Posts Tagged ‘FSA’

FSA fines Bank of Scotland £4.2m over inaccurate mortgage records

October 25th, 2012

Today, the FSA has announced that it has fined Bank of Scotland (BOS) £4.2 million for failures in its systems which meant it held inaccurate mortgage records for 250,000 of its customers.

This was the result of mortgage information being held on two separate unaligned systems, and problems with two further processes where manual updates were not always carried out. The effect was that BOS relied on incorrect records for considerable periods of time between 2004 and 2011.

The issue first came to light when BOS put in place a programme to rectify the fact that some Halifax customers had received potentially confusing information about changes to their mortgage contracts, specifically relating to the standard variable rate. While monitoring a consumer forum website, the FSA found a number of customers complaining that they had been wrongly excluded from the programme and had not received goodwill payments.

As well as excluding this group, the problem was compounded when BOS incorrectly contacted 33,700 customers who should never have been included in the programme, and mistakenly made goodwill payments totalling £20.4 million to 22,700 of them.

Tracey McDermott, FSA Director of Enforcement and Financial Crime, said: “These mistakes stemmed from the fact that Bank of Scotland had an inadequate mortgage records system meaning they could not identify which of those 250,000 customers were subject to a cap on their standard variable rate.

“This breach is particularly serious because the inaccuracies built up over a period of seven years. There was no structure in place to identify errors as they occurred and no checking procedures thereafter.

“In a complicated organisation where several legacy systems exist, firms have to make sure they are synchronised, otherwise it is their customers who suffer.”

BOS was found to have breached Principle Three of the FSA’s Principles for Business, which requires a firm to organise and control its affairs responsibly and effectively, with adequate risk management systems. BOS agreed to settle with the FSA at an early stage of the investigation. Without this early settlement and the firm’s co-operation, the fine would have been £6 million.

Source- Bridging and Commercial

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Bridging not an alternative to SRB schemes

September 4th, 2012

Mortgage brokers have been warned that bridging finance is not an alternative to sale and rent back (SRB) schemes after the FSA became “…aware of firms that have been marketing/promoting bridging finance as an alternative to SRB”.

After taking a thematic review of the SRB market, the FSA concluded that the majority of SRB sales were inappropriate or unaffordable, often leading to a detrimental outcome for “vulnerable consumers”.

Consequently, the FSA has temporarily closed the regulated SRB market; however, it has warned that “…some firms are looking at other ways to generate SRB opportunities”.

SRB is usually aimed at those who are in financial difficulty with the regulator’s findings suggesting that vulnerable customers are being encouraged to “…refinance their way out of difficulty” with a bridging facility and as a result, there is a “…very high risk consumers could end up in an even worse financial position”.

B&C heard from Jonathan Newman, Principal Partner at Brightstone Law and Chairman of the Association of Bridging Professionals (AOBP), who “does not believe this practice is widespread”.

He explained: “There were companies operating in this way some years ago. The focus then was to use bridging for credit repair, before taking borrowers into cheaper longer term finance. That was expensive for the borrower and was not always successful.”

The tightening of underwriting practices in the High Street, increased regulation and publicity has, in Jonathan’s opinion, had the welcome effect of putting an end to such practices.

Jonathan added: “The single most important underwriting responsibility of the lender is to identify and verify a viable exit route at the end of term. The exit may ultimately be a sale of the property or its refinance, but there has to be a clear understanding on the borrowers part, that an appreciable benefit is achieved by borrowing short term to bridge until the exit happens, factoring into that understanding, the cost that comes with the bridging facility .”

Jonathan clarifies that bridging finance is not a natural alternative to SRB schemes and should not be promoted as such, although, on occasions, “…it may provide a borrower with much needed additional time to develop a property to maximise its value before sale or provide extended time to market a property to its best potential”.

When asked whether bridging should ever be used as a method to get one’s finances back on track, he added: “Bridging can be expensive on rate and fees and there are few circumstances where a borrower already struggling with finance will improve his position by incurring further cost, but there may be certain scenarios where bridging can resolve a short term problem to a borrowers advantage, so every case needs to be assessed on merits.”

Alan Cleary, Managing Director at Precise Mortgages, similarly suggested that bridging for credit repair is not appropriate. He said: “There is no way that anyone in the bridging market should be offering SRB schemes to customers – it is these firms that are attracting the FSA to the bridging market. Bridging should not be used to for repairing credit; however, I don’t see this issue as one that is widespread.”

The FSA has stated that it will take action against any firms found to be active in this area. It has now published finalised guidance on its review and findings.

