ONA and the Importance of keeping up to date

I recently was contacted by a firm who managed to miss the Risk Awareness Survey a few weeks back as a result of having changed their  email address and not updating the FCA. For those of you who have worked your way through these 2 hour sessions, you might consider that to be a benefit. However, not when you get a letter that informs you that if you don't act pdq you will be  looking at Enforcement. Fortunately the matter was resolved but it just makes the obvious point that it is worth making sure periodically that your standing data with the FCA is up to date. The mechanism for updating such data is the ONA System, which you have to register with in the same way that you would have done with GABRIEL. ONA has been around for a couple of years now but there are I believe still some firms who have not registered with it. It is quite a good idea to do so.

MMR Readiness Tracking Survey

OK, the next round FCA MMR survey is reaching the email inboxes of firms  at the moment.  I think that you have until 3rd January to complete it but I see no reason to delay . Best to get it out of the way over the next couple of weeks. If you are one of my regular paid up clients then the message is, if I haven't already spoken to you, as follows...

I'll be  emailing the latest version of the MMR implementation plan to you tomorrow together with a status update. This should provide you with the information that you need to respond to the  survey. However, I recommend a conversation with me before you go and do it so that we know all is in order. From the discussions that I have had with most of you, you should have no problems completing the survey in a positive manner.

If you re not already one of my clients, I am more than happy to help out. Please contact me on david.c.payne1@btinternet.com or via this blog.

MMR Heads Up #2 Affordability

 So you think that you won't have to worry about affordability after 26th April 2014 ?

Well that's not entirely correct, is it? It is true that under the FCA Handbook, responsibility for a client's affordability will transfer from the intermediary to the lender ( why on earth was it not so from October 2004?)  but that is not the only consideration.

Firstly, there is Treating Customers Fairly (TCF).  Under TCF a firm has to act with the client's best interests in mind  and quite obviously, their ability to afford the repayments on their mortgage is a key consideration in this. For a mortgage to be  recommended, the expectation is that it is affordable and the evidence of this is a meaningful discussion and assessment of the clients financial position both now and in the foreseeable future. For this to have any meaning (and to be able to demonstrate TCF) this would have to be  documented : you know the kind of thing, budget planners; lenders affordability calculations; your own affordability calculations; payslips, p60s; income-fed bank statements and so on.

Then there is the complaints culture. You may have seen the latest complaints figures published by the FCA yesterday. All this good stuff simply creates a culture where complaints  are inevitable. It is only a matter of time before complaints start hitting mortgage brokers about mis-selling of mortgages. At the moment lenders have by far the majority share in this area and of course it will always be so but one area where brokers will surely be exposed is along the lines that : "you sold me a mortgage that I couldn't afford" When this type of complaint comes in, the argument that it is the lender's responsibility simply won't hold up. There are things like "duty of care" and "negligence" to add to the matter of TCF. Evidence of course being crucial to successful responses by firms.

Thirdly, and not necessarily the least issue, is the matter of the Mortgage Credit Directive. Exactly what is meant by the statement that lender's and intermediaries will have  to  assess the consumer's ability to repay, based on information provided by the borrower? 

It has an ominous sort of ring to it and i don't know enough about it right now to be able to comment further - but I will at some point soon.

So in answer to the vexed question of affordability my suggestion is that. notwithstanding the transfer of responsibility to the lender from 26th April next year, affordability is something that should not  and probably will not permit intermediaries to switch off to the issue.

Warning Notices - how they could affect your firm.

One of the new powers available to the FCA that wasn’t available to the FSA is the power to publish a Warning Notice about firms or individuals who are referred to Enforcement and before the enforcement has concluded. In fact the notice can be made when the firm is referred to enforcement. Hitherto it was only possible for the FSA to notify after a successful enforcement action. This means that if a firm or individual is referred to enforcement and before the outcome has been determined, consumers and customers can be made aware of the matter identified by the FCA as a concern.

In the press release published recently, the FCA writes:

The FCA will consider the circumstances of each case in deciding whether it is appropriate to publish details of the warning notice and, if so, what details to publish.  Before making its final decision, it will consult the person under investigation and will take into account any evidence that publication would be unfair.

A published warning notice statement will ordinarily include a brief summary of the facts which gave rise to the warning notice to enable consumers, firms and market users to understand the nature of the regulator’s concerns.    

Just another no-small matter to be aware of.

The Mortgage Credit Directive 2015 (Now 21st March 2016 - Ed.)

Just for those of you  who like to keep ahead of things, here is an early piece on the Mortgage Credit Directive, which is currently  in the process of being signed off by the European Parliament, having finally been agreed in final form AND, thanks to the UK representation, without the inclusion of the Buy to Let Market.

The new rules, which will apply to all Member States once made law, shortly  this year will have to be  brought into each country within 2 years .This means that we have April 26^th 2014 for the MMR and probably October/November 2015 (Now 21 March 2016 - Ed.) for the Mortgage Credit Directive (MCD). That’s a lot of change in a short while so lets see what is underneath the hood, so to speak.

The EU have stated that the  focus  of the MCD is to ensure that all consumers purchasing a property or taking out a loan secured by their home are adequately informed about the possible risks and that all institutions engaging in these activities conduct their business in a responsible manner. The proposed Directive covers all loans which allow the consumer to borrow money in order to buy a home as well as certain loans to consumers to renovate a home. It also covers all loans to consumers that are guaranteed by a mortgage or another comparable security.

Let’s stop there a bit.

So, despite the FCA approach to reduce the level of disclosure at the outset and as a whole within the MMR ( on the basis that documented disclosure has not prevented customers from taking mortgages for which they are not suited) the MCD is looking to put something back. Furthermore, the European Standardised Information Sheet, (ESIS) will at some point replace our current KFI. Also , from the comments above, we can see that second charges will come under the remit of this law as will any loan guaranteed by a mortgage or other comparable security.

OK so what’s in the Directive? (I have  lifted some of this directly from the EU Press Release – the text in italics.)

The proposed Directive will require the European Member States to :

• ·      introduce certain requirements for the advertising of mortgage credit, for example wording that may create false expectations for a consumer regarding the availability or the cost of a credit will be prohibited – so we are probably well up the curve on that one but only time and the proposals of the FCA as set out in their Consultation Paper will tell.

• ·        ensure that all institutions involved in the origination and distribution of mortgage credit to consumers are adequately regulated and supervised – yes I think we have done that one to death in this country and once Consumer Credit is under the FCA, then that is surely pretty much job done.

• ·     establish principles for the authorisation and registration of credit intermediaries (companies who provide information and assistance to consumers looking for a mortgage credit and sometimes conclude mortgage agreements on behalf of the lender) and for the establishment of a passport regime for those intermediaries. This means that once authorised in one Member State, the intermediary would be allowed to provide its services throughout the Internal Market. Well we have had something in place since the dear old MCRI/MCCB days. I suppose there is always a risk that goal posts might change on qualifications or capital adequacy but only a closer reading of the MCD and the FCa proposals will tell. The good news is that you will now be able to operate in other Member States by the sound of it.

• ·        ensure that lenders benefit from provisions enabling them to access information in credit databases on a non-discriminatory basis. I have to say that I don’t actually understand this one right now so I’ll have to do a bit more reading.

