IT chiefs should have already started to change their systems in
line with new regulations
From October 2004 the Financial Services Authority will regulate
mortgage sales. The mortgage applicant and the adviser will need to
use point of sale software systems to take them through a sales
process, which will have to comply with FSA regulations. Evidence
will have to be produced to prove the system is complying with the
new regulations along with a new "key facts" illustration.
Quick mortgage quotes over the telephone will be banned as all
quotes will have to be given in a "durable" format, using the newly
prescribed content and layout. This is likely to drive many people
onto the internet, where online quotes will be available as locked
electronic documents.
Lenders and financial intermediaries will also need to be able to
share information with one another more freely. However, despite
the scale of these changes, many in the industry have yet to begin
the necessary IT changes.
This lack of preparedness is surprising given the potential cost
of non-compliant sales or "misselling".
It is even more surprising given the FSA's risk-based approach to
regulation, which means that the regulator will judge a system with
a track record of successful operation as posing a lower risk and
supervise it less closely.
Firms therefore need to evaluate whether it is better to take time
to develop a bespoke system or to achieve compliance more quickly
by adopting a customised solution already compliant with the
regulation.
There are only a very limited number of compliant packaged
solutions available on the market. They do, however, provide the
most reliable approach, an important factor given the criticality
of compliance to business.
Lenders and other financial organisations will have to ensure that
their financial intermediaries comply with the new regulations and
software packages will play a key role in this.
An important element of every organisation's plan to cope with
mortgage regulation should also be to develop a more flexible IT
infrastructure to adapt to market and regulatory change.
Separating distribution and administrative functionality within
mortgage systems and moving to thin client technology is a sensible
strategy, but for many mortgage lenders, whose systems tend to be
highly vertically integrated, it could be a costly process.
Careful consideration is therefore required before adopting this
approach, although with so much change and flux in the market, it
is likely to be a worthwhile investment.
New regulation always gives rise to winners and losers in business
and, in the instance of mortgage regulation, a firm's IT strategy
could play a particularly important role in where it finds itself
in the new market order.
This strategy will affect the attractiveness of both lenders and
intermediaries as business partners; it will dictate an
organisation's ability to adapt swiftly during a period of frequent
and dramatic change; and lastly, but by no means least, it will
help to ensure total compliance.
So, for the many organisations in the mortgage industry who have
yet to even start working on their IT strategy, there is no time to
lose.
Dave Patel is managing director of DPR
Consulting
www.dpr.co.uk