As I sit here writing my final AMI column for Mortgage Introducer, I am somehow reminded of the scene in Blackadder Goes Forth where Blackadder, in order to be declared insane and invalided out of the Army, places a pair of underpants on his head, puts a pencil up each of his nostrils and answers questions with the one-word answer: ‘wibble’.
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I’m delighted to say that, even though I may be leaving the wonderful world of trade bodies, I have not had to be sectioned to do so. Regulation may do many things to individuals but, in this case, it has not sent me on my way to the loony bin. At least not yet. And while some may believe moving to the ‘dark side’ of PR and communications is one step towards madness, I do not.
So, where normally I would begin an article with an anecdote from my childhood or a TV reference from yesteryear, this time I will concentrate on giving some analysis of the difficulties facing smaller broker firms as they work their way through the regulatory maze. The more watchful among you will have noted that I did indeed begin this article with a TV reference – old habits are hard to break.
Sleeping with the enemy?
So, what have I encountered? Well, let me dispell one myth – yes, there really are human beings working at the Financial Services Authority (FSA) and they, on the whole, want to make mortgage regulation work for intermediary firms. And before you say: “Well, AMI are always in bed with the FSA” – conjuring up a rather gruesome image – this is not the case.
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The problem for the FSA has always been getting to grips with the make-up of the industry. By this, I mean the fact that 90 per cent of intermediary firms can be classified as ‘small’. This is a problem for the regulator – it doesn’t regulate large numbers of small firms well, and this has resulted in a rather strange regulatory playing field since ‘Mortgage Day’. A playing field where the larger firms and networks that have the compliance resource have been placed under a distinctly greater degree of regulatory scrutiny than the smaller mortgage firms.
An accusation often levelled at the FSA with regard to the mortgage intermediary market is that it would like to see large numbers of smaller directly authorised (DA) firms change their status and become appointed representatives (ARs) of a small number of very big networks. Now, while the FSA has never, and will never, say this, it is clear that if the market was to move this way, its job would be made much easier. The issue is, perhaps, to what extent regulatory changes are made which ‘encourage’ those large numbers of small DA firms to change status.
At the moment, no such changes have been made and therefore we still have a regulator looking at how it can effectively regulate these small firms. But, that is not to say that the FSA ‘powers that be’ are not looking at some fundamental changes in the future. For example, its Retail Distribution Review is aimed firmly at the realm of independent financial advice but that does not mean any changes and proposals that come out of it could not be ‘dragged across’ into the mortgage sphere.
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A small firm solution
Where I think we may have an issue is the fact that the regulator seems to have come to the conclusion that it cannot effectively regulate large numbers of small firms, which means that it must look for other solutions to the ‘small firm problem’. Meanwhile, small firms find themselves caught between a rock and a hard place. Many are working hard to maintain their compliance but are perhaps not helped by a regulator that often seems unable to grasp the harsh realities of business life for one and two-man bands.
This is problematic because it could lead to a regulator attempting to change the market to suit the regulation, rather than adapting the regulation to fit the market. This is what we may have with the much-trumpeted Retail Distribution Review – a review that stems from the belief at the top echelons of the FSA that the market is already ‘broken’ and therefore it should be the FSA’s job to fix it. While the FSA may suggest it is the industry that has come up with the ‘solutions’ it is not without a hand or two in the ‘direction of travel’.
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I have said previously that small firms can be grouped into three when looking at regulatory compliance. There are those firms who are complying, those who are trying to comply but for whatever reason – resource, information, etc – are not quite there yet, and those firms who have effectively ignored regulation ever since they gained authorisation. The FSA has to somehow engage with the ‘triers’ and stamp out or turn-around the ‘ignorers’ – this is no simple task given the vast numbers it is dealing with, but it is, after all, the regulator’s job.
AMI is, of course, there to help all types of mortgage intermediary firms, but particularly the smaller ones who will not have dedicated compliance staff. Please use the technical helpdesk and keep abreast of our regulatory updates. To quote Reg Holdsworth, ‘information is power’.
With that final thought I bid you adieu, good luck to all broker firms in these challenging times and never underestimate the difference good PR and communications support could mean to your firm. Now, where did I put that White Dragon.
