FSA Mortgage Regulations
FSA investigation into equity release schemes
In early 2005 the FSA investigated equity release and subsequent investment advice in firms. It revealed that more than 70% of advisers in these firms did not gather enough suitable information about their customers to ascertain their suitability for the product. More than 60% of the mystery shoppers reported that their adviser had not explained the downsides of equity release. The review of investment advice found that, in all of the seven companies looked at, the customer advisers failed to explain the link between this type of borrowing and subsequent investments.
The FSA took steps to solve the problems discovered by holding discussions with industry trade bodies to help deliver better standards and all have issued comprehensive guidance to their shortcomings identified. The FSA demanded that standards must be raised and they would be back to test that improved standards are being delivered in practice.
Industry response
The major players in the industry responded in a variety of ways.
The Council of Mortgage Lenders responded by:
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Revising its Good Practice Notes
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Making material on taxation and benefits to assist advisers to complement its support of the Fintel benefits system;
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Entering into a joint venture with Absolutely Training which is designed to deliver desktop training in accordance with its members' specific requirements;
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Working with other trade bodies to make a checklist for intermediaries to make sure that all needed information is made available to consumers at the correct time
Safe Home Income Plans (SHIP):
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Has changed its membership rules and issued new guidance to help deliver a fair contract for consumers
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Has created an independent complaints board which has the authority to fine members or compensate consumers
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Has advised that some of its members now regularly undertake research with clients and IFAs to determine the purpose of funds released and advisory activity
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Has promoted the use of an adviser checklist to ensure that consumers receive relevant information regarding all aspects of equity release
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Has publicly stated its commitment to the importance of ensuring that both product and advice standards are focused on consumer protection
The Association of Independent Financial Advisers (AIFA):
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Has explored the availability of lifetime mortgage training to determine the extent to which this is accessible
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Has also issued a number of newsflashes, which have focused on the content of the press release on equity release findings issued during May 2005 and the further work which will be undertaken in this area, to their members
The Association of Mortgage Intermediaries (AMI):
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Has negotiated with Fintel to offer a discount to their members and promoted the system
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AMI also conducts a monthly intermediary census relating to equity release and has recently launched a 'One Year On' campaign
The Association of British Insurers (ABI):
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