Lenders and credit intermediaries will be required to:

• ·        make general information available at all times on the range of credit products they offer; This has an ominous ring to it. After all the MMR has taken a reasonable and rational approach to disclosure but what does it mean at all times. This warrants closer scrutiny and may offer some additional requirements for in process disclosure / repetition and so on.

• ·        provide personalised information to the consumer through a European Standardised Information Sheet or so called "ESIS". This will allow consumers to compare mortgage conditions from different providers; Standardisation is good of course but we have resisted ESIS for many years now and offered up the Key Facts Illustration. If the intention is to allow competition across borders then a more specific standard document will surely be  required otherwise the thing is meaningless. I have seen reference ( I think on the FCA site) to the opportunity to keep the KFI for a further 5 years after MCD implementation but I have not read detail of this and so treat it with caution at this point in time.

• ·        give explanations and meet certain standards for the provision of advice; More reading needed here just in case we have  enhanced education requirements

• ·        assess the consumer's ability to repay, based on information provided by the borrower; OK this is cute. Does that mean that although the MMR leaves the responsibility squarely with the lender that there is going to be a shift back also towards the broker?Well if it is the case that is hardly surprising and would only reinforce that which consumers should know is available under negligence laws and a duty of care.

• ·        finally, credit intermediaries will be required to disclose certain information concerning for example, their identity, status and relationship with the creditor, to render transparent any potential conflicts of interest. Well that sounds reasonable and we probably have that covered , at least for residential mortgages at present although I couldn’t speak for Second Charges Market at the present time.

I think that is enough to be getting on with but one final thought. If the MCD has to be  implemented by say October 2015 and the FCA will have to undergo consultation as a part of its process ( which it will) and given the time that it has taken to implement MMR, then we surely are going to have  our work cut out to get the MCD changes in place in time. I suggest that it is going to be a bit of a roller-coaster ride into 2016.

Have you been to a risk awareness workshop?

This is just a quick note about the likelihood of you receiving a request for an online survey from the FCA if you have previously been to an FSA/FCA Risk Awareness workshop. Some firms are receiving these requests even if they went to it late last year / early this year. Those requests, particularly in the NW are landing in people's inboxes as I write.

If you have been to recent workshops then you will already have been told about these surveys  and when you can expect to be asked. If you have not yet been on the workshops, then you can expect to be asked to carry out the survey and all will be  explained when you attend.

I previously blogged about this back in July 2013 so have a look at this link as well :

 http://ukmortgagecompliance.blogspot.co.uk/2013/07/fca-online-survey-update.html

MMR Heads Up # 1 Execution-only

Does my firm have to offer execution only ?

Actually, no it does not. If for example a client refuses to accept your recommendation, you do not have to offer them an  execution only option. You 'may simply choose not to proceed with the sale' as the FCA puts it or, of course, you might equally apply  little more persuasion. Arguably it could be a mistake to offer execution-only in such  a circumstance as you could be setting yourself up for a future complaint - not necessarily on  a breach of FCA rules but on the basis of negligence and duty of care.

MMR Readiness Tracking

Last week the FCA published the results of its initial survey of 5400 firms on readiness tracking for the rule changes for April 2014. generally they seem pleased with firms' progress and brokers appear more ready than lenders. Hardly surprising considering the scope of  the lender changes and their relative size.

The FCA will be using the readiness tracking results to design their second round of communications ( which have started) and  will be conducting a series of regional half-day workshops in October and November 2013.  Invitations are already going out ( have already been received by some).

They are also proposing  further support in the form of factsheets and possibly a webcast.

AND

The FCA also plan to offer firms face to face meetings with the Implementation Team in February 2014. Not sure exactly what that means  right now or who it is aimed at. Is it a carrot or a stick?

Services to Conduct?

Just checking but presumably all out there have completed the changes of letterheads and stationery to reflect the new regulator as 30th September was the six-month deadline for this action. You should not also be using logos for the FSA or the FCA or the PRA for that matter although you can continue to use the FOS logo . Unlike the FSA, the FCA does not permit the use of its logo by firms.

Typical stationery to check if not already done so:-

• Letterheads, business cards, email footers, web pages
• Initial Disclosure Documents, Terms of Business - don't forget insurance disclosure as well
• Financial Promotions of any sort ( obviously if there is something in a trade publication with a life span greater than six months from 1st April, there is nothing you can do about it.)
• Client letters,  declarations, fact finds
• Suitability Letters or Reasons Why, Demands and Needs Statements
• Telephone answering messages
• Signage

Obviously the list is not exhaustive.

Are there enough hours in the day?...publications, booklets, staff training manuals, procedure documents, fee agreements...AR documents...

Even More about Consumer Credit

In some respects this whole consumer credit thing seems to be  taking up more time than the changes for the MMR. I make no apologies therefore for the following post , albeit that it is a few days after the FCA published CP13/10  - The Detailed Proposals for the FCA regime for consumer credit.

The following is in part recap , in part a few concerns and in part some pointers about what is next. So, in a word , it is a game of three halves!

Since the beginning of September firms with OFT consumer credit licences have been able to register with the FCA for  ‘interim permission’ to enable them to continue to carry out their consumer credit activities from 1 April 2014 until they are fully authorised. There is a 30% discount offered to firms that register before 30 November 2013. Mortgage brokers generally fall on the fringes of Consumer Credit activity, usually on the basis that they may occasionally made recommendations or offer advice on the repayment of consumer credit regulated loans.  

As the rules currently stand, such activity has the ability to fall under the ‘high risk’ category for firms as set out in the new Consultation Paper CP13/10 which sets out that, amongst other things, the activities of Credit Brokerage, Debt Adjusting, Debt Counselling and Credit Information Services are high risk consumer credit activities. All of these activities are the type of activity that a mortgage broker might undertake at some point in time in the course of a given year even though this might be no more that discussing a credit reference report or recommending that an existing Consumer Credit loan be rolled up into a mortgage.

There is a real risk that the new proposals could be top heavy on the smaller firms unless there is some common sense approach adopted somewhere along the line. After all there is a world of difference between pay-day loans and recommending that a mortgage client pay off their bank loan before,  or roll up their bank loan into,  their new mortgage. However, if you are tempted to think that the role of a mortgage broker in this matter is on a not-for-profit basis ( on the basis that any advice or activity relating to consumer credit loans is consequent to the main business of mortgage sales and you do not charge for the service) then think again. You actions are in the way of business and have a bearing on the income that you will ultimately glean from the mortgage transaction.

I have only just started to read the CP13/10 that sets out the rules to come into place on 1^st April next year and will provide ongoing updates on this as i progress over the next few days or so.

For now, over and above my comments and concerns above, please consider the following:-

The new rules come in on 1^st April 2014. There will be  a 6-month transitional period during which, if a firm is able to demonstrate that it has acted  in accordance with old CCA requirements and OFT guidance, the FCA will not take action against it  in relation to those corresponding new rules that are substantially the same from 1 April 2014.

The FCA have  stated that they  have tried to make the transfer as smooth as possible for the vast majority of firms, and do not expect many firms to need to make significant changes to their systems.

