FSA reveals it shut Mortgage Times because of £1m capital shortfall
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A £971,000 capital shortfall lay at the heart of the Financial Services Authority’s decision to cancel the permissions of failed network The Mortgage Times Group before Christmas.
The network’s appointed representatives were told by directors in an email on December 21 that it was the firm itself that had applied for a variation of its permissions from the Financial Services Authority, which meant that the ARs could no longer trade using the network’s FSA number.
But documents posted on the FSA’s website now reveal that it was the regulator that cancelled the network’s permissions as a result of a lack capital.
All regulated firms need to maintain capital reserves of 2.5% of their annual income.
Mortgage Times reported an annual income from its regulated activities of £9.3m in 2008, which meant it needed to hold capital reserves of £233,000.
In its audited accounts for the year ending December 31 2008 it reported capital resources of £23,000 and for its interim profits ending March 31 2009, capital reserves of £138,789, which increased its capital resources by the same amount.
However, a fundamental part of Mortgage Times’ capital resources was an £899,000 loan owed to Mortgage Times by its parent group The Mortgage Times Group Holdings.
And the FSA says there was no evidence that The Mortgage Times Group Holdings could repay the loan or that there was a binding agreement in place for the shareholders to repay it.
As a result it asked Mortgage Times to deduct the debt from its capital resources, which meant that it then had negative capital resources of £737,000.
Combined with the £233,000 that it had to have in place as a capital buffer anyway, this meant that the network had a shortfall of close to £1m.
Along with failing to maintain the agreed 2.5% capital requirements, it also breached the FSA’s rules on financial prudence and having adequate resources.
As a result, the FSA cancelled its permissions.
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Readers' comments (17)
Anonymous | 26 Jan 2010 8:55 am
The FSA should insist that AR's commissions are held in trust, this is happening far too often.
On top of that, the directors/managers of bust networks seem to be allowed to set up new financial services companies (even networks in some cases) without any problem whatsoever.
No justice whatsoever for the AR's as per usual.
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Swanny | 26 Jan 2010 9:19 am
Now lets understand this properly.
The Fsa made 100's of AR unauthorised. They also caused financial loss to 100's of AR without putting any provision for those AR to move quickly.
Because they failed to spot (quickly enough) a failing.
Well done FSA
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Frank Jurga | 26 Jan 2010 9:22 am
Well, I said it time and time again. The Directors were being dishonest all the time and spent the whole of 2009 stripping as much cash as possible out of Mortgage Times. The directors took AR commissions and lent them to the Group company where there is no chance of it being repaid. How Chris May thinks he's going to get support in the market for his new venture reall puzzles me. Dishonest, dishonest, dishonest. Thank goodness my losses only amount to about £11,000.
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Anonymous | 26 Jan 2010 11:00 am
It's about time the truth came out - justice needs to be done for all the AR'S
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Anonymous | 26 Jan 2010 11:13 am
Well thank god I am not one of those AR's owed money by Mortgage Times,however I did use their services (I use the term loosly) as a packager and getting paid was never easy, the writing was on the wall early last year.
The Directors should be prevented from setting up in business in any financial market.
The Truth always comes out in the end.
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Anonymous | 26 Jan 2010 12:39 pm
Am i the only one who thinks the FSA need to support these advisers by way of a compensation scheme, the same way as they protect consumers by way of the FSCS? If the FSA realised they were going to take the action of removing permissions they should have thought of the risk to hundreds of peoples livelihoods as well.
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Anonymous | 26 Jan 2010 12:47 pm
The Directors were a bunch of Conmen ,and it seem ill equipped to run a business.Totally agree with Frank Jurga's comments
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Mortgage Broker N3 | 26 Jan 2010 1:23 pm
The Directors of Mortgage Times should be banned from holding ANY FSA permissions. They knowingly knew these facts and chose to let MT collapse, owing hundreds of their loyal brokers hard earned commissions - in a very difficult climate.
Disgusting and without any regard for staff and faithful brokers.
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raj | 26 Jan 2010 2:24 pm
It's about time the truth came out - justice needs to be done for all the AR'S
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Anonymous | 26 Jan 2010 2:39 pm
regards the headline ,the company was caught on a technicality from 1 million goodwill in 2007.Fsa banned goodwill in 2008 therefore MT was asked to pay into the business 1 mil in cash.if the accountants had picked this up in 2007 this would never have happened
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