In January 2005, the selling of mortgages and general insurance will be firmly within the remit of the Financial Services Authority. The FSA is developing its new regulatory regime for the sectors. We focus on two recent proposals, one which imposes massive disclosure obligations.
Topic: Financial services
Who: The Financial Services Authority
When: September 2003
The regulatory net continues to close on the mortgage and general insurance industry, as the Financial Services Authority prepares itself to regulate both sectors from October 2004. Two recent initiatives on the part of the FSA were firstly on how to ensure that the sectors' activities were properly 'authorised' under the new regulatory regime, and secondly a worrying and unprecedented proposal on the compulsory provision of 'product sales information' to the FSA.
On the question of authorisation, pretty much all brokers and providers of mortgages and general insurance will have to be properly 'authorised' in order to continue marketing and selling their services.
Broadly the idea is that this authorisation can be obtained in one of two ways. Either the provider/broker can become authorised directly by the FSA, or it can become an 'appointed representative' of a firm that is directly authorised by the FSA.
The new guidance just published is designed to help mortgage/general insurance providers and retail brokers come to a decision as to which authorisation route to take. The FSA paper reports, perhaps not surprisingly, general concern that the FSA's 'Handbook', setting out the authorisation requirements, is 'lengthy and complex'. Respondents were concerned it would take disproportionate time and effort to identify the relevant provisions and to understand the new regulatory requirements where the language may be technical and difficult. The FSA's response was that it accepted that the handbook might be difficult and time- consuming for small firms particularly to navigate, but they were considering ways to help overcome this difficulty. One idea was to develop yet another set of guidelines, namely a Guide to the Handbook for small general insurance and mortgage firms.
Perhaps if there are still complaints that the Guide to the Handbook is over complex, we will see in due course the appearance of an 'Idiot's Guide' to the 'Guide' to the 'Handbook'!
The other initiative dealt with the provision of data to the FSA. This is, we are told, to see to it that the FSA is a 'smarter regulator', by the receipt of accurate, timely information about sales of mortgage, insurance and investment products. This will apparently help the FSA target its supervision work more efficiently. It will also help the regulator identify potential issues that may require action such as increased supervision of a sector or product type or production of consumer information.
The proposals, to which responses are requested by 11 December 2003, are not due to come into effect until April 2005. However, they are potentially so onerous that if they are introduced in anything approaching their present form, mortgage and general insurance providers and brokers will need a significant breathing space period in order to prepare for compliance. The basic idea is that some data should be reported quarterly, some half yearly and some on an annual basis. To supposedly reduce the burden on businesses, it is suggested that reporting take place on-line.
One of the information areas will be 'complaints'. Mortgage lenders for example would be required to submit on a half yearly basis information regarding the 'number and type of complaints received'. It is unclear whether these complaints will extend to complaints about advertising as well as complaints about products, but at the moment one must assume that it is the wider rather than the narrower meaning that will apply. The quarterly reporting rule will apply to lending analysis information such as business flows and rates, characteristics of new lending and arrears analysis. In the area of mortgage administration, the information to be supplied, again quarterly, will relate to the total number and total value of loans administered by the firm and the names of the largest third parties for which the firm carries out mortgage administration.
In the area specifically of product sales, the proposal is to require mortgage and general insurance providers to provide the FSA, every three months, with information about each transaction involving their products.
Why this matters:
Clearly these reporting requirements, if they stay very much as they are, are going to place a heavy burden on a wide swathe of financial services providers in the UK. Marketinglaw's immediate impression is that it is disproportionate in the extreme and that a properly funded and organised regulatory authority ought to be able to conduct its own monitoring operations without placing such a burden on industry. Insurance and mortgage providers who wish to express the same or similar views should do so now by responding to the consultation paper.