Mortgage brokers are failing to comply with regulations concerning the provision of initial disclosure documents, according to a recent mystery shopping exercise.
The Financial Services Authority (FSA), which commissioned a mystery shopping exercise in April and May, says 28% of firms visited failed to provide an IDD to their clients, while in 15% of visits the firms failed to provide both an IDD and a key facts illustration (KFI).
Moreover, in 12% of cases the firms provided the documents but not at the right time says the FSA. In all, out of the 82 visits conducted by the FSA, firms were non-compliant in 55% of cases.
The mystery shopping exercise saw the FSA carry out a review of 20 lender websites, two-thirds of which, it says, complied with some, but not all, of the its requirements with IDDs either not displaying them at all or not displaying them at the right time.
Clive Briault, managing director of retail markets at the FSA, says: "These are disappointing findings. The key facts documents are designed to give customers clear, straightforward information on the services and products they are being offered to enable them to make informed decisions and to shop around. It is extremely important for all firms to comply with our regulations.
"We have been working with firms on the quality of these documents and will continue to monitor closely firms' distribution of them through further supervision work. If we find that some firms continue in these failings we will take this very seriously and the appropriate action will be taken, including enforcement action if necessary," continues Briault.
The Council of Mortgage Lenders (CML) has been quick to respond saying it supports the FSA's work.
Peter Williams, deputy director general of the CML, says: "The mystery shopper survey proves there is no room for complacency when providing customers with IDDs and KFIs, but we are confident lenders are striving to ensure these are supplied at the correct stage in the sales process."
He adds the FSA also needs to be aware the rules are still bedding-in, and we look forward to working with the industry towards further improvement in the future."
And Chris Cummings, director general of the Association of Mortgage Intermediaries (Ami), says:
"We would have liked the FSA to look at the quality of advice as well as the process, as this is undoubtedly the thing that matters most to consumers. It is worth underlining the fact that at no point does the regulator state that the advice given was inappropriate."
Cummings accepts the criticisms are serious, adding: "As they follow issues highlighted by earlier research on equity release, they should be seen as the final wake-up call. It is not enough for firms to pay lip service to the compliance requirements of the regulator - they need to make sure that they are an integral part of daily practice. If we cannot sort these problems out it seems certain that tougher supervisory action will follow."
The mystery shopping exercise saw the FSA visit 62 mortgage intermediary firms and lenders, with a total of 82 mortgage interviews being carried out, 62 face-to-face and 20 telephone-based, to establish whether firms were providing the two key documents required by regulation to customers about the type of service a firm provides as well as the cost, features and risk of a particular mortgage proposal.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Matthew West on 020 7484 9893 or email [email protected].IFAonline
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