Walking the line

7 March 2011 | By Natalie Thomas

Most people would regard being described as terribly nice as a compliment. However, when the phrase was used last year to describe Robert Sinclair, director of the Association of Mortgage Intermediaries, by a member of the Treasury Select Committee, it was meant as anything but.

Sinclair was giving evidence to the committee in October 2010 on the topic of financial regulation. Andrea Leadsom, Conservative MP for South Northamptonshire, told him that he was terribly nice, then went on to rebuke financial trade bodies in general for failing to say what they actually thought because they were scared of the regulator.

But walking the line does not always come easy for Sinclair who has to balance having a productive relationship with the Financial Services Authority and championing the voice of intermediaries.

“I think Sheila Nicoll, director of the conduct policy division at the FSA, summed it up beautifully in her speech at the Mortgage Business Expo when she referred to that statement and said it wasn’t something her or her team recognised from its interactions with AMI,” says Sinclair.

He says his feisty Scottish spirit often comes through in dealings with the regulator.

“I’m well known at the FSA for my typically Scottish outbursts and I’ve stepped over the line occasionally,” he adds.

There were rumours last year that Sinclair’s relationship with the FSA was so good that the regulator had offered him a job. But Sinclair says a formal offer was never made.

On the surface AMI appears to have a healthy relationship with the FSA, which Sinclair says is the best way to get its voice heard.

“The FSA doesn’t get out of bed to do nasty things to the market every day and I don’t get out of bed to be nasty about the FSA, but both of us end up doing and saying things that are bound to cause friction on occasion,” Sinclair says.

“It wants to engineer change and I want to protect my members’ interests and that means we are going to fall out. That doesn’t mean I don’t have respect for them as individuals, but collectively some-times I think it gets it wrong.”

Other trade bodies, most notably the Council of Mortgage Lenders, have taken a different approach in dealings with the FSA and been more vocal in their objections to the Mortgage Market Review. The CML conducted its own research into the effects of the MMR and argued that in its current form it would be disastrous for the mortgage market.

“One of the problems is that the FSA and the CML are looking at the same set of data from different angles,” says Sinclair.

“They are never going to reach a compromise or agreement because neither of them will understand where the other is coming from. “The challenge is how you get past that,” he adds. “There’s no point in shouting at the FSA - it is not going to listen. You can still make your point directly and forcibly, and there are a number of mechanisms for doing that.”

AMI has not always had the support of the mortgage industry when it comes to fighting brokers’ corner. In May 2009 it faced a wave of criticism when it failed to retaliate to comments made by CML director-general Michael Coogan about how brokers acted more like salespeople than advisers. This led to some brokers questioning the role of AMI.

At the time Sinclair said AMI always picked its fights carefully and a lot of the work it did sometimes went unseen by its members.

“That’s always going to be the case for a successful trade body and you can’t agonise over it, you have to get on with it,” he says. “I have always believed that a successful politician or diplomat never tells the world what they are doing or have done.”

A lot has changed at AMI since Sinclair joined in October 2006. The mortgage market has seen the number of brokers contract from 30,000 to just over 10,000, but Sinclair says this has not dented AMI’s support.

“AMI’s income has not halved during that period,” he says. “At the peak of the market we had around 70% of advisers in membership, we now have over 90% and that means we are pretty well saturated. I’m happy about AMI’s membership and the way lenders have supported us.

We don’t get out and see enough of our members and that is just the nature of the beast but when we do we get good feedback

“I know the people who meet us on a regular basis and members of the board appreciate what we do. We never get out and see enough of our members and that is just the nature of the beast, but when we do we normally get good feedback.”

Sinclair could be forgiven for not getting out of the office much in recent times, having been occupied by the MMR. The trade body recently submitted its response to the distribution consultation paper which forms part of the MMR.

“We need to promote the idea that advice is good for consumers,” he says. “We would go as far as to say that advice should be compulsory for certain groups, such as first-time buyers, those who have some form of debt distress or are on an interest-only mortgage.”

