The FSA is planning to extend the 'restricted' and 'independent' labels to mortgage intermediaries.
Although mortgage advisers do not come under the scope of the RDR, the regulator is proposing making a level playing field with the investment sphere in terms of how services are described to consumers.
All advisory firms who label themselves as ‘independent' will have to source products from a ‘comprehensive and fair analysis of the relevant market', today's mortgage market consultation paper reads.
In the mortgage market, the FSA considers ‘relevant market' should relate to the relevant home finance transaction (i.e. the regulated mortgage contract market, the equity release market, the sale and rent back market, etc.).
However, it is conscious in the mortgage market, there are a number of products that cannot be accessed by all firms, e.g. products that are only available to a consumer directly from a lender or products only available through special deals between particular lenders and intermediaries.
It says: "We propose to specify that a firm's search does not need to extend to these products in order to use the label ‘independent'. In practice, as currently, a firm may use a panel of lenders in meeting the requirement for a comprehensive and fair analysis of the market, but the panel would need to be sufficiently large to ensure it is representative of the range of products available."
To be ‘independent' firms will also be required to offer an unbiased and unrestricted service. This means they should not be bound by any form of agreement with a lender that restricts the service they can provide.
"Where a firm does not meet these requirements, it must describe its service as ‘restricted'. In doing so, it will need to clarify whether it offers products from just one firm or a limited number of firms, and note any restrictions on the range available," the FSA says.
The regulator also consulted on whether a firm should only be considered ‘independent' if it enables the consumer to pay a fee for its services (rather than rely upon commission).
The FSA says: "As discussed in the DP, we have not seen significant evidence of commission-bias in the mortgage market. Even if there were risks of commission bias, our enhanced sales standards will ensure that a firm only puts forward products on the basis of a consumer's needs and circumstances.
"Our re-focused disclosure requirements will also require firms to highlight their remuneration (including whether they get commission). Therefore we do not believe that there is a strong case for retaining the requirement for a fee option in our new ‘independent' label."
This consultation paper (CP) is the third following the MMR discussion paper published in October last year. The first two CPs dealt with 'arrears and approved persons' and 'responsible lending'. This paper (READ IT HERE) deals with 'distribution and disclosure'. Consultation for this paper closes 25 February 2011.
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