much money to care about how it is sold. In this instance, the regulator has bared its teeth and it’s a shame that the fine is not more as Hadenglen should be kicked out of the industry. These companies are ripping people off and we’re all being tarred with the same brush.”
Richard Hayes, chief executive of Hadenglen, was asked for his opinions, but he declined to comment.
The main failings of Select Mortgage Services, according to the FSA, were that it was found to be falling short of its requirements during an earlier review of several hundred non-conforming adverts and promotional materials, iincluding flyers and classified adverts in directories and regional newspapers. These follow-up visits found that weaknesses relating to advertising and promotions usually indicate wider problems within firms.
Commenting on the Select Mortgage Services case, Margaret Cole, director of enforcement at the FSA, said: “Taking out a mortgage is one of the most important decisions anyone makes during their life. Poor practice by firms in this area therefore poses a high risk to consumers – and this is particularly the case when it comes to non-conforming mortgages, given the vulnerable nature of the target audience.
“It is essential that firms’ financial promotions are clear, fair and not misleading, so that consumers know exactly what they are buying. In addition, firms need to have the right sales processes in place so that they recommend suitable mortgages.”
Financial Promotions difficulties
However, brokers have expressed their difficulties in understanding Financial Promotions guidelines. Andy Pratt, chief operating officer at Alexander Hall, says: “The area of Financial Promotions can be a very difficult area to understand for brokers, as advertising rules can vary from adverts in a newspaper to websites, so there is a grey area surrounding it.”
He adds: “As the rules have been changed and regulations are lighter there is more chance of irregularities. If a broker does an advert, then he would need to publish the fees clearly on it. However, if a lender does the same, then all it has to do is put the arrangement fee on there, which it can wrap up with the annual percentage rate.
I believe the FSA has got it wrong with the balance, as it is too easy for lenders to bury their charges in the details on an advert, while brokers have to be far more upfront, which can put off members of the public.”
Sam Bennett, spokesperson for the FSA, claims that there are no key areas that intermediaries should identify in order to stay ‘within the lines’, as every situation is on a case by case basis, and fines depend on what the failings are and the seriousness of that.
Bennett says: “Willingness to meet regulation is also taken into account, and the main point is that senior management are held responsible and will accountable if they are found to not be treating their customers fairly. They need to make sure that they have proper systems in place and stay compliant.”
So whether the regulator makes any more moves in the coming weeks cannot be determined at this early stage. Certainly the actions so far against Select and Hadenglen have come out of the blue, and are the first major fines to be imposed for some time. Only time will tell on what enforcement action, if any, the FSA plans for the mortgage advice industry in the coming months.
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