Alex Broad: It has been estimated there will be a one-off cost of £36m and some £32m of annual costs as a result of the change in regulation, but the Mortgage Code Compliance Board (MCCB) in comparison runs on £5m. How is the industry preparing itself for these additional compliance costs and impending changes?
Charles Gooding: Not very well. It’s early days for NAMBA, but one area we are looking at is reaching the grass roots to find out how they feel and to be honest the average broker or adviser is not very sure what is happening.
Sue Scott: Certainly from our experience there are a lot of smaller firms that don’t realise something will change over the next two years.
Alex Broad: How will brokers cope with those costs?
Steve Sandiford: I think it is a different matter for brokers and I wouldn’t presume to speak for them, but I do hear, especially among the medium to smaller-size ones, genuine concerns.
Sally Laker: There is confusion that there is more to being compliant than just having a compliant system that provides a quotation ‘ that kind of complete picture is not there. Brokers are unsure and they are confused as to what they should do.
Rachel Williams: So what should the industry be doing?
Jon O’Brien: Lenders should take more interest than they have in the past with their intermediaries. However, lenders are doing certain things, for instance, from our perspective they are reducing the number of packagers they do business with, based on business volumes and that’s probably the start of a trend.
Steve Sandiford: I can’t speak for all lenders, but we do take a very keen interest in the people who provide us with business. I think it would be going a bit too far to expect lenders to hold the hands of the broker community through this. They have got to stand up and take responsibility ‘ and that also includes any financial cost. They have to recognise that this is for their own good as well.
Charles Gooding: The IFA who will be affected by this will have a better understanding than the broker, as it means nothing to them at the moment.
Sue Scott: The Mortgage Code is voluntary and they’ve signed up for it, but it’s a much lighter touch I would suspect than perhaps it will be under the Financial Services Authority (FSA).
Sally Laker: You can have a one-man band doing a huge number of mortgages and perhaps a large IFA not doing much. It is the complete cross-section which makes it difficult so I think that’s why lenders need to listen to all types of brokers and find out exactly where they are coming from. It is a partnership.
Stephen Atkins: If we are to believe what the Treasury said at the LIA conference, they will propose to the FSA a lower level of authorisation available to those brokers who want to take the lower level.
Alex Broad: But are they likely to think again and opt out ‘ or just re-focus?
Stephen Atkins: No they’ll opt in because they became mortgage brokers as they didn’t want to do FPC3. But if there’s an easier way for them to be authorised and regulated to sell the products they actually want to sell, they will grasp it and go down that route.
Jonathon Whiteley: So who should be helping them?
Jon O’Brien: We should all help them. Everyone who has an interface with a broker should have an understanding to be able to divulge that information.
Steve Sandiford: Is there not the danger, though, that they will be getting this from several different angles and that will become diluted and confused?
Mike Boles: There is only so much clarity you can glean at this stage. I’m sure people will wait until the final furlong.
Jon O’Brien: It will mirror what happened in the life market. You don’t want that. There will be all sorts of umbrella organisations. The decision might be on mortgages, that they pull out of it and become an introducer. We believe there will be a lot more introducers in the business.
Mike Boles: We’ve seen it already. We’re doing business with some of the biggest IFAs in the country because they don’t want to do it themselves.
Charles Gooding: The number of firms moving to introducer status has increased significantly over the last six months.
Sue Scott: Many firms don’t actually promote themselves as providing mortgage advice, but they are registered with us because they do occasionally do it. It has to be said we have had a number falling out over the last few years because they say they only do 10 mortgages a year ‘ they do not think it is worth continuing.
Alex Broad: Presumably the £5 fee in the Treasury’s consultation document won’t do much to dissuade them.
Mike Boles: The £5 fee is a joke. They’ve tried to unbundle the cost of advice. The £5 charge proves they find the value of our advice worthless. Consumer protection is awful, but there needs to be some sort of reasonable line drawn where the broker is able to stay in business and offer good advice for a fair price.
Alex Broad: To what extent do you expect regulation to improve consumer protection?
Sue Scott: Arguably we don’t know what the conduct of business rules are yet. Due to the definition of arranging, you might say it’s going further than we’ve got at the moment. Whether that’s justified in terms of the added customer protection that’s going to be provided remains to be seen.
Steve Sandiford: Consumers will be more protected simply by this being raised in the media and people being aware of what they need to be protected by ‘ that has to be a good thing.
Jon O’Brien: I do hope regulation doesn’t elongate the mortgage process. Regulation is good for the customer and is needed. I hope the costs that have been quoted are not exceeded in any way. There is a tendency when bodies are created that if someone else is paying the bill it tends to be open-ended.
Rachel WIlliams: Will the consumer have to pay for it?
Sue Scott: It would dramatically affect the cost of mortgages, but until you know what it is that lenders and intermediaries will have to do to meet the regulation you can’t work out how much more expensive that will be.
Alex Broad: Are you expecting a clear and unambiguous framework from the FSA?
Steve Sandiford: No, because I don’t think I’ve seen one in any field to date. These things are always open to some interpretation. I think what is important is that whatever ambiguity may arise, it is quickly resolved between the relevant bodies.
Sue Scott: One of the ways you stand a better chance of getting something that’s comprehensive and works is if people respond to the consultation processes. It’s too late when it’s finished.
Jon O’Brien: We all should be responsible for that.
Alex Broad: Does everyone think lenders are taking on that responsibility?
Stephen Atkins: I don’t know about that. Some lenders will see assisting brokers as a great opportunity to the point where they may be looking for multi-ties with these people in due course.
Jonathon Whiteley: As an industry are we happy these brokers continue to operate?
Sally Laker: There’s some underestimation here. Just because the brokers have not done anything yet doesn’t mean they’re not capable of doing something. I know a lot of brokers who already have compliance procedures in place. I think you will find a lot of them are waiting to find out what they need to do. I cannot believe they will walk away from a profitable business they’ve been doing for years because they are a one-man band.
Jonathon Whiteley: Will we see more umbrella networks springing up?
Jon O’Brien: There will be more specialists. I think the consumer will know to go to the specialist. I think that will happen. Customer awareness will be raised in that regard.
Alex Broad: So you’re expecting more umbrella organisations or specialises, rather than a downsizing come 2004?
Jon O’Brien: I think there will be a downsizing. People will make a commercial decision to come out of mortgages on a face-to face-basis but then go to some other arrangement, such as the umbrella but in a different guise.
Charles Gooding: I think you will see some brokers who specialise in mortgages perhaps joining mortgage clubs or affinity groups where they can share costs, services and resources. I can see over the next 12 months more organisations like that springing up. There are still some cowboys out there and I think one thing regulation will impact on is those ‘ and it should do. If we can get the cowboys out of the industry that in itself will cause downsizing and improve standards.
Stephen Atkins: The problem now is that we don’t know what the regulation of advice is going to mean. Everything we have said today could change.
Alex Broad: Do you think the regulation of packagers is a good idea, or would that depend on the type and range of services they offer?
Sue Scott: Packagers covers a multitude of activities. If they are doing the activities that fall within the activities to be regulated, then they should be regulated.
Steve Sandiford: Does the FSA understand enough about the packaging community? It seems to me they don’t and that we are in danger of confusing the different types of activities we’re talking about. My view is quite clear and if the packager is influencing in any way the decision making arrangement they should be regulated, but I am not sure the FSA has grasped that.
Alex Broad is editor-in-chief of Mortgage Solutions