Network members struggle with compliance - research

Network members in the mortgage and general insurance (GI) sectors are not ahead of their directly authorised counterparts when it comes to compliance, new research from MS2M shows.

Appointed representatives (ARs) in these areas are over reliant on the quality of the supervision and compliance being provided by their network, according to the survey.

The business support firm says it believes networks themselves also need to do more to improve their supervision models and how they conduct monitoring activity.

This includes doing more about business compliance, including assessing financial strength and periodic fit and proper tests.

“We expected participating firms who were appointed representatives of networks to perform reasonably well but surprisingly they didn’t perform any better than those who were directly authorised,” MS2M director Julie Alderson says.

For firms who are directly authorised but who engage the services of compliance support networks, again there is an over reliance on these firms.

The survey also revealed disappointing results for advisory firms which had appointed representatives of their own.

“This might indicate a possible failure on the part of the principal firms to sufficiently monitor the activities of their ARs,” MS2M says.

Another area of concern was firms’ compliance with treating customers fairly (TCF). The TCF message seems to be interpreted as an ‘add on’ requirement which has resulted in firms looking to comply at a basic level without looking at how TCF should be implemented throughout the firm.

According to the survey, around 67% of those respondents in the mortgage sector appeared to have met the Treating Customers Fairly (TCF) requirements and 73% in the GI sector.

Training and recruitment were also trouble spots with only 29% of intermediaries having a documented recruitment process.

“Firms take on advisers but are not putting training and competence and business continuity plans in place. There is often a lack of any kind of recruitment checks.

“We are not suggesting smaller firms have huge HR manuals but they could have half a dozen pages on what their recruitment strategy looks like," Alderson says.

"They can’t assume that because someone is coming from another directly authorised firm they will match their processes."

Commenting on the findings, Neil Walkling, head of compliance for the direct service side at network Sesame, says: “ Networks do add value if they work properly but some are minimalist in their approach. If they have lax controls the question is will they be around for long?

“The problem on the mortgage side is that some networks have evolved from packagers. On the TCF issue, I think some mortgage brokers don’t believe it applies to them.”