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FSA/PN/097/2007
03 September 2007

The Financial Services Authority (FSA) has fined Select Mortgage Services (Select) £10,500 for poor financial promotions, inadequate sales processes and inappropriate systems and controls to manage its business.

A review by the FSA last year of financial advertising in the sub-prime mortgage market highlighted that Swindon-based Select had issued unclear financial promotions and had weaknesses in its management systems in relation to the sale of mortgage products generally, not only sub-prime.

The subsequent investigation found evidence that Select:

• failed to ensure that its financial promotions accurately described its "Capital Repayment Plan" (CRP), which meant that customers did not receive reliable information to help them make informed choices and achieve a fair deal;
• had inadequate sales processes in place for the recommendation of mortgages to customers; and
• did not have appropriate management systems and controls in place to ensure that the firm met the necessary regulatory requirements.

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 sub-prime 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."

Select's failings were identified when the FSA visited firms – in October and November last year – which were found to be falling short of its requirements during an earlier review of several hundred sub-prime adverts and promotional materials (including 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.

Select has put in place controls to ensure that its future mortgage business meets the required standard and has also agreed to write to all of its existing customers to inform them of the risks associated with its CRP (including, in particular, the risks of interest only mortgages and the difference between the CRP and a capital repayment mortgage).

Select agreed to settle at an early stage of the FSA's investigations and qualified for a 30% discount under the FSA's executive settlement scheme. Were it not for this discount, the FSA would have imposed a financial penalty of £15,000.

Notes for editors

1. Select Mortgage Services is based in Swindon, Wiltshire. The Final Notice is available on the FSA website.
2. More information about the FSA's 2006 review of financial promotions in the sub-prime market is available in Press Notice 125/2006.
3. This work on promotional material sits alongside another FSA project which looked at whether customers are treated fairly throughout the sub-prime mortgage advice and sales process. The findings of this work were published in July 2007 (see Press Notice 081/2007), and five firms were referred to enforcement as a result of the failings identified. Select Mortgage Services is not one of these five firms.
4. More information about the FSA mortgage quality of advice thematic work is available in Press Notice 001/2007.
5. The FSA operates a proactive, risk-based approach to financial promotions focusing on areas where consumers could be most at risk. More information on the financial promotions regime is available on the FSA website.
6. Anyone who sees an advert or other promotion that they think is misleading can report it by calling the FSA's Financial Promotions hotline on 08457 300 168. Information on how to report misleading adverts is available on the FSA consumer website.
7. 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.
8. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.