Mortgage Times capital shortfall totalled almost £1m, FSA reveals
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A capital shortfall of almost £1m has been revealed as the reason behind the Financial Service Authority’s decision to strip Mortgage Times of its permissions just before Christmas.
Last week the FSA revealed that on December 23 it took away Mortgage Times’ permissions, just two days after the network told its appointed representatives that it had applied for a variation of its permissions.
A £971,000 capital shortfall lay at the heart of the FSA’s decision.
Under FSA rules, regulated firms must 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.
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.
In its final notice, the FSA, says: “The Mortgage Times Group has failed to rectify the capital resources deficit despite being given adequate opportunity to do so.”
