We have published CP 10/2, which sets out our proposals to extend the approved persons regime to home finance advisers and arrangers who bring about sales.

A home finance transaction is defined as a regulated mortgage contract, a home purchase plan, a home reversion plan or a regulated sale and rent back agreement.

This is the first of our Consultation Papers on our Mortgage Market Review.  The consultation also covers changes to how lenders deal with customers in arrears.

What is the approved persons regime?

• We define some roles within a firm to be a ‘controlled function’ (CF). Anyone who is asked by their firm to carry out one of these functions must first be assessed by us as ‘fit and proper’. We will assess the individual against the criteria set out in the FIT and APER section of the FSA Handbook, which include assessing an individual’s honesty, integrity and competence.
• CFs are roles or responsibilities within a business that have a particular regulatory significance.  There are also ‘significant influence functions’, which describe roles we deem to have a significant influence over a firm and its operations.
• Once approved, an approved person must continue to comply with the requirements as set out in the FIT and APER section of the FSA Handbook. Where an approved person fails to comply, we can take enforcement action against them.
• Currently, home finance firms must seek approval for individuals carrying out some significant influence functions, usually a director function (CF1) or a partner function (CF4).

What are we proposing?

We propose to create a new customer function, CF31 (home finance business), which will apply to:

• all individuals who currently, or will in the future, advise, on home finance transactions; and
• individuals who currently, or will in the future, arrange (bring about) home finance transactions on behalf of an intermediary firm.

We are also considering including those individuals who currently, or will in the future, arrange (enter into) home finance transactions on behalf of a home finance provider.

We also propose to extend the compliance oversight function (CF10) to home finance intermediaries and providers.

Who is excluded?

Individuals excluded from our proposals are arrangers who do not bring about a home finance activity. So individuals, such as introducers, who make arrangements but do not bring about a transaction, are excluded from these proposals. For example, an individual who gathers information to complete the mortgage application form would be excluded from our proposals.

Why are we doing this?

• To provide a consistent level of protection for consumers and reduce opportunities for fraud.
• To improve standards of fitness and propriety among individual home finance advisers and arrangers who bring about sales, prohibiting rogue individuals and limiting the movement of problematic individuals through the industry. 
• This work is in line with our more intrusive and integrated approach to supervision throughout the industry. It will help us ensure that inappropriate or non-compliant behaviour is dealt with swiftly and fairly.
• By extending our approved persons regime to home finance business we aim to protect consumers by improving standards and increasing transparency within the industry.
• As part of our credible deterrence philosophy, our new regime would make individuals personally accountable for any misconduct and for any unsuitable advice they provide to customers, allowing us to sanction those that fail to meet our requirements.

Next steps

You can view our proposals in full. 
You can give your views on our proposals by filling in the online response form or by emailing the paper’s authors at:  cp10_02@fsa.gov.uk

The consultation on these proposals will close on 30 April 2010.

We intend to complete the proposals and publish the final rules in a Policy Statement during the June 2010. 

How it will work

The paper outlines our proposed process for individuals to become approved, and the proposed timescales for implementing the new rules.

It applies both to individuals currently performing a relevant activity and to those who wish to start doing so once the proposed rules come into force.

We hope to begin accepting applications in the first quarter of 2011.