In AMI’s response to the FCA’s consultation, the trade body said the combined impact of the changes in the regulator’s periodic and application fees, the new levy on principle firms for AR, increases to Financial Ombudsman Service (FOS) levies and case fees along with substantial rises in both levies to the Financial Services Compensation Scheme and professional indemnity premiums will have a “profound effect on firms’ profitability and potentially their viability”.
Chief executive Robert Sinclair (pictured) said: “These cumulative proposals display a lack of clarity, fairness and is undoubtedly misleading.”
And while firms may be able to cope with the rise in fees now, in a less buoyant market the changes could be difficult to bear.
The regulator has proposed a new fee for networks because it wants to increase its scrutiny of principle firms and their ARs.
It has proposed that principal firms will be charged a flat £250 fee per AR firm which the regulator expects will raise £10m in the 2021/22 financial year.
The FCA also wants to bring about a new fee category, A22, as a result of the network levy. The levy was not consulted on in the FCA’s November policy proposals.
The trade body has called into question the regulator’s rationale for creating the new fees category. AMI noted that it appeared to relate to general insurance and investment management with a suggestion that ARs are being used in sectors such as asset management and that half of all principles have only one AR.
AMI said this was not a recognised model in the mortgage broker market as around half of all intermediaries belong to large well-established networks. AMI has called out the FCA’s claim that it has previously been forced to address issues found within the AR market and wants details on how the regulator acted.
It was also noted that there is a proposed increase to the minimum fee on consumer credit where mortgage intermediaries have no income but are required to hold this permission as a technicality.
In its response to the FCA’s consultation, AMI wrote: “Through a multitude of business models, intermediary firms strive to provide fair value and good outcomes to their customers. This will not change, but it would be naïve to believe that the consumer proposition will not be affected by both the proposals in this consultation and by other increases in regulatory fees and levies.
“The impact to firms and therefore their customers will be masked by the current buoyant market that allows these costs to be absorbed. However, any future economic downturn may, in light of these changes, cause swift cost saving decisions to be made and the regulator should be mindful of any unintended consequences that may result.”
Sinclair also slammed the FCA’s approach to bringing in the new fee by only giving the mortgage market a five-week consultation period, which he said breached the principles of good regulation.
“We echo and support the significant issues raised by our colleagues at PIMFA (Personal Investment Management and Financial Advice Association) who share our concerns on the sudden and unexplained additional fees on networks. This £10m additional charge is a disgrace. The industry deserves a better explanation on why from this new FCA management team.
“The introduction of new fee category A22 is a change to the process of how the FCA introduces new fee policies and should have been included in the November policy paper with a full cost benefit analysis. This is a failure to follow proper process on the FCA’s part. Giving only a five week consultation window breaches the principles of good regulation.
“It is not inconceivable that current network models will be forced to change and that there could be a large migration of firms from AR to DA or leaving the market. In proposing these changes, the regulator must consider whether it would be comfortable with such a significant change to the mortgage intermediary sector structure and its ability to manage and control such a migration.”
Last month, the FSCS revised down its forecasted levy from £1.04bn to £833m which means mortgage intermediaries will be expected to contribute £12m down from the £22m stated in January. Despite the reduction, Bob Hunt, chief executive of Paradigm Mortgage Services and AMI’s Sinclair remain critical over the compensation brokers are expected to pay.