Less broker responsibility may not equal lower FSA fees

26 October 2010 | By Natalie Thomas

The regulator has released a consultation paper today on regulatory fees and levies in which it has ruled out calculating brokers’ fees based on the riskiness of their business and revenue.

The Association of Mortgage Intermediaries had been lobbying the FSA to lower broker fees because the Mortgage Market Review passed responsibility for affordability checks to lenders.

In its paper, the FSA says: “One trade association suggested that although regulatory fees may not be able to resolve any imbalances between manufacturers and distributors of financial products, we did in practice set the landscape in which firms operated.

“The example they gave was the MMR where their view was that the FSA intended to move the risk of assessing affordability from the intermediary to the provider. They wanted to see this reflected in a shift of regulatory costs and therefore lower fees for the mortgage intermediary.”

But in response the FSA says both lenders and intermediaries have always had a role in assessing affordability and one of the aims of the MMR is to clearly define these responsibilities.

In its feedback, it says: “In CP10/16  we set out how we expect lenders to assess affordability moving forward.

“We will discuss the role of the intermediary in the mortgage sales process when we issue our MMR Distribution and Disclosure CP later this year.”

Some trade associations had also suggested that less riskier firms should receive a dividend.

But the FSA says there is no direct correlation between risk and the size of a firm.

It believes some firms on low margins might present high risks and generate higher regulatory costs, and it would be hard to calculate the differing costs.

It has also ruled out calculating fees in terms of revenue.

In its paper, it says: “In order to do this a considerable amount of work would need to be done on defining what represents the revenue of the product manufacturers and the revenue of the intermediary.

“We do not believe there is any agreement between the sectors affected that, in principle, fees for intermediaries should be based on the proportion of revenue that they receive relative to product providers.”

It says further research would be needed on how such a revenue model would work in practice and an impact analysis would need to be carried out for the firms affected.

The regulator says that it acknowledges the industry wants it to calculate fees based on the cost of regulating firms individually and their individual risk profiles, it is unable to do so at the moment.

But it adds: “Although we are not proposing to take such steps for the foreseeable future, we do not believe we can justify undertaking further research on the revenue model, as such a model is moving in the opposite direction to where the majority of the industry wants us to go.”

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