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NACFB: Untangling the web
Untangling the web
Explaining commission disclosure rules on your website
Nina Morgan Compliance Officer NACFB
Rob Levitt Compliance Officer NACFB
When carrying out Minimum Standards Reviews (MSRs) with Members over recent months, we have seen a developing trend which we are keen to nip in the bud. It relates to disclosure information, and how and where it is displayed on Members’ websites. From our perspective we are seeing a lack of sufficient information, so this article serves as a gentle reminder of what you need to consider. Whilst we are predominantly discussing website content, do bear in mind it could also relate to brochures and other types of literature including direct mail.
Disclosure information is covered by the FCA’s rules and regulations regarding financial promotions, and it is an extremely important part of treating customers fairly, with openness and transparency. Adhering to these rules will ensure that your clients are given information that is clear, fair, and not misleading.
Remember, the FCA has the power to remove any financial promotion that does not comply with the rules and guidance. Aside from the obvious reputational damage that can result from having your financial promotion removed, your firm could be fined. Disclosing commissions serves to highlight to potential and existing clients the nature of your firm’s relationship with lenders including any commissions or fees you may receive from them.
In general, the FCA’s rules on this topic are high-level asking firms to make clear the existence and nature of commission arrangements with lenders where these might affect the client’s decision-making when thinking about which lender to use. The disclosure must cover how the arrangements could affect the price payable by the customer. Brokers must also ensure that the disclosure is prominently disclosed and not hidden away on a part of the website that is rarely visited.
For example, for some brokers, the following statement may be suitable: “[Firm name] is a broker not a lender. We are independent and have whole of market access. We may receive commissions that will
vary depending on the lender, product, or other permissible factors. The nature of any commission model will be confirmed to you before you proceed.”
Clearly when using this type of statement, you also need to remember your commitment to provide confirmation of the nature of commission arrangements before the client proceeds with your recommendations. This is typically provided within the suitability letter. Interestingly, the rules do not require brokers to disclose the actual amount of commission due from the lender, but the NACFB recommends that full disclosure in this regard is best practice. We consider it will only be a matter of time before the rules are amended to reflect this requirement.
Brokers must also disclose their status on their website (and other documentation), i.e., inform the client of any governing regulators including registration details. This is required by the FCA, the Information Commissioner’s Office (ICO) and Companies House, and should reflect your legal status (limited company, sole trader etc.), trading style, registered address (or trading address if not incorporated) and FCA permissions (directly authorised or appointed representative).
Lastly, brokers should have in place systems and controls to manage effectively the risks posed by providing misleading information to customers. This could be as simple as having a process in place whereby your disclosures are checked and approved before being published – and reviewed regularly.
NACFB Members have access to a variety of template documents which set out processes relating to disclosures and suggest appropriate wording. Log in to your account via nacfb.org for more details or get in touch with the compliance desk if you would like further clarification.
