Basic Regulatory Information

The information on this page will provide answers to some of the questions that you may have regarding the FSA's approach to regulation.

Record keeping and reporting

I have to liaise with the FSA after authorisation?

Firms will need to liaise with the FSA for various reasons. The actual amount of contact will be dependent on the FSA's view on the risk that a particular firm poses. They will base their risk assessment on a number of items but primarily it is thought that low risk firms will, mainly, be assessed on the submissions that they will have to supply regularly to the FSA.

How long do I need to keep records for?

Records should be kept for a minimum of 3 years following the completion of a case. However, firms should consider keeping records for a longer period of time to deal with potential client complaints and queries.

Complaints and Compensation Procedures

What procedures are required for client complaints?

All firms must have a written complaints procedure. Clients must be made aware of the procedure at the point of sale and must be informed of their right to refer a complaint to the Financial Ombudsman Service.

What is the Financial Ombudsman Service?

The Financial Ombudsman Service (FOS) is an independent organisation set up to resolve disputes between firms and complainants when a mutually acceptable conclusion cannot be reached. The FOS will investigate complaints that get referred to them and make a decision that is binding on the firm. Further information regarding the FOS and their procedures can be found by following this link.

What happens if a client makes a claim against a firm that cannot pay?

The Financial Services Compensation Scheme (FSCS) provides a 'safety net' to clients if firms are unable to meet their financial obligations. The FSCS is an independent organisation that aims to assist clients who have been left disadvantaged by the financial problems of a firm. The FSCS is funded by levies on authorised firms. Details of the current levy along with compensation limits and other useful information can be found by following this link.

Is there any other documentation that needs to be provided?

Yes. Whenever information is provided to a client on a specific mortgage and mortgage amount then this must be accompanied by a personalised Key Features Illustration (KFI). A client must be provided with one of these with every recommendation and prior to any mortgage application being made. A KFI provided by an intermediary must be accurate to within 1% for the monthly payment and total amount payable with the APR not understated by more than 0.1%.

Do I need to disclose the commission I earn to the client?

Yes. Any payment to an intermediary needs to be disclosed to a client. The amount of the payment will be stated on the KFI and should always be brought to the client’s attention.

What about a suitability letter?

There is no requirement to provide your clients with a suitability letter, although you do have the option of using one if you wish. You must ensure that whatever method, you use you can evidence how a recommendation decision was reached and how it met the clients individual needs.

Non-standard mortgage

Are there any products excluded from regulation?

Generally speaking, the regulation does not cover buy-to-let mortgages (unless the tenant is a member of the borrower’s immediate family), second charge loans or any loans to limited companies. In addition it does not cover Home Reversion Schemes, although the Treasury have recently announced that this area is to be regulated in the future. You should note that the rules on what is and is not regulated are not straightforward and some loans in these categories may end up being classed as regulated.

Are any products subject to a greater degree of regulation?

As discussed above, equity release mortgages are categorised by the FSA as 'higher' risk. Therefore they have laid down additional guidance for individuals who want to advise and arrange these types of mortgage. The guidelines require a greater degree of disclosure and also the use of additional risk warnings. In addition, individuals advising on lifetime mortgages must be able to demonstrate that they have the skills required in this area and firms must ensure that ongoing competence in this area is monitored.

Following recent press coverage, are self-certification mortgages still allowed?

Yes. When regulation began the FSA considered making self-certification available only to the self-employed. However, following consultation they decided that self-certification can also be used by employed individuals in appropriate circumstances when there is no reason to doubt the information provided by the client.

Further information

Where can I look if I want more information?

The detailed rules can be found in the Mortgage Conduct of Business (MCOB) sourcebook. This can be viewed by following this link.

Below is a table of contents for MCOB that you may find helpful.

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