The Financial Services Authority (FSA) has fined Thinc Group Limited and two of its group companies 900,000 for not having adequate risk management and compliance systems for its sub prime mortgage business and for failing to take reasonable care to ensure that it had records to prove that advice it gave to customers in relation to the sale of sub prime mortgages was suitable.
The FSA found that between 1 January 2006 and 30 September 2007 the firm:
failed to obtain adequate financial information about some of its sub prime mortgage customers before giving advice; failed to demonstrate that those customers’ credit histories merited the sale of a sub prime mortgage; failed to demonstrate why the particular sub prime mortgage products that it recommended matched those customers’ needs and circumstances; failed to demonstrate that it had considered the affordability of the sub prime mortgage contracts that it recommended to those customers; and provided some of those customers with a ‘Record of Suitability’ letter that did not correspond to the product advised or taken.
“This case demonstrates the importance of firms being able to prove to themselves and to the FSA, through proper records, that they are treating their customers fairly by doing everything necessary to make sure that they get suitable advice. The level of fine shows that we are determined to impose higher fines for serious failings in the retail market and that poor record keeping is a serious failing even where, as in this case, the FSA has not determined that the firm mis-sold sub prime mortgages and there have been few complaints,” says Margaret Cole, director of Enforcement.
The firm’s failings were particularly serious because its conduct could have had an adverse effect on the customers concerned, many of whom were recorded as having adverse credit histories or were consolidating debts; and the failings continued after a thematic visit to the firm by the FSA in February 2007 because the remedial action implemented by the firm was ineffective and the firm’s sales practices and compliance regime did not improve.
Following discussions with the FSA the firm has agreed to implement a comprehensive remedial plan to include appointing an independent third party to review its sub prime business conducted during the relevant period to determine if there is any customer detriment; to restructure its mortgage advice sales processes for all mortgage business; to re-train and if necessary dismiss sub-standard mortgage advisers; to overhaul its compliance checking processes for all mortgage business; and to restructure its compliance department.
Thinc Group is a large IFA group. In the relevant period the firm acted as broker in the sale of regulated sub prime mortgage contracts totalling 775, which are the subject of this fine, representing total consumer borrowings of 76.9 million. These mortgage sales generated revenue for the firm of approximately 0.7 million. In addition, a total of 18,015 regulated mortgage contracts, representing total consumer borrowings of 2,706 million. These mortgage sales generated revenue for the Firm of almost 36 million during the relevant period.