The party must end for brokers
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Ido not often have cause to quote great philosophers in these pages but as I read the comments coming out of the Financial Services Authority as it ponders the future of the mortgage market I am reminded of the prescient words of Garth Algar in the classic film Wayne's World.
"I fear change," Garth says, and as I digest some of the ideas which seem to be building momentum, I too worry.
There seems to be a move towards the tighter regulation of some types of mortgage products.
In a speech at the FSA's mortgage conference recently, the regulator's chairman Lord Adair Turner suggested it was possible that the upshot of his mortgage review could be that some products are found to be "so unlikely to be suitable for any customer that they should simply be banned".
This raises a couple of questions. First, why would any lender introduce a product in a dynamic market that is not suitable for anyone?
Second, and perhaps more significantly, it raises the question of the extent to which lenders should be able to rely on the regulated brokers selling these products.
It is vital that lenders engage fully with the debate on this subject - we are told to expect an FSA discussion document in September - to ensure a workable outcome.
There is a risk that lenders will feel so chastened that they are not able to raise difficult questions. It this is so, we could end up with a regime that does nobody any favours.
Lord Turner also raised the issue of restrictions on LTVs and loan to income ratios. It is interesting to ponder where that might leave lenders that have focussed on affordability models.
Again, I can't help but wonder why lenders' products should be restricted simply because brokers can't sell them properly.
The problem of brokers was raised by the FSA's director of retail policy and conduct risk Dan Waters at the same conference.
He hinted at an extension of the approved persons regime to include all mortgage advisers. This is an innovation that is long overdue.
I've always suspected that the present arrangements were only introduced on grounds of economy and FSA workload, as it realised what would be involved in bringing all brokers into its regime.
But there have been too many problems, highlighted by increased enforcement activity, for the regulator to hold off any longer.
Interestingly, Waters also made a number of references to the Retail Distribution Review.
I have long suspected that the RDR would be applied to the mortgage market and Waters' comments gave the clearest indication yet that this may happen.
He suggested that the "overly complicated distribution landscape" worked against consumers' interests in terms of the range of levels of service they may be confronted with, making it clear that there may be lessons to be learnt from the FSA's RDR work. We shall see.
The remuneration system for brokers was also in the spotlight, with a suggestion that some might have been thinking more about their remuneration than their customers' best interests. Perish the thought. Here again, the RDR's aim to reduce conflicts of interest in remuneration was cited with approval.
I have a plea. Lenders - be bold in engaging with this debate. All too often the FSA takes the view that it is easier to hit a small number of lenders than grasp the real issue - brokers must be regulated more tightly.
Lenders should not have to hold intermediaries' hands through the whole process - after all, they are supposed to be professionals.
For too long, to quote Wayne's World again, it has been "Party on" for brokers. Now the party must be declared over and they should be forced to comply with the highest standards.
Philip Tebbatt is principal of niche financial services law firm Slater Rhodes and can be contacted at philip.tebbatt@slater-rhodes.com
Source:
Lending Strategy