 

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Mortgage broker walks free after landmark FSA ban & fine

July 19th, 2012

The first ever mortgage broker to be banned and fined by the FSA for mortgage fraud has walked free from court, the release resulting from her depression.

Sadia Nasir attempted to steal more than £100,000 by submitting false loan applications to Halifax bank. Nasir entered her own bank account details on the forms relating to two properties in London and Manchester and also used a fake name for the homeowner supposedly applying for the mortgage, reported London24.

The court heard that further investigation revealed that Nasir, the Director of Sucasa London Ltd, stood to gain £44,000 on one address at 79 Pittman Gardens, Ilford, East London, and £58,907 on the second at 132A Tempus Building, Manchester.

Despite the jury finding Nasir, 30, had committed the scam, following a two-day hearing at the Old Bailey, it was prevented from finding her criminally responsible after she was earlier ruled unfit to plead.

In July 2008, the FSA banned Nasir and fined her £129,000 after finding she had been involved in the numerous fraudulent mortgage applications highlighted above. This was the first time the FSA had both banned and fined a mortgage broker for mortgage fraud.

Nasir was FSA approved and director of a firm called London Mortgage and Financial Services Limited, which traded as House of Finance. It was then named Sucassa.

The FSA had found that Nasir:

* Submitted seven mortgage applications containing false information about her own employment and earnings supported by falsified documents;
* In four instances entered her own bank details on mortgage applications for clients;
* Deliberately withheld sections of an application form from FSA investigators, failed to disclose to the FSA information relating to a County Court Judgment made against her in September 2005 and failed to disclose the true extent of her assets in an authorisation application to the FSA.

Margaret Cole, former Director of Enforcement and Financial Crime at the time and last Managing Director at the FSA, said: “Ms Nasir’s actions were particularly serious and blatant, and she poses an immediate risk to lenders.”

Nasir also was the subject of another record when in July 2009, the FSA secured a bankruptcy order in the High Court against her for non-payment of the £129,000 financial penalty levied on her by the FSA a year previously for mortgage fraud. This was the first time the FSA had taken bankruptcy proceedings for an unpaid financial penalty levied on an Approved Person.

This month, Judge John Bevan QC told jurors detaining Nasir in hospital was “not appropriate because she is being cared for in the community for a long-term, deep depression.”

He added: “The only sentence I can sensibly pass is one of an absolute discharge.

“It is certainly an unusual trial, but it is not a waste of time because there are cases in which there is a genuine issue in which a person who didn’t do it could find themselves in a mental hospital when they haven’t done anything wrong.”

Catherine Farrelly, prosecuting, said she denied playing any part in either of the applications and had no idea where these false documents had come from.

Nasir explained that even if it was a member of her staff, all of the transactions had to be carried out in her name as she was the director of the company and money goes into her personal bank account.

Farrelly stated: “She said at the time in 2007 she had been heavily pregnant and was not in a position to know what was going on.”

Nasir refused to name any of her staff but did accept that two of the addresses used in support of one mortgage application were her home and her mother’s home.

“In essence the prosecution say it was Sadia Nasir who was behind these two frauds,” said Farrelly.

She added: “She was the person who stood to gain and it was very much in her interest for these frauds to be effected.

“It is quite clear it was this defendant who was behind both of these fraudulent applications.”

Nasir, of Gardiner Road, Plaistow, was charged with two counts of fraud by false representation between March 1 and March 7, 2007.

The jury had ruled that she “did the act” on each count.

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Mortgage adviser’s 69 lies about FSA permissions

July 5th, 2012

A mortgage adviser’s FSA permissions have been removed after the regulator found that he continued to advise clients even though he was not permitted to do so. He also reportedly lied to clients about having professional indemnity (PI) insurance.

According to financial publication Citywire, a total of 69 mortgage transactions were completed by mortgage adviser Christopher Riches, who worked for Fairway Mortgages based in Essex, after he had his permissions amended in January 2012 to exclude his ability to carry out regulated transactions.

In addition to this, the FSA reportedly found that Mr Riches had submitted false documents and misleading information which stated he had PI insurance – including three Regulated Mediation Activities Returns – when he did not.

The FSA supervisory notice said: “Mr Riches has conducted regulated activities despite not having the permission to do so over a prolonged period of time, and therefore has failed to conduct his business with honesty and integrity, or in compliance with proper standards and he therefore no longer satisfies the FSA that he is a fit and proper person to conduct regulated activities.”

It continued: “Mr Riches has repeatedly provided false and misleading information to the FSA, and as such Mr Riches presents a significant risk to consumers.”