An important part of the regime is the distinction between higher-risk and lower-risk activities. Firms will be regulated and supervised differently depending on which category they fall into. Consumer credit will follow the same FCA firm classification model that is applied to all firms  .Firms will fall into one of the four conduct categories: C1, C2, C3 or C4. Mortgage brokers will already have been given a conduct classification, earlier this year and I suggest that that is unlikely to change as a result of new consumer credit  rules.

If you do not register for an interim permission you must stop carrying out regulated consumer credit activities after 31 March 2014. If you do not, you may be committing a criminal offence and you could face enforcement action.

If you are already authorised by the FCA or PRA you will not automatically be given an interim permission; you still need to register for an interim variation of permission if you wish to continue to carry on regulated consumer credit activities.

AND , of course, you must pay the required fee when you register, unless you are exempt ( which as mortgage brokers you will not be). 

AND, of course, your consumer credit licence must still be valid on 31 March 2014 for you to qualify for an interim permission so do not let it lapse!  If you need to correct your consumer credit activities you should do so before registering for interim permission. However, be aware that there is a processing period so that if you apply now to the OFT you may not get the amendments made before 30^th November to qualify for the discount. The longer you leave any application, the greater the risk that you may not be  authorised in time for 1^st April.

Do I really need those licence categories

I have had a fair bit of feedback from firms about their CCL and a number of thoughts that I think would be useful to share.

As the rules currently stand I think that it would be extremely difficult for a firm to operate within the mortgage and indeed the insurance markets without a CCL. There are a few points here.

Although mortgages are outside the scope of the CCA, any discussion around mortgages will invariably result in a discussion around pre-existing loans whether consumer credit or not. Some of that discussion may  well result in the client consolidating CCA loans within a mortgage. Given that almost all regulated mortgages will be  advised, this means that de facto, a firm will have recommended a course of action that includes the repayment of CCA loans. This is highly likely to involve activity that falls within licence category D or E.

Any mortgage product that involves a credit card or unsecured credit as a factor or term of the mortgage conditions is probably going to result in the client taking out unsecured credit that falls under the scope of the CCA. This means that , given that most mortgage sales are advised, firms will invariably be recommending a course of action that involves a client taking CCA credit and thus falls within licence category C. Equally, monthly payment of insurance premiums involves CCA regulated credit and category C is probably required if you are going to recommend such action to a client ( and technically even if you are just selling the insurance to them - it is probably brokerage in the CCA definition of the term.

If you need to be  able to discuss existing debts with a clients creditors - and I know that this certainly occurred in the past albeit perhaps now to a lesser extent - then you certainly need D and probably E.

If you want to be  able to obtain credit details on behalf of a client or to advise them on action to take regarding credit entries with Credit Reference Agencies then you are going to need category H1.

With all these points, I would suggest that as a normal broker you are likely to need the C,D, E and H1 as a probably minimum under the current rules and projecting forward to the interim regime. Hopefully, with all credit under the FCA banner, there will be  an opportunity to rationalise the whole matter but that is going to take a while.

I hope that helps a little, but please feel free to contact me directly on david.c.payne1@btinternet.com if you wish to discuss your own specific circumstacnes

Consumer Credit Update

This post is just to let you know that there has been more activity on the CCL front. Firstly, the FCA have confirmed that for Sole Traders the cost of interim registration for CCL activities is £150 and for other firms it is £350. This is a one-off payment due at the time that you apply for interim permission.

The second point is that you will be  able to apply for interim permission from 1st September 2013. The FCA will write to you, according to their web site, when the interim permission system opens to explain what you have  to do and how to remain compliant. In other words this system will be  available from September but not necessarily from the 1st.

The  third point is that if you have not already done so, you should check your Consumer Credit Entry on the CCL register.

You will need to check the following: -

1. Name, 
2. Address, 
3. Company Details and 
4. that the licence covers the activities you want to continue after 1st April 2014.

If any of these details are incorrect you will need to change them before you apply for interim permissions with the FCA.

That last post was too long

Ok, that last post was a bit long so here is a shorter version:-

You need to be  checking your CCL records on the CCL site to make sure you are correctly registered before the transfer to the FCA on 1st April 2014.

As well as your basic detsails, you need to make sure that you have the correct licence categories.

If you are a 'normal' mortgage broker doing 'normal' mortgage business then you should check to see if you have the following categories:-

• Category C Credit brokerage
• Category D debt adjusting
• Category E debt counselling
• Category H Credit information services)
• Category H1  (Credit information services - including credit repair)
• Canvassing off trade premises

You don't necessarily need all these - it will depend on what you do and what you want to be  able to do.

For category D & E you will need to submit a Credit Competence Form with your request and the fee (£80 to the OFT for any changes to the categories of licence , I  believe).

A sample of the Credit Competence Form can be seen here :-

http://oft.gov.uk/shared_oft/business_leaflets/credit_licences/CCF.pdf

The next post will explain how to make any changes to your CCL.

So what categories of CCL does my firm need?

The time is fast approaching when firms will need to apply to the FCA for permission to undertake Consumer Credit Act (CCA)  regulated activities after 1st April 2014. This will be  done by way of an extension to permissions and no doubt we will hear more about this as soon as the FCA are ready for it. I understand that we should get more news pretty soon.

In the meantime, the FCA and the OFT have written to firms asking them to check that they are correctly registered and licensed under the current regime. Apart from the obvious static details - name address etc ( and making sure that your licence is current and not expired)  the issue for many firms is to establish what exactly the correct licensing categories are for the business that they undertake.

The  purpose of this blog is to give a bit of background to this and to help firms head in the right direction. before reading on, you might want to  check this information yourself on the OFT web site here:

http://oft.gov.uk/OFTwork/credit-licensing/do-you-need/licence-categories/#.UgoOg5JONy0

However, if you would prefer to hear a point of view first, read on.

This blog lists out the categories and suggests the circumstances in which they would be  needed. The next blog that I issue will explain what you have to do if you need to make any changes.


What are the Categories ?

There are 9 distinct categories of activity under the consumer credit licence and exactly which ones you need to have will depend upon exactly what you do. I am going to offer suggestions for those categories that would apply to a 'normal' mortgage brokerage and so whilst this may be  useful for some firms, I would emphasise that you need to get verification before you can sit back a relax.

Category A Lending under the CCA

Before you offer to lend money from your own funds, for regulated consumer credit agreements you will need this category. Most brokers that I know and deal with do not offer their own funds to clients under consumer credit regulated agreements and so generally speaking will NOT NEED this Category.

Category B Hire Purchase Agreements

Again, most brokers that I know and deal with do not hire, rent out, or lease goods under any regulated agreements,  where the arrangement is capable of lasting for more than three months. This category would NOT NORMALLY APPLY  to mortgage brokers.

Category C Arranging credit

You will need this category  if you will introduce any individual to a third party so they can obtain credit. The OFT site states the following (I have not updated the obsolete references to the FSA with FCA ):

Most financial advisors need this category and almost all appointed representatives need their own licence, for example, to use their own business premises or own trading style. You may also need to be authorised by the Financial Services Authority (FSA) before you can obtain a consumer credit licence. Introducing people to lenders or other credit brokers for the purposes of obtaining a first charge mortgage is now generally regulated by the FSA. Basically YOU SHOULD HAVE  THIS CATEGORY.

