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In October 2020, the Financial Conduct Authority (FCA) wrote to mortgage intermediaries about the current state of the mortgage advice market and stressed the importance of supervision and oversight on compliance.

In its letter, the FCA indicated it would be contacting firms and networks that have grown rapidly to check on their supervision and oversight regimes.

The FCA has also said it intends to look closely at firms that have multiple trading names to make sure that these are not trading names of unauthorised firms, thereby allowing them to carry out regulated activity.

Compliance is critical for regulated mortgage firms and networks, and supervision and oversight on compliance are key aspects of this.

The FCA expects firms and networks to monitor how individuals work and behave, and to make sure they are keeping pace with regulatory changes.

The Importance of Staying Compliant

In its recent Dear CEO letter to mortgage intermediaries, the FCA focused on issues that are also highly relevant to the wider marketplace of mortgage advice firms and networks.

It emphasised the critical importance of the mortgage market to the wider UK economy, and the impact its performance can have on the financial system as a whole.

However, it is vital that consumers can trust the advisers, firms and networks they go to for guidance, and that all aspects of the mortgage market work well.

The FCA pinpoints areas of potential damage, including:

  • Unsuitable advice
  • Excessive charges or fees
  • Fraud.

Consumers need to have confidence in mortgage services, and firms must ensure that individuals operating under their name are complying with FCA regulations for best practice.

Regulation serves the public interest and helps ensure appropriate professional standards across the market.

Compliance adds value by enhancing trust in markets and improving how they work.

Which Firms will the FCA be Focusing On?

The FCA is focusing on mortgage advice intermediaries, and the fact that these firms should have the right kind of supervision and oversight in place for all their advisers, including appointed representatives (ARs).

It is especially concerned about firms that are growing and increasing their numbers of advisers or ARs, and ensuring that the oversight and governance of such firms has undergone a corresponding change.

In these situations, what the FCA would expect to see is an increase in resources for supervision and oversight to match the increased number of people working in the sector.

It is important that networks which are expanding can still maintain appropriate systems and controls.

There is a focus for the FCA on culture and governance, and on an increase in individual accountability as well as the already existing accountability of firms.

This is why it has introduced the Senior Managers and Certification Regime (SMCR) to increase the level of personal accountability for advisers and other key staff members.

Another aspect of growing firms that concerns the FCA is where they use multiple trading names.

Here, it expects there to be proper oversight to ensure no unregulated firm is offering regulated services by trading under a different name.

The letter emphasises that any firms or individuals carrying out regulated activities without being directly authorised, or as an AR, are at risk of committing a criminal offence.

When a customer is dealing with an AR, or a firm with a specific trading name, they must be clear who it is they are actually dealing with, and who is responsible for the advice they are receiving.

There are some mortgage firms operating with a large number of trading names, and these are the firms the FCA may be contacting to look at how they structure their business models.

How to Stay Compliant Through Growth

There is an increased focus on compliance for mortgage advisers, and a strong emphasis on individual accountability.

Non-compliance can have significant and serious legal implications both for networks and individuals.

To manage compliance, growing mortgage firms and networks need to put suitable measures in place that will enable them to provide sufficient supervision and oversight to individuals active in the market.

A key aspect of this is keeping up to date with the FCA as it continues to oversee regulation in the industry.

The FCA has benchmark expectations that firms and networks must comply with, and these expectations will continue to evolve and change.

Consequently, as well as keeping up to date with industry best practices, firms should also build compliance training and monitoring into their structures, ensuring that all key individuals are fully up to speed with FCA regulations.

For example, firms must ensure they keep up to date the details of individuals submitted to the FCA Directory of assessed and certified persons.

Obviously, where they take on new advisers, they must ensure they assess and certify these individuals as applicable, before submitting as Directory Persons.

The FCA expects firms to foster a healthy culture, where they can minimise the risk of misconduct. By staying compliant, firms can help build and maintain this culture.

Expert Compliance Advice

For your continuing success, you need to follow FCA regulations, because ultimately this will benefit your customers and help you provide the high level of service they expect.

Whatever questions or issues you have relating to FCA compliance, Richdale can help.

For more details about how we can help with supervision and oversight on compliance, please get in touch today.

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