We Introduce You

Ah well, the wheels of commerce have started to grind to their annual halt. I wonder how many times ‘Well, there’s no point starting it until after the holidays’ have been echoed around British offices.

On the news front, a story that caught my eye was one that in their monthly newsletter for mortgage advisors the FSA told intermediaries, who use packagers, to look at their procedures.

The FSA said it had visited nine brokers, six packagers and conducted a telephone survey with another twenty-five brokers. This exposed worrying findings into the relationship between mortgage brokers and packagers - where a number of advisers are relying entirely upon the product suggestions made by packagers without making any of their own checks.

The investigation found that approximately a quarter of brokers only sometimes checked the suitability of a product suggested by a packager for the customer. A smaller number of brokers never checked and relied entirely upon the product suggestions made by packagers.

The FSA also pointed out that that where brokers and packagers had contracts saying that it was the responsibility of the packager to give reasons why a product had been selected and if that advice was later found to be incorrect, it was the responsibility of the packager to compensate the end customer were wrong.

The FSA is warning that even if such an agreement has been drawn up, all regulatory obligations remain the responsibility of the broker and it would expect them to evidence the reasons why the product they recommended was suitable for their customer. Information provided to the broker by the packager can form part of that suitability assessment. In the case of non-compliant advice, any resulting regulatory action will be taken against the authorised broker, not the packager - even if that packager sourced the product.

With regards to giving out a Key Facts Illustrated (KFI) to customers, the FSA found that it was sometimes the broker who gave them to the customer and in other cases the packager. The FSA said regardless of who issues the KFI, it remains the responsibility of the authorised firm that is dealing directly with the customer to make sure the KFI is given to the customer at the right time.

Following on from the post about the FSA saying to treat customers fairly (TCF), the FSA has now updated its website with a new section targeted at small businesses.

Recognising the fact that there tends to be a lack of resources in small businesses, the FSA says that rather than having formalised documents etc. small firms should take a step back and look at its operations, identify areas of risk to its customers, and consider how to remove or mitigate them.

Although not updated since last year, the new section of the website contains a PDF document which outlines the FSA’s ideas on TCF for small firms.

The subjects covered include financial promotions, advice and sales process, training, accurate and timely record keeping, disputes and complaint handling, flow of information and risk assessment.

In the next few months the FSA will be conducting a telephone survey to 900 small businesses about TCF and at some stage next year will be visiting a sample of the firms who answered the survey questions. In April 2007 the FSA will publish a review on the number of companies who have or haven’t met the March deadline for implementing a TCF policy.

The Money Debt and Credit group (MDCG) started to trade on the stock market today. The organisation has a capitalisation of £10million and raised £3million (gross) through its recent flotation.

This again increases the number of listed companies dealing in IVAs and it will be interesting to see what happens to the industry in the coming months. As you may have heard, the various government bodies have said they will not regulate the market for now and this has led to a self-regulatory body being formed.

Being wary that the dramatic increase in IVAs is increasing their write offs, the banks are being very vocal about the industry and the IVA industry is ping-ponging the comments back by saying the banks should lend more responsibly in the first place.

As most of the companies involved in IVAs are pretty small fry, it is an absolute certainty that there will be some industry consolidation in the next few months.

For your interest, I’ve listed out all the LSE companies I could find dealing in IVAs and I’ve attempted to add a rough percentage of how much they say their turnover has increased in the last reporting period and also included a listing date. Some of the businesses deal purely in IVAs, whereas others complement them by dealing in things like Secured Loans. You can see from the list that nearly all of them were floated quite recently.

Debts.co.uk (DETS) - Listed May 2006 - turnover up 79.3%
Accuma Group PLC (ACG) - Listed March 2006 - turnover up 250%
Debt Free Direct (DFD) - Listed December 2002 - turnover up 91% (Interims)
Debtmatters Group (DEBT) - Listed June 2005 - 465% (Interims)
Cleardebt Group PLC (CLEA) - Listed February 2006 - difficult to establish turnover increase, but impressive month on month growth in IVAs. Cleardebt was renamed from Carrwood PLC.
Invocas Group PLC (INVO) - March 2006 - 50% increase (Interims). Deals in Protected Trust Deeds (Scottish equivilant of IVAs)
Compass Finance Group PLC to rename to the Debt Advisor Group. Recently entered IVA market through an acquisition earlier this year.