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NICHE MORTGAGES- - 1ST FEBRUARY 2007
The FSA is watching so the industry needs to be on its best behaviour, urges Simon Burgess, managing director, Britishinsurance.com.
Acting improprietously is one thing, but advertising the fact is surely asking for trouble. Given the size of the Financial Services Authority’s (FSA) regulatory remit and the stretch put on its resources to cover all of its bases, firms producing non-compliant advertising must be a first port of call when it comes to highlighting those acting outside its rules.
The link between non-compliant advertising and poor practise is one the regulator is looking at closely and this is particularly true of operators in the sub-prime mortgage market. The FSA has already stated that misselling in this market is of particular danger, given the vulnerability of many borrowers. It has also found that where poor advertising is used, problems often run deeper with other business practices and procedures.
What is more surprising is the scale of the problem. The FSA undertook work in this area over the course of last year and in announcing its findings, said over 200 mortgage brokers had been told to withdraw or amend certain pieces of advertising and promotional material.
Vernon Everitt, FSA retail themes director, said at the time: “Financial advertising has a massive influence on the decisions people make. So it must be clear, fair and not misleading, leaving people with a balanced picture of the key pros and cons. This is particularly the case in advertisements by mortgage brokers in the sub-prime market, where people are making one of the most important financial decisions of their lives. We need to see standards here rising, and fast.”
He added: “Firms in this sector should be on notice that this is a priority area for us in assessing whether they are genuinely treating their customers fairly.”
While there is no questioning the fact that responsibility for advertising and marketing materials lies directly with the company concerned, there is debate over how it can be best monitored.
While the FSA has set out clear guidelines as to what makes a compliant piece of promotional material it does not have the resources to sign off each and every piece of marketing produced by firms before they are put out to the market.
One option may well be to create an independent body, perhaps affiliated to the FSA and paid for by firms in the market to independently assess if the material they propose using is complaint – and if not where they were going wrong. Once authorised the firms could move forward with the confidence that their work had been verified. While such a move would stamp out much poor practice, it would take time to set up and create delays for firms looking to turn new material around quickly and produce information on fast changing products and services. Many would also be unhappy at the extra cost this would entail.
Another option may be to make individuals within a firm personally responsible for the marketing material produced and liable to professional sanction should the promotions under their remit continually fall foul of the rules. This may seem like a hard line to take, but it would certainly create a focus within individual firms and make them think twice about producing material they were in any doubt about. It would also highlight individuals who were continuously flouting the legislation and make them unemployable in the market.
A third resort may be to improve communications between the market and the regulator over material which is felt to fall below the threshold standards. However the whistle blowing regime has already encountered problems with getting people to come forward in numbers and it is a reactive rather than proactive measure – people may already have been enticed into a poor deal by the time anything was done about the offending marketing.
To be truly effective the simple truth is that the FSA needs more resources with which to overlook the vast market expanses it has under its watch. Whether this comes from government or is raised by funds from the industry is another discussion entirely.
However, for the moment, firms in the sub-prime mortgage sector should be under no illusion that even though the regulator may be stretched, it currently has this area of the market under its microscope. Given that fines of over £1.5m have been handed out to firms across all sectors in the last two years in relation to poor promotional material, the sub-prime market cannot afford to be complacent now it has come to the regulator’s attention.
