Early reaction to the Financial Services Authority’s (FSA) approach to regulating mortgage sales has concentrated on the grey areas, with little attention being given to the effect on intermediary business volumes in 2004. However, in CP146 there are references to depolarisation that could change the shape of distribution as it is today. It seems CP121 will not go away.
One of the key areas of CP146 first appeared in the Financial Services and Markets Act (FSMA) 2000. In this it was apparent both the FSA and a ‘principal’ could not be expected to regulate intermediaries for different business classes.
Until now, mortgage brokers have operated in an independent market, allowing business to be introduced to all lenders. Appointed representatives (ARs) for investment business have had the same freedom.
Many lenders and packagers rely heavily upon ARs and the IFA Networks but CP146 makes clear reference to an AR regime and the extension of the distributor company proposals for mortgages. Soon, brokers may no longer be operating freely, but more likely advising from a panel of lenders.
The FSA is allowing the panel approach for independent advice, whereas the MCCB has preferred brokers to source from the whole market. It is, therefore, likely many IFAs will seek help from distributors geared to managing lending panels to maximise product and fee competitiveness, as well securing the best possible service standards. Lenders will also have to compete for panel positions. Any lender not securing panel positions could have a major problem.
The removal of the ‘better than best’ rule has seen insurers move to invest in distribution. Insurers are investing in IFA networks and most are planning for the introduction of new rules for ARs, IFAs, distributors, multi-ties and so on. This means reviewing mortgage operations, setting up lender panels and providing compliance support.
Many will argue this is bad for the borrower, but while the FSA may need to define panels, a panel consisting of all market players could give excellent coverage.
Lenders must react quickly as current record business levels and market share cannot be guaranteed. Lenders are faced with approaching life offices for panel positions and certain networks are charging ‘market-ing fees’ for the same privilege.
This is good news for brokers. Specialised services will emerge from networks available to independent and tied firms and perhaps lenders will start to compete for business. Brokers need to follow both the depolarisation and mortgage debates, respond to the FSA Consultation Papers and consider joining an industry body following its strategic alliance with AIFA.
Stephen Atkins is compliance director at Mortgage Next