Category D Debt Adjusting

This is the first of those categories that could be  contentious.
The OFT states that :

You may need this category if you will:

• negotiate terms with the creditor on behalf of an individual for the discharge of a debt, or
• take over, in return for payments by the debtor, his obligation to discharge a debt, or
• engage in any similar activity concerned with the discharging of a debt.

This may leave firms to believe that category D is not required.

However,  the OFT also makes the point that :-

If a customer has existing debts, before you lend or broker additional funds you may undertake to adjust the existing debts owed by the customer. For example this covers the following: ...

• financial advisors who discharge existing debts as they lend additional funds.

You may simply offer to negotiate with creditors on someone's behalf - before you do, you may need this category. I would further make to observation that if you do not have this category of licence you could be  precluded from discussing or arranging repayment of existing CCA regulated debts before a mortgage is advanced. Many firms that I have dealt with will at some time become involved in discussions with existing creditors on behalf of clients.  It is RECOMMENDED  that you have this category in place even though the OFT site says:-

Since 31 October 2004, it has not generally been debt adjusting to carry on any of the above activities solely for debts due under mortgages regulated by the FSA. Such activity is regulated by the FSA.

BUT, The pre-existing credit I am referring to is not the current mortgage but existing unsecured loans or credit cards.

Category E debt Counselling

The OFT states that :-

It would be unusual for any business to adjust a client's debts without having counselled or advised them about it first. It is expected that both Categories D and E are applied for together in such circumstances.

Although the usual statement is evident on the OFT site  (Since 31 October 2004, it has not generally been debt counselling to carry on this activity solely for debts due under mortgages regulated by the FSA. Such activity is instead regulated by the FSA.) the point here is that in recommending a mortgage, you may recommend certain courses of action in relation to any existing consumer credit loans or cards. For example, the mortgage lender might require certain loans to be  cleared before agreeing an advance. Suggesting this to a client falls under this category of licence.

It is RECOMMENDED  that you have this category in place.

Category F Debt Collecting

You will need category F if you will take steps connected with the collecting of debts owed to others under any regulated consumer credit or hire agreements and you will simply be collecting those debts on the third party's behalf.

Most firms that I know and deal with do not routinely engage in this kind of activity and so I suggest that this is not required for most. You do not need this category if you collect debts owed to you or your own firm.

Category G Debt administration

You will only need this category of licence if you engage in the administration of consumer credit regulated debts on behalf of a consumer credit lender or other firm. Again , most firms that I know and deal with do not routinely engage in this kind of activity and so I suggest that this is not required for most.

Category H Credit Information Services

You will need this category if you will take steps to check the financial standing or credit ratings of individuals, such as contacting the credit reference agencies for information on your clients' behalf. If in addition you want to be  able to contact credit reference agencies on behalf of a client to repair the credit record, you will also need category H1.

You will need category H1 if you want to:

• seek to obtain information on behalf of an individual about his financial standing (for example credit rating information), including asking a credit reference agency if it holds the information provide advice to individuals on:- how to seek to alter,
• or secure the omission of, the information- how to seek to restrict the availability of the information seek to alter,
•  or secure the omission of, information about an individual's financial standing seek to restrict the availability of the information.

In my experience this is a useful Category of Licence to hold as it enables you to offer a valued added service to your clients.

It is recommended that you have  H and H1 as part of your licence.

Category I Credit reference agency

A normal brokerage will not require this category. it more or less applies to the big credit reference agencies like Experion.

Canvassing Off trade premises

Since the end of the Mortgage Code, this additional option has possibly not been required. However, there could be  circumstances where you visit a client for a mortgage and end up offering unsecured or other consumer credit regulated loans to a client. To cover you in this event, you should hold this category.

I think that is enough for now. As I said above, I will be  issuing a blog about how to update your CCL shortly but in the meantime if you have any queries, please feel free to contact me through the Blog comments or directly to david.c.payne1@btinternet.com

Consumer Credit Regulation Update

I mentioned a while back that you will need to be  looking out for the pending changes in regulation of Consumer Credit. Control of this passes to the FCA on 1st April 2014 and this will require you to take some action.

The OFT and the FCA have recently issued a joint  letter, (15th July) presumably to all licence holders, to give them warning of the changes.

It would seem that  the term 'late summer' has firmed up slightly to 'September' as the time at which you will need to register with the FCA. Presumably more details will follow from them soon along with the expected cost of doing so. In the meantime the joint letter advises you to check the OFT register to make sure that your details (name address, trading styles etc) are correctly recorded with the OFT at the present time and that you are correctly registered for the categories of activity that you need.

What are the correct activities? That would depend on what you actually do as a business . If you are  unsure please feel free to contact me via the blog or directly to david.c.payne1@btinternet.com.

It is suggested that it will be easier to sort any updates before you have to apply to the FCA and I think that this is a reasonable assumption. If you don't have correct registration, you could be  trading illegally, of course.

Heads Up if you went to the risk awareness workshops

If you went to the Risk Awareness Workshops held a few months ago, I think that you can assume that you are in the frame for the online survey.

It all depends upon FCA resourcing I guess, although this appears to be  all online, including the feedback which has the look and feel of a wholly automated response ( from the one example that I have seen so far). Don't misinterpret me on this though. Online or not this is serious contact with your regulator and if you don't deal with it properly, you will have a problem.

Currently I am aware of  4 of my own clients based in SE and London area who have been asked to carry out the Risk Awareness Online Survey.  I am not aware of any clients involved in Scotland;  the NE ; NW; SW ; Central or Eastern part of the country as of yet but that does not mean that this is not a phased roll out. In the SE and London clients have received emails on at least two different dates over the past 10 days.

Given the contents of the FCA page about the follow up to the Workshops set out at http://www.fca.org.uk/firms/being-regulated/meeting-your-obligations/risk-awareness/regulatory-review
I think you should assume that if you went to the workshop you are likely to be involved in the survey.

Look out for those emails...

FCA Online survey update

Just a quick note on the current online Survey on Risk Awareness. For a small firm you should allow about 3 hours uninterrupted to complete this in a considered and careful manner. You could possibly do it in the suggested of 2 hours but you need to make sure that you read the questions properly and that you understand the implications of the answers that you give. There may also be a need to understand some of the terminology.

Once you have answered the question and moved on  YOU CANNOT GO BACK AND MAKE ADJUSTMENTS and this is one  further reason why you need to allocate uninterrupted time.

There will be  a follow up email within 48 hours of submitting the survey and you will have  5 days to respond to that . It is important to realise that the survey is not completed and your job is not done until you have responded to that final email.

In terms of the content, the thing does not just cover Risk Awareness as one might think about it. There is an initial section on risk and then there are sections on management ( ends at about 55% of the survey completed followed by  controls and then prudential matters. it is a serious full analysis of your firm and is one you MUST take ABSOLUTELY seriously.

If you have seen the first email and treated it as a circular, get it back and respond to it. Check your spam in case you have received it and don't yet know about it. Failure to respond should not be  considered an option and failure to receive it to your inbox is not an excuse.

If you need to contact me about the matter then please contact me on david.c.payne1@btinternet.com or by commenting on the blog. Don't forget however that I cannot complete the survey for you.

FCA Online Review on Risk Awareness

The FCA are currently issuing some firms with notices of a new online review. The first email will set out what is expected of you and will give you links to FAQs and so on. A second email will provide you with the access information that you will need to log . You will also be given a deadline by which you must complete the review.