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SMEs get financial crime warning

August 31st, 2011

The FSA recently compiled and published a Consultation Paper that contains financial crime guidance for small firms, highlighting ways in which small firms need to protect themselves from becoming embroiled in data theft cases, fraudulent loans or corruption.

The guide is based upon all the research the FSA have carried out regarding system controls and good and poor practises within regulated financial services firms, including its 2010 ‘The Small Firms and Financial Crime Review’ – aimed at establishing the extent to which small firms across the industry addressed financial crime risks in their businesses.

The FSA, which supervises around 16,500 small firms, visited 159 of these across wholesale and retail sectors for the review. It covered three main areas – anti-money laundering/financial sanctions, data security and fraud controls – its new guidance highlights the weaknesses it found and gives guidance on improvement.

These include, among many other, simple failings such as no background checks before appointing staff, no checking of qualifications and references for staff and not knowing how to report to the Serious Organised Crime Association(SOCA).

In the first half of the year cases of identity fraud rose by 11 per cent and experts warned stealing someone’s personal and financial details was like ‘a licence to print money’.

Ray Cohen, managing director of Jackson Cohen, agrees: “Firms are being much more careful now than they were before – but that doesn’t mean attempted fraud isn’t up.

“It’s hard to measure but there is still a level of attempted fraud that comes consistently.”

Jonathan Newman, senior partner of Brighstone Law LLP, believes these types of crimes are definitely on the up, he says: “There is a significant rise in financial fraud. Downturn in the economy is one reason, but there are others. The computerisation of Land Registry records, the increase in distance transactions, the rise in non-owner-occupied properties have contributed to increased opportunity for the property-savvy fraudsters.”

Ray Cohen stresses that it may be difficult for small firms to keep up with high quality system controls as they don’t have a big fraud department, however the necessity is definitely there.

“Big issues are data protection – homeless people get paid ten pounds for any piece of data they can find in a rubbish bin or city dumpster – this is big business – ID fraud is one of the biggest growing crimes around and it doesn’t just apply to the mortgage industry, it applies across everything.”

Gavin Diamond, head of finance at Cheval, agrees these practises should be standard: “These guidelines are really just good business practises that should be adopted by all companies, whether they are FSA regulated or not.

“Each of our members of staff has a guide to our anti-money laundering prevention procedures and we run annual refresher seminars for all staff members.”

Recently there have been several high profile cases where the FSA, finding negligence, have fined companies.

They fined Willis Limited £6.895 million in July for failings in its anti-bribery and corruption systems and controls. In January it fined the Royal Bank of Scotland (RBS) and National Westminster Bank (NatWest) £2.8m for multiple failings in the way they handled customers’ complaints.

An FSA spokesperson said: “There is no cap on the amount we can fine a company or no minimum, although we do take the size of the firm into account and we look to fine proportionately to the size of the business.”

Even if firms aren’t regulated by the FSA they are still accountable to other bodies, such as the police, and the Information Commissioner’s Office (ICO).

A spokesperson for the ICO, which works alongside the FSA, outlined what they do: “The ICO has an important role in regulating the seventh data principle – security.

“The ICO has dealt with a number of companies in cases where data has been disclosed recklessly, leading to monetary penalty notices. In November 2010 a monetary penalty of £60,000 was issued to employment services companyA4e Limited for the loss of an unencrypted laptop which contained personal information relating to 24,000 people who had used community legal advice centres in Hull and Leicester.”

It is imperative, especially in times of financial unrest like these, to keep highlighting the fundamental need for a high standard of security and systems in place to protect small firms – and indeed their valuable reputations – from fines and embarrassment, not to mention legal implications, of being embroiled in very prevalent issues such as ID fraud and general financial crime.

For more advice visit the FSA’s website for the guidance in full.

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FSA deems broker to be ‘not fit and proper’

August 31st, 2011

The Financial Services Authority has given a final notice to mortgage broker Total Independent Mortgages Limited for failing to comply with regulatory requirements.

The FSA cancelled the Cheshire based company’s ‘Part IV’ permission to carry on regulated activities after they failed to submit their Retail Mediation Activities Return (RMAR) for the period ending 31 December 2010.

Furthermore, the FSA stated: “You have not been open and co-operative in all your dealings with the FSA, in that you have failed to respond to the FSA’s repeated requests for you to submit the RMAR, and have thereby failed to comply with Principle 11 of the FSA’s Principles for Businesses and to satisfy the FSA that you are ready, willing and organised to comply with the requirements and standards under the regulatory system.”

The company received a Warning Notice on June 7 and a Decision Notice on July 19 detailing the permission cancellation.

