The theme is enforcement

On 1 August, the FSA issued a press release stating that two firms have been fined and one censured for failings relating to mortgage advice. The enforcement action followed thematic work between June and October last year into the quality of the advice process in mortgage brokers. The three firms were among 78 that had been visited as part of the project. A further 99 firms were mystery shopped and 75 completed questionnaires. Arun Srivastava and Oliver Kerridge of Baker & McKenzie LLP review the grounds for the enforcement action and then set out practical considerations for firms that find themselves part of a thematic review.

Arun Srivastava (arun.srivastava@bakernet.com) is a partner and Oliver Kerridge (oliver.kerridge@bakernet.com) an associate in Baker & McKenzie LLP's London Financial Services Group. Both have extensive experience in FSA investigations and enforcement. A shorter version of this article was originally published on Complinet on 3 August 2007.

Grounds for the enforcement action

As is common in retail enforcement cases, the FSA's enforcement action was not centred around actual misselling. Instead, the FSA decided to focus on the firms’ procedures and record keeping. Lawrence Scoffield Mortgages and Council Homebuyers (Midlands and North) were each fined £15,000 (reduced by 30% under the FSA's executive settlement scheme). Mortgage Network Solutions was publicly censured. The three firms were all found to have failed to make and retain proper records relating to their customers’ needs and circumstances. The FSA's case was that poor records of client circumstances at the point of sale hindered the ability of the firms’ managements to monitor the sales process and check whether sales were suitable. This was a breach of Principle 3 (systems and controls).