If your image of the Financial Services Authority (FSA) has been of a crouching tiger since mortgage regulation was introduced, the beast has slowly started to show its claws. Exit fees, general insurance (GI) and now networks have all felt the heat of the hidden dragon gently rising on them in recent weeks as it seems the regulator has decided to get tough.
Richard Griffiths, managing director of Network Data, believes it is about time the regulator took a firmer approach to companies not acting compliantly within the UK mortgage marketplace.
“Some of these guys have been around for 18 months now and the FSA has done nothing. These firms are not going to be worried about a report but they will be if someone is closed down – and in my view the sooner the better.”
Stiff criticism
Networks came in for some stiff criticism in the FSA’s review in December 2005 and the regulator has said it is constantly reviewing the situation to ensure networks are acting compliantly and in the best interests of the consumer. While not of the FSA’s doing, the challenging environment in which the networks operate has already seen the high-profile demise of Berkeley Berry Birch (BBB) this year and Millfield has also had its problems highlighted by the press. Therefore, will the FSA’s new-found teeth see the number of networks playing the field reduced significantly?
Tony Jones, managing director at Pink Home Loans, says: “I think we are at a stage where it will be survival of the fittest. The FSA is now making sure firms are taking heed and it will be taking more enforcement action against those who are not following the rules.”
However, who will be left once fiscal Darwinism has taken hold? The number of networks since ‘Mortgage-Day’ has reduced significantly, from around 69 to 25, and while some see further consolidation in the market, others believe the status-quo will be roughly maintained.
The GHL Group, formed last year from the merger of Genesis Home Loans and Guaranteed Home Loans, was one example of a change, while the merger of Pink and Direct Life & Pension Services (enable) in December is another.
However, Griffiths believes it will be all quiet on the Western front – for the foreseeable future at least.
“We have had half-a-dozen mergers and we have had some disappear but there has been no mass move towards consolidation. People have been talking about it but nothing has happened yet.”
Underestimated impact
So what has led networks to this situation they find themselves in? There seems to be a common consensus on both sides that the impact of regulation on networks has been underestimated. While the FSA has been criticised by brokers for being unable to tackle the problems they face, networks’ compliance structures are now coming under pressure from the regulator.
Jones comments: “A number of mortgage networks did underestimate the cost of compliance and the difficulties of managing appointed representatives (ARs). A number went in with high optimism but some didn’t reach their recruitment levels and they have since disappeared.”
Robin Gordon-Walker, spokesperson for the FSA, says: “The FSA has had long experience of supervising networks as we have been doing a similar thing in the investments sector since 1988. Therefore, we had a model in place for the mortgage market. Whether some networks underestimated regulation is for them to say but we found in our review in December there was room for improvement.”
However, surely having issues surrounding a network’s compliance structure is the worst thing it could have? The reasoning for most ARs to go along the network route is because of the compliance support they get and if this is not functioning, the raison d’etre is lost. With the introduction of regulation now a date fading into the horizon, so is the excuse of ‘teething problems’ of which the regulator is obviously aware of.
Sally Laker, managing director at Mortgage Intelligence, says: “It depends on the infrastructure that the network put in place from day one. A number of networks were set up with the intention of selling up at the earliest point rather than putting in place a long-term strategy. Those who did plan for the long-term would have put compliance structures in place.”
So what does the future hold for those who have planned for the long-term? Much will depend on their ability to cope with the challenges ahead and if they can evolve to survive in the dangerous world that is the mortgage market, they might be able to avoid the dragon’s breath
