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