Compliance is an integral part of being a mortgage broker because it protects the customer and improves the business, as well as the industry as a whole.

As the regulator for the mortgage advice industry, the Financial Conduct Authority (FCA) has various powers and tools at its disposal to monitor and enforce compliance, where necessary.

And there is a strong emphasis on individual accountability.

The FCA’s approach to mortgage broker compliance is to ensure firms and networks have sufficient oversight of individual conduct.

Why Does a Mortgage Broker Need to Be Compliant?

Mortgage broker compliance is not simply about following the rules and regulations.

It is also about understanding what these rules and regulations are for.

The FCA regulates services to give consumers confidence and to drive improvements in the financial services market as a whole.

They want a marketplace that is fair, open and competitive.

By adhering to a set of rules and standards, individual advisers, firms and networks can all contribute to the health of the market.

While the FCA has a single strategic objective, which is to ensure that the markets it regulates function well, it also has three distinct operational objectives:

• Protect consumers
• Enhance the integrity of the market
• Promote competition.

The FCA’s regulation serves the public interest, but compliance also helps the ongoing development and growth of mortgage businesses by encouraging and enabling best practices.

A major aspect of compliance is about responsible selling and ensuring that brokers and their staff do not mis-sell mortgages.

This can occur in a variety of ways, for example when a broker has advised a borrower to take a loan which they cannot afford, or under terms the broker knows the borrower cannot meet.

Mortgage brokers must make terms clear to customers, pointing out any potential issues or pitfalls.

Clarity is hugely important for compliance, and it should be a fundamental facet of all conduct.

However, mortgage broker compliance is also about mortgage professionals protecting themselves, and their businesses, from fraud.

This is why they must follow certain procedures and processes as detailed in the FCA regulations.

How Can a Mortgage Broker Become Compliant?

Broadly, there are two types of mortgage broker:

• An independent, directly authorised broker, or
• An appointed representative in a mortgage network.

For the appointed representative (AR), the network provides the necessary support with compliance.

The AR does not have to register directly with the FCA, as the network is the regulated firm with the responsibility for compliance.

The network will take responsibility for all its brokers, providing them with the compliance structure they need to develop their business.

For brokers wishing to remain independent, they must first apply for FCA authorisation.

They must show the FCA that they can meet and maintain certain criteria, and perform their functions to a clear set of standards.

To become compliant, mortgage brokers must follow the FCA’s application process, and understand what the regulator is looking for, in order to meet its requirements.

However, mortgage broker compliance is not a tick-in-the-box exercise. It is an ongoing obligation.

Mortgage brokers must keep up to date with the FCA’s regulatory regime, which keeps changing and evolving.

Brokers need to continue to meet the FCA benchmarks as part of their professional practice.

Becoming FCA-authorised provides mortgage brokers with a scope of permission for the activities they carry out.

However, should they wish to change their regulated activities, they will then need to make these changes official.

This involves applying to the FCA for a variation of permission (VOP).

Mortgage brokers can benefit from specialist, external support with compliance. This includes compliance training and monitoring, and regularly reviewing their policies and procedures.

There are certain obligations authorised mortgage brokers must continue to meet, and compliance support can help them do this.

One of these obligations is the assessment of risk, including data protection and GDPR compliance.

Brokers must familiarise themselves with the key principles of GDPR, and have a clear GDPR strategy, including someone to oversee it.

As with other aspects of compliance, it is important to keep reviewing processes, and to be aware of any regulatory changes.

Another aspect of managing risk is to follow the rules first introduced in the FCA’s Mortgage Marketing Review (MMR), which had the aim of reducing high-risk lending and putting stricter affordability checks in place.

What Happens if a Mortgage Broker is Not Compliant?

The consequences of non-compliance for a mortgage broker are:

• Legal
• Financial
• Reputational.

There are procedures around mortgage provision that are legally-mandated, which means there can be legal penalties for non-compliance.

Where customers claim for mis-sold mortgages, compensation can run into many thousands of pounds, depending on the size of the mis-sold loan and the resultant harm.

There are also serious financial implications where failure to comply leaves brokers open to being involved in mortgage fraud.

Finally, there is considerable reputational risk at stake from non-compliance.

As we have seen, one of the key objectives of compliance is to protect consumers.

Failure to do so risks losing their trust, and in turn, their business.

Help and Support With Compliance

For more information about our dedicated compliance support services, please contact us.