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Check your firm is right model

Now that the FSA is shifting into enforcement mode it might be a good time for brokers to reassess their business criteria to see if they need updating and ascertain whether their network or compliance services provider is giving value for money

Two years ago, prior to regulation by the Financial Services Authority, one of the great debates among mortgage brokers was whether to join a network and become an appointed representative or whether to operate as a directly authorised mortgage broker.

The industry has now moved away from this debate to one of a compliance solution.

Whether your firm is a member of a network or simply using the services of a compliance services provider both are just providers of your firms compliance solution. So mortgage brokers need to ask themselves what are they are really getting for their money? In some cases it might only be a set of compliance and terms and conditions manuals, which are really a set of guidelines brokers should follow as interpreted by the provider. Bolted onto this, your provider can offer a few further services to attract business from brokers such as professional indemnity cover, lender panels, packager relationships and software.

What intermediaries should consider is whether it was these services and relationships which originally attracted them to a network or mortgage club in the first place or whether it was the cost? Was the need for general autonomy the reason for becoming direct authorisation? Or did the broker prefer the safe haven of being part of a network?

Many mortgage brokers may not have yet reviewed their specific criteria. Indeed their provider might not have done so either. But 2006 saw a lot of change within the market, and 2007 will see compliance solution providers merging, looking to consolidate and in some cases even disappearing. With all this high level transformation, firms at the business end should ensure their models still fit in with those provided by their compliance solution providers.

We have seen the FSA move from taking enforcement action over selling practices to become much more focused on how individual firms are run and in particular on the responsibilities of a firms senior management.

Perhaps it is most pertinent here to consider the words of Jonathan Phelan, head of retail enforcement at the FSA, who says: We expect firms to have management controls in place to monitor their businesses effectively, and to deal effectively with misconduct by their staff, particularly where it has an impact on customers. A firms management is responsible for ensuring that this is done and a failure to do so could show that it is not treating its customers fairly.

Firms should therefore be asking themselves what support does their compliance solution provider offer in terms of managing the business in a compliant manner and whether there is clear guidance on senior management responsibilities.

If you havent already done so, it might now be advisable to re-examine your business model and ensure the support services you choose are aligned and continue to support your model.


Neal Smith is compliance manager at The Whitechurch Network

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