Peter Beaumont: As we now have near final rules for mortgage regulation what opportunities do you see in the post regulatory market for your company?
Over the last 18 months we have very much set out our stall, and we see the future of Network Data as being a network, a principal firm for the smaller broker community. Alongside that we have launched an initiative for the smaller packagers as well.
Ben Marquand: And what is this exactly?
This proposition will sit alongside our proposals for appointed representatives (ARs). The packagers will be subject to a second commercial agreement that is essentially nothing to do with the Financial Services Authority (FSA). Technically they will become ARs as far as the FSA is concerned, but we have a separate agreement whereby they in turn will encourage the brokers who place business through them to become ARs of Network Data. Some lenders have already said they will not deal with any unauthorised links in the chain, and I think all the other lenders will follow suit.
Peter Beaumont: What detailed plans have you made to date regarding the structure your company will need to adopt in the regulatory environment?
It is a major challenge to become authorised by the FSA in terms of approved persons, having the correct procedures in place. Fortunately we have been under the beady eye of the MCCB for the last 12 months or so in terms of the network. This has been extremely constructive making sure that our procedures are fit and proper for the FSA. This includes employing the right sort of people, such as a head of compliance and actually having a compliance team and procedures in place when we apply to the FSA.
Peter Beaumont: What do you think is the size of your potential market share?
It depends on the amount of currently non-regulated brokers that are planning to join a network. If you believe the figure of 75% that has been quoted then we estimate the actual number of brokers who will join a network to be around 7,000 (based on the latest MCCB figures of 36,000 registered intermediaries – made up of those who are an IFA and who are expected to remain so and the ‘non-regulated’ advisers). I expect that most IFA networks will force their members to place their mortgage business with them, which reduces the potential number of advisers.
Ben Marquand: What additional services will you offer?
It is very much a one-stop solution which covers our point of sale software Mortgage Link that now incorporates the insurance service. We have an integrated mortgage and insurance quotation system. We cover off the PI cover for mortgages and insurance and we run our own compliance team.
Peter Beaumont: How many product categories will you act as principal for?
With the latest policy status on appointed representatives which maintains the one product line for investments (which we will not be covering), and the two mortgage product lines of mainstream mortgages and lifetime mortgages which we will certainly cover. The general insurance side is a total free for all where technically, under the FSA, a broker can have as many principals as he likes for whatever product lines. So I think you look at this from the flip side and see what the principal firms will allow ARs to do, because part of the written contracts will say there are certain things they are not allowed to do and they just won’t have the freedom to sign up to as many principals as they like.
Peter Beaumont: What are your views on how a multiple principal approach will work in practice?
With difficulty. I do not think the FSA is expecting a large number of multiple principal arrangements. I do not believe the average small broker wants more than one principal, it is a nightmare for them, they have to have two lots of compliance visits. Who covers off the PI cover, who is responsible for complaints, and who does the training and competence? We have been approached by some tied agents of AXA and Friends Provident about joining us on the mortgage side but remaining tied to them for the life side, and we are more than happy to look at that but potentially AXA and Friends Provident would also have to agree to it.
Peter Beaumont: How much will the changes in regulation cost your business?
We have invested heavily in the infrastructure of the network and this year alone will cost in excess of £0.5m just to gear up for the FSAs requirements and that is alongside the ongoing developments of the quotation system, and the promotion of our mortgage and insurance commissions. In terms of the total, well how long is a piece of string? There is no minimum.
Peter Beaumont: A number of companies have stated that they intend to adopt principal status. How many of these do you think will make the full journey to market?
From what I have seen to date, I would say less than one in four. I don’t think they realise the scale of the operation. Most of them don’t have their own quotation system and will have to buy it in from Trigold or Mortgage Brian or whoever, and there are only two or three networks that I know of who have compliance people in place as of now. Again, some of them may think they can run it on a small scale with 200 or so ARs, but I think the lessons can be learned from the IFA networks going back 15 years. I think a lot of firms have gone into it on the basis that everyone else is doing it so we are going to have to do it – if we do not we’ll be left behind.