Sinclair is concerned that legislation being brought in by Europe will not make it a level playing field between lenders and brokers.

“What I’m reading into what is going on in Europe is that there will be a difference between what will apply to the intermediary channel and what will apply to lenders,” he says. “Intermediaries may be forced down an advised route by Europe, whereas lenders may not.”

One thing working in AMI’s favour is that Europe sees the inter-mediary market as a force for good and a way to open up foreign markets to consumers.

“On the other side of this you have some powerful institutions and lenders that are working hard to maintain the status quo in their country because they do not want any level of competition coming into their market which brokers could introduce,” he says.

Another issue AMI is concerned about is the way the proposals are being separated. In December last year the FSA said that it would delay the approved person’s regime until at least 2012.

AMI is concerned that the regulator’s approach to the MMR is too divided and it would be better if the proposals were brought in together instead of slowly seeping in.

Sinclair wants to see a cost analysis of all the proposals set out in one document and not an analysis of each section carried out separately.

“Due to the interconnection of the proposals there is a pressing need for further consultation on the combined elements of the MMR in a single paper, prior to implementation,” he says. “This further consultation should also consider the significant impact of impen-ding Europe initiatives on the current proposals.”

One of the main concerns for the broker market coming from Europe is that the MMR could push the mortgage market closer to Retail Distribution Review-style rules whereby brokers would not be able to accept commission.

Sinclair is not worried about the UK regulator banning comm-ission as the threat is from Europe. He says the way in which European regulation could be interpreted makes it unclear if it intends to adopt elements of the RDR, which will be introduced for investment advisers by the end of 2012 into the mortgage market.

So if an RDR system came in he would want parity between brokers and lenders, whereby the latter must clarify how much their in-house adviser has added to the cost of the product.

“At the moment it doesn’t appear lenders will be subject to the same degree of scrutiny as brokers,” he says.

“If brokers have to spell out the cost of advice and say how much the product and the advice costs, I would like to see the same from lenders.”

AMI is also not keen on the FSA’s proposals for brokers to issue two Key Facts Illustrations if lenders’ fees are rolled up into the mortgage.

“The move to allow consolidation of fees would be better served by including this as part of the appropriateness test, rather than the use of multiple KFIs,” he says.
But Sinclair is confident the MMR proposals will not go through in their current form.

“We will see some of the existing proposals but I don’t think we will see all of them,” he says.

The MMR has recently become a political debate, with housing minister Grant Shapps weighing into the argument, claiming that in their current draft even he would not be able to get a mortgage under the proposals.

“When the housing minister says he would have a problem getting a mortgage we have a problem,” says Sinclair.

But he is not convinced the government will have much authority when it comes to demanding a change in the MMR proposals.

“The government can say what it thinks but the FSA is set up under statutory government,” he says. “It is independent and has its own method of operation, therefore it cannot be directly impacted by the government.”

But he believes that the intrusion of the government will make the FSA more aware of public feeling towards the MMR.

Shapps recently held a first-time-buyer summit to discuss ways to solve the problems of the first-time-buyer market but much to the surprise of brokers, AMI was not invited.

“I can understand why the talks were focused at the sharp end and around encouraging lenders to lend,” says Sinclair.

“But a number of senior members of the broker community have a clear insight into the first-time buyer market and can shed some light on the triggers that are needed for it to move forward.”

However, Sinclair does not necessarily think the first-time buyer market is where the government should focus its intentions.

“Given the current position lenders are in if we allocated more funds to first-time buyers that has to come from somewhere else and there will be less money available for remortgagers,” he says.

But Sinclair would still welcome an invite to join the discussions.

“What’s missing from that debate is us saying as intermediaries can we sell it,” he says. “It’s one thing for people sitting academically around a table saying we can do this and that but it’s brokers who are the ones who have to put it into practice and have a discussion with first-time buyers.”

