What is the NACFB, and why was it set up?
It is a self-regulating voluntary association which was formed in the early 1990s. It operates a code of practice for its members and exists to encourage best practice. In the early 1990s there was hundreds of millions of pounds of advance fee fraud (where the broker takes a fee from the client, but does not provide a service). At that time, people desperately needed to source commercial finance and were prepared to pay up-front fees to get it. There were some problems and the professional brokers became sick of what was happening in the market, as their reputation was being damaged. Half a dozen of them got together and the NACFB started there. In 1994, a code of practice was registered with the Office of Fair Trading (OFT), and we are now looking for its approval of the code.
Why has it taken so long to get it approved?
It could be that we are having difficulties getting it approved because we are talking about a business to business code of conduct and the OFT does not have a mandate for that ‘ its mandate is a consumer code. But, because we do deal in certain areas of retail business such as cars, they are looking at it with us. And I would hope even if we cannot get it approved now, then in the fullness of time, the Government will realise it should approve all such codes of practice.
How large is the NACFB membership?
We have 450 registered individuals, that is to say people who have signed up to the code of practice. In terms of numbers it is not huge, but in terms of those who are full-time commercial finance brokers then around 95% of those people are members of the NACFB. But there are always people who will not join any organisation, particularly when it is a voluntary one. But I think we are at the point now where the question is always asked, ‘Are you a NACFB member?’ I think we have reached the point where a lender will ask this of a broker, and if they are not, then why not?
What do you require from the brokers who approach you?
It is not simple to get into the NACFB and we did that on purpose, because we want to ensure they can provide their client with good, suitable advice. They have to provide trade references from firms they have dealt with, lenders, packagers and so on. But also bank references, a CV, their data protection licence and consumer credit licenses. We then circulate their names among the members to see if they know of anything untoward. It is all done to protect consumers. Small businessmen need advice, and commercial finance is not as simple as a residential mortgage. We also insist upon professional indemnity (PI) insurance.
However, we have another category, subscribers, a kind of associate membership because we recognise there needs to be some way in which they can get recognition. If they do not transact huge amounts of business or all they do is buy to let, then they can stay there.
What can they expect in return?
We have a clear continuous personal development programme, and we have introduced a diploma in commercial finance with the Charted Institute of Bankers, which is a recognised qualification. We can also get good terms for PI; we have to do that because if we insist upon it then we have to put something in place that is affordable.
What punitive measures can NACFB take?
If brokers transgress and break the code of practice there are three sanctions. For a slight breach of the code ‘ for something that does not deserve extreme punishment ‘ there is a caution.
Then there are reprimands, and even expulsion ‘ which NACFB has used on five or six occasions. This is used sparingly because when brokers become members their history has already been checked. If people are expelled, then the market will find out about it and they will find it difficult or even impossible to trade, although we do try to be fair and have both an arbitration scheme and an appeals committee.
How big is the UK commercial mortgage market?
The commercial market has grown substantially in recent years. The NACFB has tried to analyse it on more than one occasion, but it is difficult to get the figures. It is estimated that the market itself is probably worth £100bn per year, excluding buy to let. We are talking about 5% of the market, which, if you look at the size of the NACFB, is a healthy chunk. And if you include the buy-to-let market as well it is much bigger.
Do you have the support of the commercial mortgage market?
Yes we do, and I think it is reflected in the number of patrons the NACFB has, such as banks, building societies and other lending institutions. We now have 53 patrons, including most of the big players, all the way down to the smaller lenders, which is why we offer the customer choice. The smaller players may not be known nationally, but they often have competitive rates. While we check out our members we also check out some of the smaller patrons to see if the integrity of their funding and lending terms are fair.
What are the issues concerning the NACFB?
CP146 did not really affect it as we made a conscious decision to have little to do with the residential mortgage side. Although the NACFB takes an interest in what is happening in the market and regulation in particular, it is concerned that buy to let does not become regulated and wants to keep commercial finance out of regulation. They are removing the limit on the Consumer Credit Act and the ramifications of that are extensive, because if it is implemented as it is today, we are talking about millions of pounds being subject to the Act. Regulated agreements, APRs being quoted on huge facilities and so on will cause brokers and lenders a headache in terms of compliance. Many lenders chose not to take business inside the Act and now know they are going to have to anyway. It will protect consumers, but it does not protect limited companies ‘ it only really protects sole traders and direct consumers.
Ben Marquand is editor