You are here: Home - News -

Capital adequacy requirement threat to smaller businesses

by:
  • 12/09/2002
  • 0
The added burden for mortgage brokers of needing to show a level of capital adequacy to back up thei...

The added burden for mortgage brokers of needing to show a level of capital adequacy to back up their mortgage business, after 2004, could force many small mortgage brokers out of the market, according to national mortgage broker Homebank.

The capital adequacy requirement in the IFA market is set at £10,000 to £15,000 for a small trader, but that can include equity in the IFA’s main residence.

George Dodds, managing director of Homebank, said: ‘Trying to show capital adequacy will do more to cull the number of brokers than the requirement to pass the CeMap exams. If the level is set too high, then brokers will either have to join an umbrella network to remain independent, or join a larger brokerage. Perhaps this is what the FSA wants. If it makes the compliance burden too heavy and herds smaller brokers out of business or into larger organisations, it reduces the cost of supervision.’

Rob Clifford, managing director of franchise Mortgageforce, agreed that the FSA would find it easier to regulate the market if there were more aggregation. But said the regulator did not ignore capital adequacy requirements and the networks, clubs and agencies will still need to show capital in proportion to their membership.

‘There are a lot of aggregators out there that appear to have no substantial backing. The question is which of the broker groupings will survive. Do they all have free capital to show they are appropriately capitalised to look after their members?’

He continued: ‘I would not be so quick to say that capital adequacy rules will cause small firms to join other organisations, although there are lots of reasons to suggest that smaller brokers will want the help of experienced aggregators.’

A spokesperson for the FSA said: ‘These matters will be dealt with in the consultation paper for conditions for authorisations, due in December. We cannot say what is in it but it is likely that a variation of the current regime as it applies to IFAs will be implemented.’


Tags

There are 0 Comment(s)

You may also be interested in

Business Skills

In this section, we offer short ‘how to’ guides on harder to crack areas of business. From social media, to regulation or niche product areas, we cover it all.

Profiles

Our journalists interview key industry entrepreneurs, strategists and commentators for day-to-day market insight and a strategic view of where the industry is heading. We offer lessons for success and explore the opportunities for your business

Success in Practice

Here, we share case studies fleshing out best practice to help you decide what could work for your business. Take a look at how others approached complex tasks like launching a new mortgage lender, advising on a new product area or deciding to specialise in another. Learn from others mistakes and triumphs.

Marketwatch

Each week, we ask top mortgage and property commentators with a unique perspective to examine a key news headline, market move or regulatory or political issue.

Poll

Vote in our weekly poll here. It’s your chance to tell us what you think and be heard on the top news stories of the week. Review our archive to find out what your industry really thinks and all our coverage of the results.

Top Comments

Be part of the conversation on Mortgage Solutions. We want to hear from you. We have a tool called Disqus to tell us which stories get the most comments each week. Every Friday, the team picks the most thoughtful or opinionated contributions from our readers to enjoy again. Don’t forget to share your favourite stories from the site on social media to keep the conversation going.
Read previous post:
Mortgage Event 2002 gaining momentum

Over 1,500 brokers have now pre-registered for Mortgage Event 2002, the largest mortgage event of th...

Close