I will offer little by way of comment, but will instead provide links in each case 1) to the FSA Press Notice involved and 2) to the "Final Notice" given by the FSA to the firms or individual involved.
In each of these 5 posts I will include highlighted extracts.
1: To illustrate why I hold the view that the OFT approach of setting a "threshold level" was too narrow.
2: To further illustrate that aspect by highlighting both the breadth and depth that the approach used by the FSA stands in comparison to the OFT - you will be able to judge the truth of that or otherwise for yourself
However - I do not want anybody to be misled in any way when I use extracts so I do urge you to use the links provided and read each item in full.
As you do so, you will find reference to some of the items I have commented on before - such as the high level "Principles" that the FSA apply to all those that they regulate, reference also to the powers granted under statute to the FSA, and lastly reference to the - activity related - "Conduct of Business" rules.
In each of these 5 posts we are looking at those "Principles" as they apply to all firms regulated by the FSA -and those "Conduct of Business Rules" as they apply to mortgages (MCOB)
However as you see how they are enforced by the FSA, just bear in mind (perhaps heavily) that those high level "Principles" do apply in the very same way to Banks, and everyone else authorised by the FSA - they are universal in their application.
And also bear in mind (again perhaps heavily) that banks do not escape similar, although not identical "Conduct of Business Rules" this time called "BCOBS".
You can find full details in the links for the full FSA Handbook I listed in an earlier post
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Please read in full the Press Notice in this fourth example.
Here however are some edited extracts:
FSA fines mortgage lender and its director for irresponsible lending and unfair treatment of customers in arrears
The Financial Services Authority (FSA) has fined small mortgage lender, Bridging Loans Ltd, £42,000 and its director Joseph Cummings £70,000 for serious failures relating to lending practices and for failing to treat customers fairly in arrears.
The FSA has also banned Joseph Cummings, and taken action to prevent three other directors at the firm from being able to operate in senior positions within the financial services industry. This is the first case of its kind by the FSA against a mortgage lender’s senior management concerning irresponsible lending and unfair practices in respect of dealing with customers in arrears.
Margaret Cole, the FSA’s director of enforcement and financial crime, said:
"Joseph Cummings showed total disregard for the interests of Bridging Loans Ltd’s customers, basing his decisions and subsequent treatment of a customer on whether or not he liked or trusted them, rather than on any proper assessment of their circumstances.
"This sort of behaviour towards customers cannot be tolerated and the FSA will continue to take action where necessary against firms that fail to have the proper systems and controls in place to ensure customers are being treated fairly."
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Next let's look at the "Final Notice" for this example - please read in full.
However, here are some edited extracts:
TAKE NOTICE: The Financial Services Authority of 25, The North Colonnade, Canary Wharf, London E14 5HS ("the FSA") gives you final notice that it has taken the following action:
1. THE ACTION
1.1 The FSA gave you, Joseph Cummings (“Mr Cummings”) a Decision Notice dated 12 October 2010 (“the Decision Notice”) which notified you that, pursuant to section 206 of the Financial Services and Markets Act 2000 (the “Act”), the FSA had decided to impose a financial penalty of £70,000 on you in respect of breaches of Statements of Principle 1, 6 and 7 of the FSA’s Statement of Principle and Code of Practice for Approved Persons (“Statements of Principle”) between 31 October 2004 and 25 August 2009 (“the relevant period”) in your role as director of Bridging Loans Ltd (“BLL”), and your failure to cooperate with the FSA in breach of Statement of Principle 4.
1.2 The FSA has also decided to withdraw your approval to perform controlled functions in relation to BLL pursuant to section 63 of the Act; and to make an order, pursuant to section 56 of the Financial Services and Markets Act 2000 (“the Act”), prohibiting you from performing any function in relation to any regulated activity carried on by any authorised person, exempt person or exempt professional firm (the “Prohibition Order”) on the grounds that you are not a fit and proper person.
2. REASONS FOR THE ACTION
2.1 The FSA has decided to impose a financial penalty on you, Mr Cummings, based upon the following facts and matters described below.
2.2 In summary, while performing significant influence functions at BLL during the relevant period, you failed to:
(1) act with integrity by knowingly misleading a customer;
(2) deal with the FSA in an open and cooperative manner;
(3) exercise due skill, care and diligence in managing the business of BLL for which you were responsible in your controlled function by not paying due regard to your regulatory responsibilities as an approved person or BLL’s as an authorised person, in relation to the entering into and administration of regulated mortgage contracts; and
(4) take reasonable steps to ensure that the business of BLL for which you were responsible in your controlled functions complied with the relevant requirements and standards of the regulatory system, in particular in the handling of complaints, treatment of customers in arrears and responsible lending.
4.7 As a mortgage lender authorised by the FSA, BLL was required to have systems and controls in place to ensure that it lent to customers responsibly. BLL had a responsibility to take account of a customer’s ability to repay the mortgage, prior to entering into that contract. Further, BLL was required to make adequate records of lending decisions and retain these for at least a year.
Arrears
4.13 BLL failed to deal fairly with customers in arrears.
4.17 You also failed to ensure that charges applied to customers in arrears were a reasonable estimate of the cost of the additional administration required as a result of that customer being in arrears.
5. ANALYSIS OF BREACHES
5.1 By reason of the fact and matters referred to at paragraphs 4.1 to 4.26 above, the FSA considers that you failed to comply with Statements of Principle 1, 4, 6 and 7, in that you:
(1) failed to act with integrity in dealing with customer complaints, as at paragraph 4.22, in breach of Statement of Principle 1;
(2) failed to act in an open and cooperative way with the FSA, including failing to comply with statutory notices, as at paragraphs 4.23 to 4.25, in breach of Statement of Principle 4;
(3) failed to exercise due skill, care and diligence in managing the business of BLL for which you were responsible in your controlled functions, by failing to
consider the potential for a conflict of interest to arise between BLL and its customers, as at paragraph 4.26, in breach of Statement of Principle 6;
(4) failed to take reasonable steps to ensure that the business of BLL for which you were responsible in your controlled functions complied with the relevant
requirements and standards of the regulatory system, particularly with regard to lending decisions, arrears handling and complaints handling in paragraphs
4.7 to 4.12, 4.13 to 4.17 and 4.20 to 4.22. respectively, in breach of Statement of Principle 7;
The nature, seriousness and impact of the breach in question DEPP 6.5.2G(2)
6.5 The FSA considers your conduct to be particularly serious because:
(1) your failings persisted over a period of approximately five years;
(2) you were aware that customers may not be being treated fairly, but did not take steps to intercede or investigate these matters; and
(3) through your conduct, customers, including those who already had impaired
credit histories, were put at risk of entering into unsuitable regulated mortgage
contracts, suffered unfair treatment and financial detriment.
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The fifth and the last of these five examples showing the FSA enforcing both their "Rules" and "Principles" will follow in the next post.
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