Mortgage intermediaries face more financial burden as the Financial Services Authority (FSA) admitted the cost of compliance for firms transacting business under its regulation has risen significantly. The findings were published in a commissioned report by consultant Europe Economics, Costs of Compliance.
Only 4.7% of firms the consultants contacted had seen no increased cost in compliance with FSA regulation. Half estimated that regulation added up to 2% to operating costs, a third estimated costs at 2% to 10%, while 11% thought it added 11% to 20% to operating costs.
The main worry for the soon-to-be-regulated mortgage market is that larger firms reported smaller proportional cost and firms engaged in retail sales and advice reported higher incremental costs than other categories. The biggest costs were for training and capital adequacy.
Stuart Wilson, mortgage development director at Inter Alliance Mortgage Club, said: ‘We are second guessing final FSA costs, but this report will add to a pragmatic view for brokers of whether to be directly regulated or not. If brokers are regulated, there will always be compliance costs involved, eventually to be passed on to customers.’
Howard Davies, chairman of the FSA, said: ‘We accept that compliance costs have risen in the last few years – however, the survey finds that, in spite of that increase, compliance costs as a proportion of firms’ operating costs are significantly lower than indicated in earlier industry surveys.’
Davies added: ‘The Europe Economics report shows that some of the identified increase relates to one-off work involved in moving to the new regulatory system at a time when there was naturally some unfamiliarity with it on both sides ‘ and we expect these costs to drop away over time.’
The FSA now plans to discuss the report’s conclusions with compliance officers in firms and intends to improve the advice and guidance it gives.