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Is IMLA right in saying regulation has brought nothing but extra costs and little value to customers?

Though the extra costs of regulation have mainly been on much-needed IT upgrades our experts disagree on its value to clients

Though the Intermediary Mortgage Lenders Association feels regulation has brought little value to consumers and nothing but added costs to lenders and brokers, I strongly disagree. There have been plenty of benefits to all parties, though implementation has been clumsy.

The biggest benefit is the perception that clients now have of our industry. Customers must feel more comfortable knowing that the advice process is regulated and can be more confident they are getting the right product. This has to be a good thing.

While I support regulation, I had hoped the bedding down period would have been quicker and smoother. Problems may have been caused by the fact this is such a diverse industry. The Financial Services Authority is still trying to understand our business.

One of the biggest problems has been long Key Facts Illustrations and there’s a danger this isn’t helping customers understand products. But the shortcomings of this document have been recognised and are being addressed.

As for the cost of regulation, most of this has been on technology, plenty of which spending was long overdue. Some lenders have spent a fortune on their systems but still haven’t got it right. A few are still having serious problems. But the fact that lenders have been forced to upgrade their systems is excellent news for brokers. Regulation has made this happen faster than would have been the case.

Many lenders had systems which didn’t allow us to interact. We would input applications which lenders would then have to print off and key in at their end. Regulation has forced lenders to upgrade these systems perhaps years ahead of when they would have otherwise have done.

We should be grateful for that as it makes our job that much easier.

When it came to mortgage regulation the Financial Services Authority believed it had consulted widely, particularly with lenders, and that its regime would prove durable and effective. What the FSA’s draughtsmen ignored was the law of diminishing returns. A more pragmatic regime would have delivered the consumer protection required without an adverse impact on a market which, in most cases, was fulfilling the needs of customers.

The Key Facts Illustration failed because its designers ignored a simple truth – it is the customer who decides what is important. The KFI doesn’t answer the key questions normally at the front of a consumer’s mind. Instead it recites information the FSA thinks the customer ought to know. Few applicants, for example, are interested in the total cost of the mortgage over the full term since most recognise their needs and circumstances will change.

There’s little doubt most consumers now find shopping around a slower and more painful process. Mortgage interviews take longer and it is no longer possible to gather basic information quickly and informally. Many lenders are reporting lower redemption ratios. Existing customers are far less likely to remortgage in 2005 than in 2004, but perhaps this is just a coincidence.

But the FSA is listening. It recognises the regime has not been a runaway success. This will presumably lead to yet more consultation. And therein lurks another threat. The market has spent countless millions and many sleepless nights getting its systems compliant. This has retarded other developments and stifled innovation. If the goalposts move again there will be more cost and disruption.

We need simplification and a lighter regulatory touch but change should be evolutionary. We tried revolution in 2004 – it didn’t work.


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