After the Regulatory Decisions Committee made the decision, the FSA told Total Independent Mortgages Ltd: “you are not conducting your business soundly and prudently and in compliance with proper standards, that you are not a fit and proper person, and that you are therefore failing to satisfy the Threshold Conditions in relation to the regulated activities for which you have had part IV permission.”

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Broker vs FSA: The £1.7m battle continues

May 27th, 2011

A broker trying to sue the FSA for libel for up to £1.7 million has requested that their latest defence be rejected.

Adam Lucas, the former owner of People Loans, is suing the FSA for loss of revenue and damage to his businesses reputation.

The broker, who had his regulatory permissions cancelled, has challenged the FSA’s decision due to errors on their part related to the treatment of the case.

Mr Lucas, who claimed in February the FSA libelled him by publishing a defamatory decision notice, has had his ability to conduct regulated business frozen.

Mr Lucas failed to pay £1,349.41 in fees and levies which he owed to the FSA which resulted in the decision to cancel his permission to carry out regulated activities. According to the notice these payments were missed “despite repeated requests”.

After the authority publicised the decision on their website, Mr Lucas claims that this was unjust and there were errors in the handling of the case.

Mr Lucas believes that a case for such a substantial sum should have been held in front of a high court judge.

He also claims the date his permissions were cancelled was May 8 2010, which did not match up with the details published in a press release dated March 9 2010.

He is calling for the FSA’s defence to be rejected because the hearing was held in master’s chambers and not in front of a judge.

Mr Lucas does not believe that he was treated according to the specified guidelines; as well as appearing on the regulator’s website in a press notice, his case was widely reported in financial publications.

The FSA claims it removed the notice dated  March 8 from their website and did not issue a press release regarding the case.

The case continues.

Masthaven – FSA regulated bridging loans

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Homeowners alerted to dubious ‘Crossroads’ plan

April 19th, 2011

Homeowners have been alerted to the potential repossession risks associated with handing over their property rights to unregulated insurance firms.

A report published by the FSA highlights the operations of one particular company called Asset Income Plan Ltd and their product, ‘Crossroads’.

Asset Income Plan Ltd supposedly pays homeowners an annual income of five per cent based on 50 per cent of the value of their property. But, this is on the condition that the company take a legal charge of the property.

The FSA is concerned that consumers may be persuaded to permit insurance companies to take a legal charge of their homes whilst not fully understanding the implications.

In the case of Crossroads, the legal charge taken against the property is set usually for three to ten years. During this time the homeowner may be at risk of having their property repossessed by the firm.

Despite the company claiming this to be an unlikely scenario and only possible if the firm itself were to become insolvent, and if the capital risk insurance did not cover this, the FSA has yet to confirm whether this is true.

A spokesperson for the FSA said: “The product information explains that Crossroads is not regulated under our rules. This might mean that its advisers and providers do not need to be authorised by us, although there is not enough information currently to confirm that.

“But, if it is correct, you will not be covered under the Financial Services Compensation Scheme or be able to take any complaint to the Financial Ombudsman Service.”

The FSA is continuing its enquiries.

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Law powerless over boom-time property scams

April 4th, 2011

By Katie-Jill Rowland

Over the last two weeks, the details of numerous scam property investment companies have emerged.

The firms in question were involved in dubious fractional investment schemes, as well as land banking schemes, where investors were conned into thinking that their ‘green belt’ plots had a good chance of being granted planning permission.

The FSA has the authority to regulate some of these firms, but it seems that many act in areas beyond its jurisdiction.

Last week 25 victims – who collectively lost in excess of £288,000 to a group of five linked property investment companies – saw the Insolvency Service force their perpetrators into liquidation.

Property Legal Services (London) Limited, Property Legal Services (2007) Limited, Overseas Legal Services Ltd, Enjoy Property Ltd and United Holdings & Investment Limited were all ordered into liquidation in the High Court following a Government investigation.

Yet for the victims of many other scam property schemes, justice may not so easy to find.

A number of B&C readers, who do not wish to be name, are only now beginning to suspect that they may have been conned by the land investment companies which they have worked with for over six years.

One such company, Sustainable Land plc (SL), has not faced penalties or been forced into liquidation, however investors are questioning its legitimacy.

One couple, who we shall refer to as Mr and Mrs Smith, were approached by SL in 2004.

Mr Smith was working as an IFA at the time, and was keen to expand his area of work into the property sector.

SL organised a meeting with the Smiths, along with other investors, where they explained the potential profits which investors and IFAs could realise through the land investments.