It seems likely that the review is targeted at those firms who attended the Risk Awareness Workshops a few months ago. However, even if you didn't I recommend that you check your spam folders and emails. There is a very clear message in the FCA's notice to firms and it reads as follows:-

We will work in partnership with those firms that are trying to do the right thing and creating a secure environment for their customers. At the same time, we will identify and take action against those firms that do not engage with us (for example, by not completing the On-line Regulatory Review) and are not committed to dealing with the risks that can face their firm and their customers.

There is another very clear message in the email regarding who should complete the survey:-

The On-line Regulatory Review should be completed by the individual or individuals that have overall responsibility for managing risk within your firm. External consultants or other third parties should not undertake the Regulatory Review on your behalf.

The bold and underline are those of the FCA and not me. This makes it crystal clear that being upfront and honest with your regulator means that you should complete this survey as instructed and not rely on externals to do it for you. That is not to say that you cannot take advice from external consultants. If they had wanted that restriction then it would also have been made clear.

On first view, it looks as though the survey is designed to calculate a score based on your responses. This implies that it will be scored and then too high or too low scores will probably be scrutinised and a random sample of  mid range respondents may also be  selected. This could result in follow up contact to verify the integrity of the responses and, where applicable, to look at respondents where the results offer indication of regulatory risk. In other words , you could get a visit!

It goes without saying that if you make an answer in the survey, you must be able to substantiate it in your records. In other words if you carry out a review each year and document it, there should be  evidence of the documented reviews from the date that you started to do it in your Compliance File or wherever you keep it.

As of now, if you have received the emails and have a deadline, then make sure you deliver to it. if you haven't had the second email look out for it a few days after the first one. Check your emails and spam folders etc to make sure that it is not mislaid. if you still don't get a second email, I personally would check with the Contact Centre to make sure that you are not required to complete it rather than assume. As they say of assume...

Update on Mortgage Market Review (MMR)

The FCA published another update on the MMR last week, just reminding us of what it means in outline for firms.

I have  unashamedly lifted the text applicable to Mortgage Intermediaries from it and have included it below in italics.

The majority of the MMR changes come into effect on 26 April 2014.  Those that will be most relevant are:

For intermediaires

• The removal of the requirement on intermediaries to assess affordability.
• The removal of the non-advised sales process.
• Most interactive sales (e.g. face to face or telephone) to be advised.
• An 'execution only' sales process for non-interactive sales (internet and postal).
• Every seller required to hold a relevant mortgage qualification.
• It will no longer be compulsory to provide customers with an Initial Disclosure Document (but firms can continue to do this if they want to). Instead, certain key messages about a firm’s service must be given to customers.
• The Key Facts Illustration will not have to be given every time the firm provides the customer with information about a product that is specific to them.  Instead, it will only be required where a firm recommends a product or products, where the customer asks for a KFI, or where the customer has indicated what product they want in an execution-only sale.

The link to the full article is below:-

http://www.fca.org.uk/firms/firm-types/mortgage-brokers-and-home-finance-lenders/mortgage-market-review

I am not commenting on the MMR points in this blog as I am currently working on an implementation plan. I will comment as I progress. This blog is simply for information.

There is no feedback as yet on the MMR survey, which hopefully you all completed and submitted. Collation and analysis started at the FCA on 3rd June I believe and so we will hear from this in a month or so I would imagine. You will all be preparing your implementation plans  presumably (or preparing to do so). For my own clients, you will be receiving a copy of the implementation plan for your firm - you will need to tailor it slightly to your requirements and we can discuss that at the right time once you have  it.

For those of you who are not regular paid up clients, I can provide a copy of the plan to you at a cost (of course) and if you are interested, please email me at david.c.payne1@btinternet.com for more details. The plan will be available from 1st July.

Finally, on the basis of what's approaching and by when, please note the following two points also made in the article above.

Secured Loan Regulation

On 1st April 2014, responsibility for second charges will transfer to the FCA along with the wider remit of Consumer Credit Regulated loans. We already know that there is a need to apply for additional permissions for the CCA stuff and we are awaiting an action by the FCA on this in 'autumn' - their term, not mine . Presumably included in this will be  the ability to apply for permission to undertake second charge loans as they will be  FCA regulated from April 2014. It is a case of watch this space and the FCA web site on this one.

European Mortgage Credit Directive

The Mortgage Credit Directive is progressing and that will have implications for mortgages and credit sales in the UK at some time within the next two to three years. I see no point in focusing on this one at the present time as when I last looked, the Directive was not a 'done deal' as it were. We just need to be  aware that there are further potential changes waiting in the wings for after April 2014.

Modifications to Initial Disclosure document

Given that you have  six months from 1st April 2013 to modify out any references to the FSA or Financial Services Authority, don't forget that the former regulator is mentioned extensively in the Initial Disclosure Document (IDD and CIDD).

At first glance this may seem a relatively easy conversion but there are a few things to watch out for.

Firstly, the FCA CIDD / IDD template does not appear to have been updated from the old FSA one. At least it hadn't when  I looked a week ago.

Then there is the matter of the Register. The FCA uses the term Financial Services Register to designate the old FSA register so it is not just a simple change of 'Services' to 'Conduct' as it were. The web page for access is here: http://www.fca.org.uk/firms/systems-reporting/register

Finally, there is the matter of the address of the FS Register. The template gives it as www.fsa.gov.uk/register/   but if you attempt to access this then you will may, at the present time, fail to find the page. The actual address is : http://www.fsa.gov.uk/register/home.do

NB . Since identifying this  last point and publishing this blog post there appears to have been a change on the FCS site. The link www.fsa.gov.uk/register/ redirects to   http://www.fsa.gov.uk/register/home.do  and so now all is in order on this particular point.

Any of my clients wishing to sort this particular point out, please email me  a copy of your IDD or CIDD and I will update it  for you.

Don't forget that the issue of the CIDD is one of those matters for your MMR Implementation Plan and if you are one of my clients, I will be  contacting you very shortly about this.

FCA Logos & Photos

Please be aware that from 1st April 2014, you will not be able to use the FCA logo - or indeed the FSA logo at all , anywhere. Not on stationery, in adverts or web sites and not on business cards. The actual words used by the FCA on their web site (at this address - http://www.fca.org.uk/site-info/contact/logos-and-photos  ) are as follows:-

Regulated firms and other organisations (e.g. lawyers, auditors and event organisers), are not permitted to use the FCA logo on any of their documentation or promotional material. This includes firm’s mandatory regulatory status disclosure GEN 4.

The Financial Services Authority (FSA) logo should also be removed from all documentation.

You have until 1 April 2014 to  use up old stock and make the necessary changes  to your regulatory status disclosures GEN 4.

If you are dual regulated the required disclosure is ‘Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority’. If you are only regulated by us, the required disclosure is ‘Authorised and regulated by the Financial Conduct Authority’.

You are still permitted to use the Financial Ombudsman Logo however.

I am not sure how long this has been available to firms,  the web page states that it was published today but I know that it was available on Friday last week.

In simple terms and for whatever reason, you will have to get rid of any FSA logos before 31st March 2014.

