The Mortgage Event 2003 took in seven venues across the country, and was attended by more than 2,000 intermediaries, making it one of the best-attended roadshows of its kind. With regulation by the Financial Services Authority (FSA) now less than a year away, intermediaries are understandably keen to finalise their plans on how they intend to comply with the forthcoming regime. It was no surprise then that, of all the discussion points, most interest was paid to regulation. Mortgage Solutions has taken the main questions and put them to the statutory regulator to help advisers make the necessary decisions that will affect how they conduct business.
Why has the product confirmation letter been omitted from the requirements?
Under the new mortgage regime consumers will receive clear, comparable information about both the mortgage itself and the service they are receiving. This will tell them everything they need to know to make an informed decision – the FSA does not consider that a “suitability letter” would add anything to the information they are already receiving. It is also concerned not to overload consumers with paper. However, to ensure there is an appropriate audit trail, in the event of a complaint arising and for the FSA”s own supervision purposes, firms will be required to keep a record of the reasons for their recommendation for three years, or longer if they choose.
Why is the cost going to be so much higher under the FSA than the MCCB?
The FSA”s role as a statutory regulator is substantially wider than that of the sectoral bodies such as the Mortgage Code Compliance Board (MCCB) or the General Insurance Standards Council. This obviously has implications for the level of fees charged to firms. However, the FSA is required by Parliament to be efficient, economic and proportionate when it makes rules. So it has done everything it can to keep costs down and is offering substantial discounts to firms that apply early and electronically. For example, small mortgage intermediaries that get their applications in by 31 March 2004 and apply electronically will pay £500.
I understand that if a case is referred to the Financial Ombudsman Service (FOS) and it rules in favour of the broker, the broker has to pay a fee? Is this correct? Is there be any way this could change in the future or are the final rules now set in stone?
Currently where FOS decides to look into a case, it then becomes chargeable regardless of the outcome. The FSA and FOS will be consulting on fees for handling complaints towards the end of the year.
Will the mortgage market have a separate identity for regulation purposes under the new regime? For example, if an IFA also does mortgages could the firm get two visits from the FSA, one for mortgages and one for IFA activity?
Visits are just one of the FSA”s supervisory tools. The FSA is aiming to develop a single, integrated picture of a firm”s business using the data that it will be collecting on a regular basis. It is currently consulting on these requirements in CP197. The aim is to use this information to spot trends and identify potential problems early on. Once it has analysed the data, the FSA will consider what action needs to be taken.
I am an IFA in a network. I have a separate mortgage broking firm, which is registered at MCCB and has own PI cover. I intend to merge the two businesses from October 2004. If I decide to become directly regulated by FSA, would it be cheaper to apply now and then add mortgage business next year, or wait and apply for regulation as a whole?
It is difficult to give a generic answer to this question because each firm”s individual circumstances will differ. However, here are some points to consider.
If a firm applied to be authorised as an IFA now and then added in mortgage business later then:
a) The firm would pay an authorisation fee for A.12/A.13 (IFA feeblocks), and then have to pay a variation of permission fee for A.18 (mortgage advisers and arrangers).
b) They would be liable for pro-rata periodic fees for the A.12/13 business from when they became authorised, and then the A.18 business from when they became authorised for that;
If a firm applied, say next year, to be authorised as an IFA and a mortgage adviser (as one entity):
a) The firm would pay one application fee (the highest one that would apply for either the A.12/13 or A.18 business), but no “second” fee.
b) As b) above.
Generally, the second option might be cheaper because the firm would not have to pay the variation of permission fee. However, the firm would have to be careful of timings to be sure of getting all the necessary permissions before mortgage regulation starts on 31 December. Also it should note that these fees are charged “per legal entity”, so if as a firm it is going to have separate companies running after N(M) two sets of application and periodic fees will be payable.