Mr Smith was impressed with the firm’s initial proposition and was keen to become an agent, having been told that he could make significant commissions through each client introduced. Furthermore, he was confident that he could offer his clients a sound investment, as SL told him that they would apply for planning permission immediately which would undoubtedly increase the plots’ values.

Mrs Smith said: “Everything seemed perfect and we were ready to become agents, but SL said that in order to do so we needed to buy a plot of land for ourselves.”

This ‘clause’ worried the Smiths, as Mrs Smith was aware that she was just about to lose her job.

She explained her position to SL who reassured her, saying that the commission raised from the introductions which they would make would easily cover the monthly repayments for their own plot.

The couple were persuaded, and soon signed the contract before introducing the investment opportunity to a number of clients, who became successful investors for SL.

Having been told that the commission for the introductions would be ‘on drip’, and that the company would use a portion of the commission to pay for their own plot, the couple went on with their daily lives.

A few years later, SL contacted the Smiths to say that they owed over £30,000 for their

own plot. According to the firm, small print in the contract stipulated that the Smiths were obliged to introduce £100,000 worth of business within one year in order to meet the terms.

Since they had not done so, they could not be agents and would have to pay for their land.

Shocked and upset, Mrs Smith explained that she could not pay this lump sum.

“When I queried the amount,” said Mrs Smith, “SL offered to buy back my land for £1500. This was a ridiculous offer considering the fact that we had put down a £5000 deposit for the plot and covered numerous subsequent installments.”

The Smiths hired solicitors to assist them. They have now been offered a more reasonable buy-back price from SL and despite the fact that they have clearly made a loss on their investments and had to pay legal fees, they are happy to be free from the company.

After hearing this tale, we were curious as to whether SL’s actions were illegal or non-compliant and if so, who could stop them conning others.

Sadly though, the FSA’s powers limit its ability to stop many land scam companies.

A spokesperson from the FSA said: “The FSA does not have the power to intervene in the sale and acquisition of land unless it crosses into unauthorised business i.e. a collective investment scheme where the seller promises to manage the land and apply for planning permission on behalf of the plot owners.”

“Many land banks are careful not to describe their operation as a collective investment scheme in their promotional material, so we cannot prove they are running these schemes without the help of investors.

“That is why we ask anybody who has dealt with a land bank to contact us. The information we get can help us protect hundreds, if not thousands, of potential investors.”

The Company Investigations Supervisor of the Insolvency Service, Chris Mayhew, explained that the Insolvency Service had “strong enforcement powers” over complicated and unscrupulous property schemes.

However, in order for action to be taken by any such body, the victims must come forward and report their experiences.

SL have not yet responded to our queries over their business practices, and therefore we remain unsure whether this company and indeed many others like it, are breaking the law through their ‘dubious’ schemes.

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New Head of CPMA set to change the face of regulation

February 8th, 2011

The Government has announced that Martin Wheatley will become chief executive designate of the Consumer Protection and Market Authority (CPMA). His formal appointed will be made at the end of 2012 when the new body has been established.

The Financial Services Authority (FSA) also announced that Mr Wheatley would become the new managing director of the FSA’s consumer and markets business unit from 1st September 2011. He will work with the current FSA executive team as the FSA prepares its transition to the new regulatory structure.

Ray Cohen, compliance expert and MD of Jackson Cohen,  explained: “All brokers will be regulated by the CPMA after the transition. Only time will tell how things will change as Mr Wheatley will be setting the tone of the body over the coming months.”

Changes in regulation are part of the wider reform of the financial regulatory system set out by George Osborne, Chancellor of the Exchequer, in his Mansion House speech last summer. Further details on the proposed changes to the structure are due to be set out following a consultation at the end of the month, and by the end of 2012 all aspects of the new regulatory structure should be established.

Financial Secretary to the Treasury, Mark Hoban said:“I am very pleased that Mr Wheatley has agreed to join the FSA to help it transition to the new CPMA. He will help shape the new body to be an effective and focused conduct of business regulator, ensuring that consumers of financial services are protected and financial markets work effectively.

“This appointment is a key step in the establishment of the CPMA. Mr Wheatley is a widely respected regulator and extremely well-qualified to take on this vital role. His responsibilities in Hong Kong have included dealing with complex retail and wholesale market issues in one of the world’s leading international financial centres. He also has a strong track record in protecting consumers, for example dealing with the investment product mis-selling which has emerged in Hong Kong in the wake of the collapse of Lehman Brothers in late 2008.”

Martin Wheatley is also pleased with his new role. He said: “I am delighted to join the FSA and the future CPMA and look forward to working with the Bank of England and the Treasury to create the new regulatory structure.”

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