The latest consultation paper to be published by the Financial Services Authority (FSA), CP166, could have a dampening effect on the future of correspondent lending.
While there is no direct inference the proposals for ‘packaged products’ will be translated to the mortgage and insurance markets, CP166 notes: ‘We [the FSA] do not propose to permit white labelling for [packaged products] to the extent it would conceal or significantly down-play the identity of the manufacturer (product provider), because we believe consumers should be clear as to whom they would have a contract with. We will, however, permit firms to co-brand a product where it is manufactured by one firm, but distributed by another.’
James Mayne, head of strategic development at Britannic Money, said: ‘It does not mention mortgages directly, but it is the principle involved. If the FSA’s standard approach to white-labelled products is that the customer has to be aware of where the product is from, then it will impact on correspondent and branded lending.’
While CP166 also confirms the defined payment scheme that was proposed in CP121 is to be replaced by a ‘menu’ approach, which will allow clients to choose how they want to pay for advice, the final rules are not expected to be implemented until 2004.
Once these rules are implemented, there is to be a 12-month grace period to allow firms to adjust. This has raised fears in the financial services sector that those firms selling a range of financial products could be penalised as they will also have to implement mortgage and insurance regulation during the same time-scale.
Mayne said: ‘Many IFA firms have avoided mortgages in the past, but with investments still down many are now setting up separate mortgage firms.
‘Next year could be a confusing period for many firms, and it is worrying so many changes are being made at once. Any problems are likely to be magnified and affect customers.’