MMR Survey deadline Extension

Just in case you haven't seen or received the email yet, the FCA have extended the deadline for the completion of the MMR survey and sent out an email late last week to this effect. This gives an extra few days to 31st May for you to complete and submit the thing if you haven't already done so.

The  following text was included in the FCA email , just for clarity:-

We sent you an MMR Implementation Survey two weeks ago.  Some firms have requested an extended deadline due to being out of the office.  Therefore we are extending the deadline for all firms, to close of business 31 May 2013. 

Please take this opportunity to update us on your progress, let us know where you need further communications and take advantage of its educational benefit.  We will not extend the deadline further.

That seems fair enough.

My understanding is that this survey has been sent to all firms who have  permissions for mortgages and so if you haven't already seen an email about two to two and a half weeks ago , or since, then perhaps something has gone wrong. I suggest that you contact the FCA via the Small Firms Contact centre to check whether you need to complete one.

This is possibly your first contact with the FCA  and you don't want to get it wrong. If you need any help then please feel free to email me at david.c.payne1@btinternet.com .

Interest only mortgages - how many?

Call me an old cynic if you like but I find it hard to believe that 90% of the sector of borrowers with interest only mortgages  have a credible  repayment strategy in place to repay the debt at the end of their mortgage term.  I am readily prepared to accept that lenders will have records that demonstrate that borrowers should have   a repayment strategy in place ranging from robust investment backed vehicle at one end to some nefarious belief in inheritance payments on the other and passing from robust to the  irrational by way of selling the property and trading down or of selling some other highly geared asset along the way.

I just hope that the research carried out on behalf of the FCA was, in its own right, sufficiently robust to test the integrity of those less than innocent statements sitting hidden away towards the end of the application form asking what means the applicants have to repay the mortgage. After all, how many ISAs have been set up to repay balances that they might never reach anyway?

It is all well and good both lenders and the FCA saying that now is the time to nip the problem in the bud but I would suggest that for many people , to run with the metaphor, that bud has now bolted and the sharp thorns of this matter will continue to catch on the already tattered sleeves of economic recovery. Perhaps it is difficult to learn from the problems of the past but when we see a whole generation of borrowers disenfranchised as a result of their own economy with the truth in respect of their incomes on self- certification, it seems a little unlikely that the same generation , at the same time, were wholly accurate and up front about how they would repay their debt at some obscure point in the future.

One can only hope that the lenders have contingency plans in preparation to deal with what will surely be a larger problem than anticipated. Perhaps an opportunity for lenders and the FCA to work together to define a product-based solution to the risk of  borrowers losing their homes.

FCA Issues MMR Survey

Yesterday, The FCA sent out a number of emails to firms regarding a survey that they want completed within 10 working days of receipt. This is Stage II of the Mortgage Market Review (MMR) Engagement Programme ( Stage I was the series of workshops that were held earlier this year). I don't think that everyone has received the emails yet  but my assumption is that they will be  addressed to all firms over the next few days. If you haven't received it, it is probably on the way. If you haven't received it by early next week, you should check you spam filters and all the usual suspects.

It is important that you respond well on this and in time. Don't forget that the FCA have indicated that they will use these types of contacts as a part of their monitoring of firms performance and risk profile. Failure to respond, or failure to respond in good time should not be seen as an option. Of course, a poor quality response doesn't go down too well either. It is also, in most cases, your first real direct contact with the FCA on a working basis: you don't want to get it wrong.

Given that this is part  of a programme, you should be  looking at what was issued by the FSA in Stage I before responding to the FCA's Stage II. For a bit of quick reference, you can refer to my blog in April headed up FCA web site and the MMR. You should also have  a look at the document issued by the FCA in Stage I that sets out their views on MMR  planning which I assume ( ah! but we know what ass-u-&- me does don't we ) that this is part of the style of questions that we can expect. The link is as follows :- http://www.fca.org.uk/your-fca/documents/fsa-mmr-planning-tool .

I should say that at this point in time I have not actually looked at the survey myself - I'll do so shortly and post another blog on this on Monday - so watch this space. I have  hopefully already contacted all my subscribing clients directly by email but if you haven't received anything from me already then please advise. Anyone out there wishing to contract a little of my time for additional support in responding to the FCA, please email me directly on my email, david.c.payne1@btinternet.com.

A bit about the Financial Conduct Authority

The purpose of this blog is to provide a bit of background to the new Regulator, The Financial Conduct Authority (FCA) in terms of its statutory and operational objectives. These are the things that will shape the way that regulation will be  effected. For those of you who are participants ( willing or otherwise)  in the TC Handbook's requirements, this is a little bit of the stuff that your T & C files should be  made of.

The Government has set out the focus for the FCA as follows.

As a STATUTORY OBJECTIVE, the FCA is required to ensure that relevant markets work well and this will therefore be the focus of the FCS's work. Apparently fairly general terms, these and once more 'relevant markets' appears but we need to remember that this will be defined by the scope of FSMA. In the FCA's document published a while ago,  Journey to the FCA, three key operational objectives have been identified.These objectives focus on the integrity of the market, consumer protection and competition.

The  three OPERATIONAL OBJECTIVES are as follows:-

To secure an appropriate degree of protection for consumers.

One particular area of focus will be to place greater responsibility on providers to ensure that products only reach the customers they were designed for. The FSA had already started this work with lenders in particular and the FCA will take this on further. There will also be  greater focus on provider's wholesale activities and the FCA will have greater powers to intervene.

To protect and enhance the integrity of the UK financial system.

One very interesting point made by the FCA is that it will not " trust in the integrity of markets".The FCA will not accept that there are some areas of the market in which they should not be interested  because the sophistication of the parties enables them to look after their own interests. We have all learned from this assumption!


To promote effective competition in the interests of consumers. 

This is a particularly interesting objective on two counts. Firstly it is new to financial services regulation. It is not an objective that the FSA had specifically. In this context it should give some comfort to smaller firms on the basis that competition should mean more firms available across a range of niches and sizes. Of course the devil is in the detail! It will be interesting  to see exactly where this sits with the Competition Commission. There is a document being thrashed out between the FCA and the OFT on Competition Issues although in point of fact of course, Consumer Credit responsibility will pass to the FCA in April next year. I am also mindful of the FSA's statutory objective around financial crime and the simple fact  and existence of the Serious Organised Crime Agency (SOCA) whose raison d'etre is exactly that. I would expect the FCA to document a memorandum of understanding (MoU) to be issued between the FCA and SOCA perhaps, although there is nothing currently on the FCA site as far as I can see.

ONE STATUTORY OBJECTIVE

TO ENSURE THAT THE FINANCIAL SERVICES MARKETS WORK WELL

THREE OPERATIONAL OBJECTIVES

PROTECT CONSUMERS - PROTECT THE SYSTEM - PROMOTE COMPETITION

Lifetime Mortgages - do you ask enough questions?

There is no doubt that there are good opportunities to offer mortgages to persons who are, shall we say, advancing in years.  I have to put it like that for the simple reason that it came as a bit of a shock to me to realise, as I prepared to write this article, that indeed I fall into the category of persons who might be  eligible for a Lifetime Mortgage. There are also a number of risks - both for the consumer and for the intermediary as well. 

I was recently asked to suggest a number of questions that might be  asked in addition to those normally found in a mortgage Fact Find  and it occurred to me that perhaps this was an opportunity to offer this information to those of you who read this blog. After all there is nothing new in all this but there is no harm in sharing, is there?

