Mark Mountney,

Premier Mortgage Management

This development is not surprising in that the Financial Services Authority (FSA) is now underlining the absolute need for regulated firms to be able to stand up and be counted. Offsetting risk to insurers undermines this authority and, in the event of a fine being levied on an entity with insurance against such FSA fines, the effect would be watered down.

On the other hand, there is a fear that even a nominal fine could seriously damage a smaller operation to the extent that it is forced into folding. There is no way that this can be seen as positive for the firm’s client bank as it will no longer have a known independent financial adviser (IFA) to refer to in times of need. That would certainly be contrary to everything that the FSA, and the Government to whom it reports, stands for.

It is a careful balance but not an argument the industry is likely to win.

Jonathan Cornell,

Hamptons International Mortgages

In an increasingly litigious society, the FSA’s position is one that could well be open to challenge and I am still a little unsure as to whether this is truly an appropriate means of advancing consumer protection. Let’s face it, few drivers buy motor insurance because they sense their driving skills are impaired and will result in an accident. They do so because of the need to cover future events beyond their own control.

Do mortgage practitioners not have a right to do likewise? Particularly when we consider that recent scandals involving Equitable Life and mis-sold endowments still have to identify where negligence actually existed and who should pay. Also, will this proposal simply lead to brokers indemnifying themselves against the non-regulated product sales such as buy-to-let and home reversion schemes? What if these product sales then become regulated post N4? There are still more answers needed.

Nick Baxter,

Mortgage Promotions

I think this approach is fair enough. The fine that the FSA issues a transgressing company is likely to be appropriate to both the breach and the size of the company. There is no logic to issuing huge fines to small firms, it would have the effect of putting them out of business when only a punishment was intended. If the FSA intends to put a company out of business it would do it through other means. Therefore, in respect of fines for breach of the rules I cannot see how a small firm would be any worse off than a large one. Smaller firms should not worry overmuch – other than to get things right the first time of course.

Matthew Grayson,

BM Solutions

Expecting firms to pay fines out of day-to-day cash flow is a cause for concern. The question is how the smaller company can protect itself for that possibility. Are firms supposed to put money aside? If so should the amount be based on the market capitalisation of the business? Some provision has to be made for this, so it has to be planned for in some way.

It will be another difficulty for the smaller organisation and may be another driver for them to merge or share assets with other firms in the supply chain, as has been occurring for the past year. Though larger firms have the ability to absorb this type of thing, it is another driver for them to ensure all processes are in place and correct.

Rob Clifford,

mortgageforce

More than 7000 broker firms are sole traders and a further 3900 firms have between two and five advisers. For this huge segment of the market, any increased costs threaten their existence as margins in mortgage broking have already been hit in recent years, by the disappearance of endowment commissions, for example. However, sole traders already personally shoulder all business liabilities.

Most brokers are rightly concerned that FSA jurisdiction could cost them more than 10 times their current MCCB costs. And some small operators will seriously question their financial viability. This fuels the aggregation model – thousands of small firms will join networks and franchises for economy of scale benefits and regulatory guidance.

The clear rationale is that insurance firms paying FSA fines undermines their impact as an incentive to good conduct, which is probably true. Whether small firms can tolerate further financial exposure is questionable.

David Hollingworth,

London & Country

The aim behind preventing regulated firms and individuals from paying FSA fines from indemnity insurance is clearly to prevent ‘dulling the blade’ of the punishment. After all, fines are made to promote good practice more widely. The fact that individuals or firms would need to pay a fine themselves must heighten the impact and help focus the adviser on engaging in appropriate business practices. The implications for smaller companies are clearly magnified but one would expect that the FSA would continue to mete out fines in a measured way and very much according to the severity of the offence, not a scatter-gun approach. This is likely to be a measure that is supported by and, ultimately, to the benefit of the consumer.

Steve Hoare,

Homeloan Partnership

This could cause problems and is something smaller firms should look into. It may end up affecting the company’s decision on whether to take on principal status or become an appointed representative (AR). The point to consider is where the FSA is going to be putting the onus on complaints. It could make the AR route more attractive. I would hope the regulator treats all firms equally and levies smaller fines on smaller companies. It would not be worth fining small companies more than they have in assets, so I hope common sense prevails.