UK mortgage brokers are subject to the FCA’s strict regulatory requirements which aim to promote transparency. Therefore, it is important to understand the different types of audits that mortgage brokers in the UK are potentially subject to including internal audits, external audits, regulatory audits and lender audits.
Furthermore, we will also look at how technology, such as a mortgage CRM system, can help with these audits.
1. Internal Audits
Internal audits are done by a member of the subject mortgage broker firm to find out if the firm is complying with the required policies, procedures and regulations. These audits are usually done by an internal compliance officer or an internal audit department.
Key Features of Internal Audits
- Self-assessment ─ Internal audits enable the brokers to act on certain problems before they are raised by an external party.
- Frequency ─ These audits are usually done at certain intervals, for instance, every month, every quarter or every year, depending on the size of the brokerage firm.
- Scope ─ Internal audits are usually made on all the aspects of the mortgage process which includes client onboarding, affordability checking, documentation and FCA regulation.
- Corrective actions ─ If a problem is flagged, the mortgage broker firm can take steps to remedy the situation right away.
How a Mortgage CRM System Helps
CRM systems can improve the efficiency of internal audits because all client and case file data is centralized, some compliance checks can be done automatically, and audit trails are generated.
2. External Audits
External audits are done by third-party firms specializing in compliance and auditing. These audits offer an independent view of the mortgage brokerage’s processes and activities and may be done to confirm the findings of the internal audits or to assess cases for one-man-bands.
Key Features of External Audits
- Independence ─ External auditors give an unbiased opinion of the mortgage broker firm’s processes and cases to make sure that everything is done right in case of a complaint or a future regulatory/lender audit.
- Comprehensive review ─ External audits may involve a detailed review of case files and processes against FCA regulations and industry standards.
- Reporting ─ The external auditors compile clear and detailed reports on the findings including any risks and suggestions for improvement.
- Regulatory confidence ─ Frequent external audits show to the regulatory bodies that the mortgage broker firm is serious about meeting the required levels of compliance and transparency.
How a Mortgage CRM System Helps
CRM systems can help by giving auditors a secure and comprehensive way to access and review case files and documentation. Some platforms can also generate reports that the auditor can use to assess the firm’s overall performance and compliance.
3. Regulatory Audits
Regulatory audits are done by the Financial Conduct Authority (FCA) or other regulatory organizations to check that mortgage brokers are complying with the regulations. Such audits are usually unexpected and may be prompted by complaints, suspicious transactions, or just conducted as a routine inspection.
Key Features of Regulatory Audits
- Focus is on compliance ─ Regulatory audits aim to ensure that rules such as treating customers fairly (TCF), affordability assessments, and Consumer Duty guidelines are being followed.
- Consequences of non-compliance ─ If this is the case, it may lead to fines, revoking of the company’s license, or even prosecution.
- Documentation review ─ The auditor may request copies of case files, client records, and internal documents to check compliance procedures and how they are applied in real life.
- Interviews and inspections ─ Regulatory audits may include interviews of employees and/or physical inspections of the firm’s facilities.
How a Mortgage CRM System Helps
CRM systems can assist brokers in preparing for regulatory audits by having the right fields and tasks to complete and by making it easy to retrieve case information and documents. Also, records of past compliance checks and audit trails can be used to show that the brokerage has strong procedures in place to ensure compliance.
4. Lender Audits
These are performed by mortgage lenders to check on the cases that have been presented by the brokers. These audits are done with the aim of deterring and avoiding fraudulent applications.
Key Features of Lender Audits
- Case file review ─ Lenders review a sample of case files to check on the accuracy of information provided, the appropriateness of the mortgage product chosen and compliance with the lending policies.
- Performance metrics ─ Brokers may also be evaluated on certain aspects including application types and approval rates, errors, and turnaround times.
- Feedback and training ─ When problems are identified, lenders may offer feedback or require the brokers to undergo additional training or carry out corrective actions.
- Partnership impact ─ The result of a lender audit may affect the broker’s relationship with the lender, including the ability to offer certain products or be able to submit cases to the lender at all.
How a Mortgage CRM System Helps
CRM systems can improve the accuracy of the data presented to lenders by providing automated data entry, validation of the information and flags for potential problems. This reduces the chances of mistakes and thereby improve the chances of approval.
5. Peer Reviews
Mortgage brokers may review each other’s case files as part of the quality assurance process. This approach is mostly used in larger firms where several brokers work together.
Key Features of Peer Reviews
- Knowledge sharing ─ Peer reviews can help share information and identify the best approach in corner cases as well as highlight weak points. This is because one broker might have come across a scenario that the other one hasn’t.
- Constructive feedback ─ Brokers can offer advice to their colleagues and help them learn and potentially avoid pitfalls.
- Reduced bias ─ Although not as unbiased as external audits, peer reviews can still offer a different view of a particular case and the proposed advice and presentation.
How a Mortgage CRM System Helps
CRM systems can offer secure case information and document sharing. The system can also be used to make comments, highlight problems, and track the progress of the review.
Conclusion
There are various ways of auditing procedures and individual case files to prevent misconduct and help achieve the best consumer outcome as per the FCA’s intentions.
These systemic solutions and audits play an important role in the mortgage industry to establish best practices and consistent processes, as most case files are not actually reviewed, so random reviews encourage compliance across the board.
As trust and transparency are key in financial services, the use of technology such as CRM systems can be used to improve compliance and the auditing process, reduce the chances of errors, and thus demonstrate the company’s commitment to compliance and quality.
