FSA caused addiction to credit, says AMI
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Speaking in London last night at the Association of Mortgage Intermediaries’ annual dinner, Chris Cummings, director general of the trade body, accused the FSA of losing its way and causing an addiction to easy credit.
Cummings says the regulator’s mantra was to encourage innovation at whatever cost.
He says: “The FSA encouraged innovation because it thought it would increase consumer choice. It kept authorising more and more lenders and lost sight of its business plans and its true purpose as a regulator.
“Easy access to credit became not a tool, but an addiction for those that had lost control, and the regulator was not looking at the social impact of its moves.”
He says the industry is now in a position where it must work together and put solutions to the regulator and not vice versa. He encouraged all of the trade bodies to work together to achieve this.
He called for an open debate around social policy on property and what the role of the regulator should be.
Cummings also said there was a debate to be had around whether the UK should learn from some of its European member states and offer more longer-term fixed rate mortgages, which would lessen competition but could benefit the mortgage market.
Robert Sinclair, director of AMI, also told the audience that its membership is now down to 12,000, compared to roughly 30,000 at the peak of the market.
But he says over the last six to nine months it has started to see an increase in its membership.
The forthcoming Mortgage Market Review and the move to an approved persons regime would be a great test for the industry and he called on the FSA to “keep the faith” and not just come down hard on intermediary firms, but impose its measures on all adviser.
Speaking about the large number of enforcement action taken against broker firms in the last 12 months, Sinclair says these were “normally been small directly authorised firms” who had not been members of AMI.
He also urged the regulator to look at what part lenders are playing in encouraging fraud as well.
Also speaking at the event was John Kay, a visiting professor at the London School of Economics and a former director of Halifax.
He says despite learning that regulation has failed, the government still wants more of it.
He says: “I believe regulation should focus on the structure of a firm. The regulator should try and influence the structure rather than take a particular set conception of what they think is good business behaviour and impose it on everyone in the industry.”
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Readers' comments (10)
Wetherbys Estate Agency | 9 Jun 2010 9:01 am
I was a broker and recently left the industry due to costs. To me it was simple, what was the point of paying all the fees when the market was as bad as it was i.e. dual pricing, FSA’s recommendation to withdraw from the self cert, etc. I set up my own estate agency and in fact this seems to be working really well as we work with brokers and pay commission of up to 1% to brokers (that was just a little bit for myself in case anyone ever reads this and calls…). However, it just dawned on me… The truth is the FSA should go. We all know that. But, the big question is who would replace them? No one really knows the answer to that one, and, that’s why the FSA are still here!! The industry needs someone who was like the mortgage code. We need someone who has the interests of the broker at heart and especially someone who knows the industry inside out. To me it’s an obvious choice. The “AMI”. I don’t even know if anyone really reads this so may be I am babbling on about something that will never happen, but THINK about it. Somehow, the AMI needs to find a way to do this. Maybe I, and so may more, may even come back into the industry at that stage.
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Tony Joannou | 9 Jun 2010 9:03 am
For years most IFA's have thought it perverse that both government and regulator have made it easier to borrow than to save. Hoops and hurdles have to be overcome if someone wants to invest in their own future but if they want to borrow on umpteen credit cards with no thought about paying them back then thats fine!
Nothing has changed at the regulator with lenders who have made it harder to borrow through a broker where qualified advice can be given but go direct and you can have your loan, mortgage, whatever you call it its still debt without any advice at all.
Thanks for nothing!!!
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Philip Curnow | 9 Jun 2010 9:14 am
Not sure that I would say the FSA "Caused" an addiction to easy credit - that was caused by Banks and other Lenders who were very irresponsible with other people's money. However, the incompetence of the FSA and their lack of understanding allowed that addiction to grow to disastrous levels - in other words, when they should have been regulating something, they failed completely - preferring instead to suppress healthy and legitimate financial products that did not generate the obscene bonuses for senior Bank and other staff. Bye-bye FSA, PLEASE !
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Evan Owen | 9 Jun 2010 9:17 am
It is all the FSA's fault? Well I never...
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Jonnie Diamond | 9 Jun 2010 9:42 am
Isn’t it time people stopped playing the blame game, frankly we’re all fed up with the politicians doing it, we don’t need AMI jumping on the bandwagon. Next it will be the lenders blaming borrowers for accepting the mortgage offers they provided.
I don’t recall at the height of the boom AMI saying lenders should be restricted in entering the market, let alone lenders products should be withdrawn. No, I think it was more a case of let the good times role.
Very easy to speak with the benefit of hindsight and even easier to blame the FSA for everything as we look back to where it all went wrong. I’m not here to defend the FSA; yes they failed in numerous areas, but brokers and their trade body need to accept some responsibility.