The first charge mortgage sector is not the only thing keeping Sinclair busy. The secured loan market is also going through a period of change with sister trade body the Association of Finance Brokers working towards FSA regulation of the sector.

The Association of Independent Financial Advisers launched the AFB at the height of the market in July 2006, but the sector has since rapidly shrunk.

Recent figures from the Finance and Leasing Association show secured loan business totalled £301m in the 12 months to October 2010, down 29% on the same period the previous year.

But Sinclair is confident the major players are AFB members and with the Treasury recently announcing that the regulation of secured loans will be transferred to the FSA from the Office of Fair Trading, the trade body will continue to represent the sector.

“Given the regulatory changes that are being proposed in the second charge market there is still a need to separate the role of AMI to the AFB, so the secured loan sector has its own voice and can negotiate and agree that change,” says Sinclair.

“I think it would be difficult to pull them too close together at this point in time. But I do see an end point when they will come together because it’s logical that if regulation all goes into one place that the AFB would be absorbed into AMI.”

In addition to regulatory issues, brokers in the first charge sector still face the threat of dual pricing from lenders and providers cutting broker panels.

Lloyds Banking Group recently hit the headlines when it rev-ealed it had removed 100 brokers from its panel in the past year due to suspected fraudulent activity. This is an issue Sinclair was asked to examine.

“I have to say that when this first started happening AMI was asked to look into it by members and the cases Lloyds group showed me I think were clear cut,” says Sinclair.

At one point in the market brokers were clearly dictating how lenders operated and that was not a great place to be

While this may have been communicated to AMI, brokers who had been removed from Lloyds group’s panel complained that they had been told nothing.

Mortgage Strategy was contacted by a number of disgruntled brokers in 2010 who claimed they had been unjustly removed from the panel and given no explanation why.

“What I have been keen to impress on lenders is that there needs to be a decent appeals process,” says Sinclair.

“They need to feed that back to the owners of networks and clubs so they can take the right action. Lenders need to share that information with firms.”

The relationship between brokers and lenders has changed dramatically since Sinclair took the helm at AMI. He is no stranger to the lending market having worked for the nemesis of the broker market, HSBC, before moving to head the advice development and quality retail banking arm at Abbey.

Sinclair says he moved from HSBC to escape the investment industry and eventually made the leap to AMI because of his belief in the intermediary sector.
“All through my working career I never really worked in tied selling as I never believed in it,” he says.

“I am a believer in intermediation. There was a point at the peak of the market when brokers were clearly dictating how lenders operated and that was perhaps not a great place to be. I believe if you are a lender and investing your clients’ money in one way or another you have a responsibility to do so in a responsible way.”

But he does believe the broker market gets support from lenders and vice versa.

One area that has not helped improve relations between brokers and lenders is mortgage fraud. This has tarnished the reputation of the broker market with the FSA banning 101 brokers since Dec-ember 2006.

“The FSA has been clearing a backlog and I think we will start to see the number of broker bans and fines trickle off now,” he says.

In 2010 AMI asked John Malone, executive chairman of PMS, to represent the trade body on the Mortgage Fraud Forum.

“There are two types of fraud,” Sinclair says. “The customers who embellish their income which leads to an enormous number of borro-wers in bad debt, but the banks don’t lose any money from that.

“Then there is the much more systemic fraud where a solicitor arranges multiple applications for one property and collaborates with professionals. This is the kind of fraud that lenders are most concerned about.”

He does not predict mortgage fraud will vanish from the inter-mediary sector any time soon, but hopes lessons have been learnt.

“We may start to see some new fraud cases in the future, but one hopes people have learnt lessons from the regulator’s actions,” he says.

But with so much going on in the industry there has never been a greater need for brokers to make their collective voice heard. Just as with politics, Sinclair’s methods will not always win the support of all of AMI’s members, but the trade body will continue to play a pivotal role in voicing the concerns of the broker market and fighting its corner.

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