To this effect I have set out a mythical extract from a mythical fact find  relating to an entirely fictional individual who I have named Benjamin -  you know, like the bunny in Beatrix Potter! I have put down as many questions as I could but in doing so realise that de facto  a standardised factfind falls entirely short of the mark if you do not include enough space for client-specific information - which you will see from the size of the notes section that this document fails to do!

The  point of the extract however, is to attempt to consider all those questions that might reasonably be  asked  to assist a prospective borrower in choosing to take on a Lifetime Mortgage and to ensure that a mortgage adviser has asked enough questions to discharge his or her duties under the Financial Services & Markets Act as well as any duty of care under Common Law. Clearly the brevity of some of the possible answers mitigates against the completeness of the document and so I would make the very obvious point that  I am just attempting to identify questions that should be  asked and not assessing the robustness of any answers, nor for the avoidance of doubt , am I attempting to determine any consequences to the answers, in terms of actions to be  taken or not to be taken or , for example, in respect of information that should or should not be  provided.

For those of you currently undertaking the advising and sale of Lifetime Mortgages, I would hope that this document may be  of some use or assistance  whilst at the same time pointing you in the direction of the Equity Release Council ( http://www.equityreleasecouncil.com ) who appear to offer some valuable support and advice.

Do you want to reduce your regulatory costs?

Is there anyone out there looking to minimise the costs of regulation?

I have  a client who is currently an Appointed Representative and who is looking to set up a new venture as a limited company for the sale of mortgages and insurances , as a directly authorised firm. She is looking for a business partner ( co-director) either in a similar situation (i.e currently an AR but had enough of it so looking to go directly authorised) or perhaps an existing firm that is simply looking to share costs going forwards by adding a new director.

Obviously this is a risk to all parties and so I offer this out purely to see if there is any interest. The person involved has previously been authorised and in my opinion ran a fairly good operation until the downturn, when like many she sought refuge in a network. I have dealt with her previously, when she was part of the Mortgage 2000 Intermediary 'Network' (M2i). She operates a compliant operation and has had no complaints from customers to date

If you are interested at all, please contact me in the first instance by email (david.c.payne1@btinternet.com) or by commenting on this blog and I will arrange further contact.

Please note: For the avoidance of doubt and in the interests of transparency, I will receive no financial benefit as a result of any subsequent arrangement or deal.

Finalisation of the BTL Supplementary Form

Following on from my blog post originally written 18th March 2013 regarding supplementary questions for BTL cases, I have reviewed the various responses received back. I have made a few minor amendments to the draft and those are available now as edited in the Blog here :
http://www.ukmortgagecompliance.blogspot.co.uk/2013/03/buy-to-let-fact-find-supplement.html

I apologise to those of you where I have not implemented your suggestions but I was looking for a document that would be  broadly appropriate to firms and which would, in spite of what might appear to be  statements of the obvious, provide additional evidence of due diligence in BTL cases.

Please note that there is no intention to create any legally binding contract or agreement for compliance services by the publication of this blog post or any other post through these pages except where firms are already making a payment to Mortgagecomply.com ltd for the provision of such services.

FCA web site and the MMR

I have just been looking around the FCA web site just to get a feel for it as it were.

It is good to know that the links for GABRIEL and ONA at the present time take you back to the old FSA pages for entry so there should hopefully be no issues for anyone with RMARs to do in the next 30 days - probably the vast majority of small firms.

I think we have to consider it early days for the FCA site however. Some pages look a little odd, if not unhelpful. For example I had a look at the page under Firms with specific reference to Home Finance (it's under the Show More + tab) . The actual URL is

 http://www.fca.org.uk/firms/firm-types/mortgage-brokers-and-home-finance-lenders

You can see from this that at the present time it's not very helpful and on a preliminary search I couldn't find anything like the small firms guides that the FSA had. Hopefully these will not disappear as they were very useful!

What I did find however, was a Planning Tool for small firms to prepare for MMR. It was published according to the site back on 20/02/2013. Because it is loaded in a limited area on the page (Iframe or Div - I didn't look)  it is quite difficult to read the whole document and it is better if you download the thing to look at it properly.  The URL is below if you want to have  a look at it on the FCA site

http://www.fca.org.uk/your-fca/documents/fsa-mmr-planning-tool

The 'old'  FSA site also holds a copy that is easier to read at :

http://www.fsa.gov.uk/static/pubs/other/mmr_planning_tool.pdf

It looks to be  the same document.

This is presumably the document that will form the basis of the questionnaire that will be  carried out by all firms some time this coming Quarter by the FCA.

The plan is  not over complex but I will be  doing some work on this over the next week or so and will be  publishing an update of it with suggested actions to my registered clients.

If you are not a registered client ( i.e. you don't pay me for my compliance services) then this might be  a good time to think about it...

Business Opportunity

Is there anyone out there looking to minimise the costs of regulation?

I have  a client who is currently an Appointed Representative and who is looking to set up a new venture as a limited company for the sale of mortgages and insurances , as a directly authorised firm. She is looking for a business partner ( co-director) either in a similar situation (i.e currently an AR but had enough of it so looking to go directly authorised) or perhaps an existing firm that is simply looking to share costs going forwards by adding a new director.

Obviously this is a risk to all parties and so I offer this out purely to see if there is any interest. The person involved has previously been authorised and in my opinion ran a fairly good operation until the downturn, when like many she sought refuge in a network. I have dealt with her previously, when she was part of the Mortgage 2000 Intermediary 'Network' (M2i).

If you are interested at all, please contact me in the first instance by email (david.c.payne1@btinternet.com) or by commenting on this blog and I will arrange further contact.

Please note: For the avoidance of doubt and in the interests of transparency, I will receive no financial benefit as a result of any subsequent arrangement or deal.

Welcome to the FCA!

Well, in case anyone is  working today and in case you haven't spotted, you now have a new regulator: The Financial Conduct Authority.

This will mean a number of new things no doubt over the coming weeks and months but the first couple of points are:-

IT IS TIME to change your stationery and notices on web pages, emails and so on.

Authorised and regulated by the Financial Services Authority

should be  replaced by :

Authorised and regulated by the Financial Conduct Authority

Your Firm Reference Number (FRN) will remain the same BUT, some firms refer to this as their FSA Number. If yours is one of these firms,  then it is time to change it from FSA to either FCA or, more precisely FRN.

You actually have  six months to change your stationery but no time like the present for all those miscellaneous references on emails and web pages, not to mention any financial promotions in paper publications.

THE SECOND CHANGE is that the site for all of us is no longer :

www.fsa.gov.uk (this still exists but will not be updated)

it is now:

www.fca.org.uk

(Notice that it is a .org and not a .gov ! )

 

This is your prime point of reference going forwards. This is where you will access GABRIEL and ONA and such like and get any information on small firms . Your usernames and passwords should be  unchanged.

I hope that you all had a good Easter!

FSCS Interim Levy

Some firms may have already received notification from the FSCS of an interim levy that is payable. Letters and emails were sent out  from 18th March this year as a part of a process to collect an additional levy for general insurance of £16 million.

