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FSA/PN/001/2007
8 January 2007

The Financial Services Authority (FSA) today called on firms giving mortgage advice to improve their processes after new findings showed that only one third of the firms it sampled had robust processes in place to provide customers with suitable advice.

The FSA reviewed 252 firms of differing sizes through mystery shopping, visits and questionnaires between June and October last year to establish a baseline of the process by which advice is delivered in the mortgage industry. Scope for improvement was found in all aspects of the advice process. Some of the poorer areas identified were the assessment of customer needs, including affordability; training and competence; overall systems and controls; and record keeping.

Clive Briault, Managing Director of Retail Markets at the FSA, said:

"We found significant failings in the advice giving processes in a number of mortgage firms. Poor processes increase the risk of unsuitable advice being given. It is essential that firms have robust processes in place, so that they treat their customers fairly and provide suitable advice. It is crucial that customer needs are assessed properly. Customers should consider what they can afford both now and in the future, taking into account any likely changes to their circumstances."

The FSA found examples of good practice in all sizes and types of firm, but findings differed depending on the size of the firm. The results showed that small firms need to implement systems and be able to show they use them. Whilst larger firms generally have robust processes in place, they could not always demonstrate that they are using them. The FSA has produced good and poor practice guides as well as providing key actions to the firms that were visited. However, the failings were significant in a number of firms and it has referred several to enforcement.

This project is one of a series from the FSA looking at the mortgage industry. Work into mortgage exit administration fees and mortgages in retirement is due later on in the year and follows the publication of its interest-only and sub-prime mortgage work at the end of last year.

Notes to editors

1. The work included 252 firms overall (99 were mystery shopped, 78 were visited and 75 completed questionnaires). It looked at the quality of advisers; assessment of customer needs such as affordability; recommendations including research; communication with customers; post sale; and management controls.

2. The findings of the project are targeted at three sectors in the form of: key actions; good and poor practice guides; and case studies. They are available on the FSA website. Key findings by sector include:
   
   Banks and building societies: Robust processes were in place within these firms. However, the mystery shopping and visit findings indicated that they may not be applied and followed consistently in all cases. This is an area for senior management of these larger firms to focus on.
   
   Large mortgage networks and advisers: The majority of these firms had robust processes in place. However, the FSA identified instances where the processes had not been applied or followed which lead to the risk of unsuitable recommendations being made. This is an area for senior management of these larger firms to focus on.
   
   Small mortgage networks and advisers: The findings indicated that more than three-quarters of firms in this sector generally did not have robust processes. Both the visit findings and mystery shopping identified instances where this lack of robust processes led to the risk of unsuitable advice being given.

3. The FSA's consumer website, Moneymadeclear, contains useful information about mortgages.

4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.

5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.