The FSA has authorised nearly 7,000 small mortgage firms. During the authorisation process various recurring issues were identified and were followed up through a series of visits. All mortgage firms are encouraged to read and consider the main findings of the visits which are outlined below.

Our approach

FSA conducted focused supervision visits to 51 firms across the country looking at selling practices and training and competence. A number of these firms were identified by the FSA as 'higher risk' because of particular intelligence issues gathered at authorisation. We also visited some firms that had not previously been registered with the Mortgage Code and Compliance Board.

Key messages

  • At this early stage of mortgage regulation, the overall findings were encouraging as at 50% of firms we identified either no failings or only minor failings.
  • FSA will not tolerate non disclosure or fraud. We have referred three firms to enforcement for non disclosure of adverse material.
  • The management of one firm agreed to cease trading with immediate effect and have its permission varied as they did not hold adequate qualifications to write mortgage business.
  • We also established failings in some firms in obtaining sufficient Know Your Client information and did not evidence suitability, in breach of our rules.

Overall Findings

The overall findings were encouraging because half of the firms visited (26), had no significant failings. It was noted that the senior management in most of these firms had implemented appropriate systems and controls in the areas of selling practices and training and competence. Examples of compliant practice identified include:

  • Senior management have a strong understanding of their firm's obligations under MCOB.
  • Ongoing training activity is being undertaken and recorded. This includes: attendance at FSA seminars, surgeries and roadshows; reading the FSA website and publications; reading the trade press; and taking further examinations.
  • Sufficient evidence is being retained to demonstrate suitability of recommended mortgage contracts. For example, suitability letters or comprehensive file notes.
  • Product research is being conducted. For example, printouts from mortgage sourcing systems retained on file or comprehensive file notes.
  • Sufficient client information is being obtained when making mortgage recommendations. For example, Know Your Client information is being collected that fully takes into account the needs and circumstances of clients, including their attitude to risk, affordability and details of any existing mortgages (including any early redemption charges that may apply).
  • The content of initial disclosure documents and key features illustrations is accurate and issued in a timely manner.

The most common failings are detailed below:

  • Seven firms visited had inadequate Training and Competence procedures in place for the monitoring of mortgage staff.
  • 13 firms could not clearly demonstrate the rationale used in selecting particular mortgages in advised sales. In many cases this was due to lack of research on file when selecting a product and provider and it was unclear whether the product selected was the most suitable.
  • 11 firms had not obtained sufficient client information on one or more advised sale, to fully demonstrate that the recommendation made was suitable for the client. In the records of these firms, basic information relating to clients' financial details and objectives such as, existing mortgage arrangements, attitude to risk and credit history was not obtained prior to making a recommendation and consequently it was unclear whether the mortgage product selected was suitable.
  • 25 firms had either not issued initial disclosure documents or key facts illustrations at the correct time within the sales process or the documents issued were inaccurate.

Action Taken

In the majority of firms we discussed with senior management any shortcomings that we identified during the supervision visits. We followed this with written confirmation of the areas of weakness and any corrective action required.
In a smaller number of firms the visit findings were of a more serious nature resulting in the following regulatory action being taken:

  • Three firms were referred to Enforcement for non-disclosure of adverse information during the authorisation process. These firms have been required to cease conducting regulated activities.
  • Two firms are in the process of being issued with private supervisory warnings.
  • The senior management in three firms had little or no awareness of MCOB requirements. We issued a detailed report of findings to the firms along with corrective action required. These firms will be subject to a verification exercise later in the year to ensure sufficient improvements in compliance standards have been made. Reference was made to enforcement action being likely if the firms failed to implement adequate improvements.
  • One firm agreed to vary its permission to remove its mortgage activities. This was because the firm's personnel were not qualified to write mortgage business and had very little knowledge and understanding of MCOB and regulation. If appropriate knowledge and qualifications are gained in the future a further variation of permission can be applied for by the firm to reinstate the firm's mortgage activities.
  • Serious selling practice deficiencies were identified in four firms. A detailed overview of findings was sent to them, along with confirmation that a further visit was likely to be conducted to verify that significant improvements in selling practices standards had been made.

A follow up project is planned for the last quarter of 2005. Your firm may be selected to take part.

Further Information

For further information for small mortgage firms please consult the rest of the small firms webpages, and the Guide to the handbook for small mortgage and insurance intermediaries which is published in 3 parts.


Part 1 - General Rules (MIGI)

Part II - Mortgage Intermediaries (additional rules) (MOGI)

Part III - Insurance Intermediaries (additonal rules) (GIGI)