AMI can’t claim innocence, that’s nonsense. Membership might have fallen in the past years, but get real; many of those brokers shouldn’t have been given responsibility to run a bath let alone run financial advice firms. AMI can’t defend the indefensible; many were crooks as is now being evidenced in the continued reporting of convictions. The crooks need to be punished; they will have tainted the industry and left a nasty smell that will remain for years.
AMI should look to the future, work to support the brokers, justify the value of the intermediary channel not slate the regulator. There’s a dire need to look at matters in a positive light, encourage innovation and the rebuilding of the FS industry. Work with the regulator; the regulator won’t be going away.
Stop blaming others, accept failings and build partnerships.
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Sam Jones | 9 Jun 2010 10:13 am
It's ridiculous to suggest that any one thing caused the credit issues we have in this country & indeed the world today. There are numerous causes, which all came together to produce a catastrpohic result. we should be looking to the solution now not playing the blame game.
Yes we need an alternative to the FSA, which is clearly not working and alienating the industry. What we need is regional regulators who can get to know the local businesses, create local employment and break up the old boys network and cartels that have formed in London. This could only be of benefit with a more diverse range of people holding positions in a Regulator from all backgrounds.
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mic2002 | 9 Jun 2010 10:23 am
The only real way forward is to move towards becoming a profession in the truest sense of the word.With a similar regulatory system to the other professions.
But you can't have this if you also agree that Joe Bloggs can buy his mortgage,or other financial products online,with no protection or advice in most cases.
A profession will provide the benefits of controlled distribution so that the structure of fees and commissions can be properly addressed.Once and for all.
There is clear air being created under our noses with the RDR between Mortgage and investment business.I dont think you can buy an investment without advice.
Do we want to forever be in the murky waters of overregulation and this appalling halfway house we have at the moment?
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Sandra Smith | 9 Jun 2010 10:24 am
Hurrah! Finally a coherent and well considered comment is placed on these pages! Jonnie I couldn't agree with you more. As for Wetherbys, seriously, you think AMI should be a regulator??
Its about time we all stop moaning about dual pricing and the FSA.
Dual pricing has always existed and I don't see any broker complaining when its in their favour so get real!
The FSA will always be doing something which you arene't happy with and yes they have made mistakes, but getting rid of them won't change anything. The only way to change regulation is not by changing the regulator, but by changing the rules, the approach and the people. This would be hugely expensive and would take a long time. If you're moaning about fees now, how much do you think you would have to pay to fund that?
Yes things aren't great and business is tight, but the best thing you can do is find another way of bringing in money. Although I don't agree with Wetherbys' comments, the fact that this person has reinvented themselves should be applauded.
Those who accept their situation and find new ways of working in this market will survive, so stop mmoaning and start fighting for your survival!
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Leslie Squires | 9 Jun 2010 10:28 am
I would not go as far as saying the FSA caused the addiction to credit. The cause in my opinion was a banking system that allowed market traders to sell on asset based loan agreements onto a global secondary market with scant regard to the volume and creditworthiness of the transactions. Inevitably with so much paper transactions being chased around the world, the market bubble burst and only at that time did the full horror become apparent. The FSA is however responsible for the regulation of the UK participants and it is here that I feel they failed. It appeared to me at the time that players within the Mortgage market knew there was trouble ahead and well before the FSA who were slow to react. That said, the sniping must stop and all participants need to work together to rebuild confidence in the markets and a system that works and is sustainabLE
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Gray Haired Underwriter | 10 Jun 2010 9:24 am
There are some really good and thought provoking comments here but for me the fundamental of Regulation remains the same. You can't regulate what you don't understand and the FSA proved this when Regulated Mortgage Contracts came into being. The fact that we have to fell a forest on order to produce a mortgage Offer has made not one jot of difference to the way the market behaved. The fact is that a mass of Bureaucrats thought that the market could be Regulated by processes and forgot that we lend to real people in the real world. The problem is that the FSA continues to operate a bureaucracy that hides behind an incomprehensible and unworkable handbook (and that’s a laugh because it is an enormous document) and they can’t even offer clarifications on aspects of their own document. Ask the to define responsible lending and the answer is more or less ‘we’ll let you know when you get it wrong’.
I believe that regulation is necessary but the regulator has to understand the business it is involved with and should be head hunting experts not taking economics students straight from University. I wonder how many people in the FSA have actually mandated a mortgage, interviewed an applicant or dealt face to face with an arrears case. I know from three decades of experience that you cannot parcel borrowers into distinct cubby holes but that’s what the handbook does.
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