There does not appear to be  a huge amount of information available on the web. The FSCS have a page buried deep in their web site that gives FAQs about the levy  here, and the FSA have a Q and A page about it also here.

What does it mean for firms?

As far as I can make out, it means that firms who fall within the General Insurance activity for the FSCS - which appears to be all those firms who fall into the FSA GI category (A19 fee component) will be  expected to fund the levy. The actual amount payable is based on the eligible turnover in the insurance category and I believe  that it is calculated as £17 per £10,000 of eligible business. THERE APPEARS TO BE A CUT-OFF OF £50 PAYABLE BELOW WHICH THE FSCS ARE NOT INVOICING FIRMS.

[EDIT - I am not entirely sure that there is a £50 cut off for the insurance levy so watch out. I know of at least four firms who have had invoices for less than £30 that relate specifically to the insurance interim levy.]

By my calculations (but my only source of  data on this  is a Mortgage Solutions article) this means that if you have earned more than £29k in eligible income, you are likely to be  billed, or more precisely, if your levy contribution is calculated at under £50, you may not be invoiced. [EDIT - Caution here, see my Edit note above]

However, there is a further issue. If you don't pay the invoice within 30 days you will be  charged a further £250 fine ( plus interest I believe).  This fee will be  administered by the FSA (FCA) and so as well as damaging your pocket, it is also at risk of damaging your ratings with the FCA. A good introduction to your new regulator!

What you need to do.

Have a look at the links I have provided above and see if you are eligible ( based on the levy calculation against eligible income) . If you are and if you have  not yet received either an email ( check spam folders!!) or a letter then I would suggest that you contact the FSCS and find out exactly if you are up for the levy and if so, how much.

If you are up for it then you need to pay it before 30 days are out ( from the date of invoice I presume) otherwise you may find yourselves with a  £250 fine to pay  as well.

Mortgage Fraud Checkpoint

The following may be a statement of the blindingly obvious, but I am going to make it anyway.

Even though the regulatory responsibility for checking affordability  transfers to the lenders from 26th April next year  there still remains the matter of fiduciary responsibility and fraud. This means that mortgage brokers cannot getaway from the issue.

Of course, the lenders will continue to rely upon intermediaries to provide income data to them as well.

With this in mind we should give a bit of thought to client payslips, now there is an interesting one in terms of fraud. Most of those presented to firms look pretty genuine on the face of it but how can you gather some additional comfort.

There are obvious ones:

• Maths errors in the documents; spelling errors or discrepancies with the names of individuals, the firm and so on. The latter point - spelling-  doesn't automatically make it a fraudulent payslip - after all genuine firms make genuine mistakes in typing sometimes . However, most mathematical errors should be  treated with extreme caution!
• Variation in the look and feel of the consecutive payslips - yes the employer may have changed the layout/ supplier but nonetheless such changes put you on alert for possible fraud.
• Incorrect format of payslip - missing information - either in the pre printed text or in the calculations

There are equally obvious ones that require checking elsewhere to discover:-

• Tax computation errors. You can check this by using HMRC's Tax calculator
• Company names that don't exist. You can check Companies House. Don't forget - and I know that it is a statement of the obvious - but Company names must be unique and if the company isn't listed then it doesn't exist.
• Non-company ( sole traders and partnerships) that don't exist. Every trade or trader these days is likely to have a presence on the internet. If it doesn't Google, then maybe soemthing is wrong.
• Addresses or otehr details that differ from those provided by the client

Some checks can give a greater sense of comfort but don't prove that a payslip is genuine. The most  obvious is that of income-fed bank statements. Yes if the amount and the date etc  matches the bank statement provided, then there is a greater likelihood that the thing is genuine but there are also a great many fraudsters who can produce matching payslips and bank statements - it is not rocket science.

Please don't take these comments as the definitive approach to verifying payslips becasue it is not. These are merely pointers to  some levels of checking. They are not intended to be  comprehensive or foolproof. Even if you carry out all the checks you can think of, the fraudster may still get past you. After all the clever ones will have covered many of the options. However, the less smart ones won't have. AND, and it is a big AND, if you have carried out these kinds of checks you have something to argue with both the lender, when they advise you that you have been removed from their panel ( ok don't get your hopes up becasue frankly its usually immovable) or the FSA/ FCA when they ask you to explain how you mitigate the risk of your firm being used for financial fraud.

Regardless of 26th April 2014, you still have  a responsibility ( to yourself as well as others) to satisfy yourself that the client has provided bona fide documentation to you.

Mortgages and Europe

A little something for the medium range scanners...

There have been mutterings about European Mortgage Legislation for more years than some of us can remember. Certainly there was talk about it back in the days of the Mortgage Code and when  the UK Governement was still thrashing out who would take responsibility for the regulation of mortgages in the UK. Even when the FSA put forward its final Mortgage Conduct of Business rules in 2004 it paid attention to what was then and still is termed the European Single Information Sheet (ESIS). This is why the KFI can be issued with or without the amortisation table at the end of it. The amortisation table was an ESIS requirement.

However, that is not to say that such legislation has gone away becasue it has not.  Now that we have  got the MRR coming in on 26th April 2014, we can also consider the Mortgage Credit Directive (MCD) which is currently, at least as far as it can be gathered, being thrashed out under the auspices of the Irish EU Presidency. It is expected that, if it is going to happen in any realistic timeframe, an agreement on what EU Mortgage legislation should be achieved  by the end of May this year. Normally that would give the member states two years to implement and so we could see possible changes to Mortgage Regulation rules in a little over two years. That would be  mid 201.

So what possible issues are in MCD that could affect the UK mortgage market?

The first one that comes to my mind is that of Buy To Let mortgages. Initially, European concerns about irresponsible lending gavce rise to a focus of the MCD on all sectors of the market and its various niches. More recently in discussions it would appear that the focus may have shifted to more mainstream products and this could possibly exclude BTLs. However, unless something has already been decided this is still on the table and we could see the fact of BTls being brought into regulation and thus under the FCA remit. Much of the industry and possibly even the government is against this but I guess the FCA will not have a problem with it. In favour of it not happening, there is the traditional issue of definition. If BTLs are brought into regulation then unless there is a particularly clever formula proposed, it will also bring in all other commercial loans across a range of business uses. That surely is not going to happen.

The second issue involves the Standard Variable Rate and its use. Arguments put forward within the MCD could, if accepted result in a level of restriction on product design and development that would limit the flexibility of the market to innovate. Now whether this is seen as a good thing or a bad thing - in the light of experience over the past 10 years - the promise of legislation to limit the innovations of entrepreneur has never been a selling point in general elections. Even the FSA shied away from a more intrusive approach to product design and innovation in their review of responsible lending under MMR.

Other areas where the MCD can and will probably exert influence are as follows:

• pre-contractual disclosure of information by lenders and mortgage intermediaries – to be done at several stages, from advertising through to the proposal of a credit agreement
• giving 'adequate explanations' to the consumer;
• assessment of the consumer’s creditworthiness and the suitability of products;
• advised sales standards and the range of products that must feature in the consideration of such advice;
• authorisation and supervision of credit intermediaries, coupled with provisions on professional requirements and ‘passporting’.

However, all these  points are very familiar and don't seem to be a great distance from where we are now and will be  by the time MMR takes effect. Whether the last point will place any extra influence on individual registration remains to be  seen.