The Financial Services Authority’s new head of mortgages and credit unions describes Mortgage Strategy’s recent Mortgage Summit in Dubai as a nightmare.
Mandy Spink cites the question and answer session following her speech on the first day as particularly harrowing.
“It haunts me,” she says. “I got a grilling about what the FSA will do with the £50m we are going to levy to help us implement more principles-based regulation.
“It was a nightmare, first as I hadn’t thought of the question and second, because I didn’t know the answer.”
Spink’s honesty is refreshing. The regulator has been an easy target for criticism due to its apparent struggle to develop the knowledge and resources required to regulate the complex and diverse financial services market.
Moreover, it has been difficult for industry players to take seriously a body which has failed to make inroads into breaking down its perceived ‘them and us’ mentality.
Spink is determined to address this, and with her unassuming nature and a micro view of the industry that seems so far from the characteristic macro responses it has endured from her peers for some time, it is difficult to doubt her sincerity.
Her accountability is a case in point, demonstrated by the way she says the phrase “I accept” regularly as she speaks about the industry. Take the £50m issue, for example.
“I accept the point that this is a lot of money and I think everyone in the FSA knows that,” she says. “I also accept that we need to spend the £50m carefully and be transparent about what we do with it.
“The reason we’ve gone for such a large amount – which will in effect be amortised over a 10-year period which means it’s not going to hit the bottom line all at once – is because principles-based regulation is as big a deal for us internally as it is for the market.
“We’ve got to get ourselves ready if we are to deliver on this as much as we want the market to,” she adds. “It’s a serious investment.”
Spink says the money will be spent on training to change the regulator’s staff’s behaviour and rules-based ways of thinking as well as on IT and infrastructure changes.
But, surprisingly, she adds that she and her peers will neither be briefed about the breakdown of the £50m nor what proportions apply to their respective divisions.
That Spink was daunted by her Dubai experience and her lack of preparation and knowledge is unsurprising, given that she had only been in her role for seven weeks at the time.
That said, her FSA career spans some 15 years, starting with the supervision of two of the UK’s largest mortgage lenders and conducting Arrow visits.
She was promoted to the FSA’s high street firms division when the government announced plans for statutory regulation in the mortgage and general insurance markets.
Previous to the FSA, Spink worked in the economics and statistics department at the Bank of England after graduating from Birkbeck College in London where she read business studies and economics.
So where did the UK’s financial watchdog start with the grand task of implementing statutory regulation in the mortgage and GI markets in 2004?
“In a small room with a blank sheet of paper with about three people all scratching their heads, thinking ‘Oh crikey, how are we going to do this?’,” Spink says.
“On the policy side we were lucky as we had a lot of experienced people who had thought about policy in other areas that were relevant. Many people on the Prudential side knew a lot about mortgage lending.
“We also had people on the Conduct of Business side who were used to looking at individual financial advisers,” she adds. “We could draw on their knowledge to understand the fundamentals of the regime.”
Spink says the team used business engineering consultants to help deal with the volume of work required.
“It was an eye opener for someone like me – it was doing something that needed expertise and judgement but on a big scale, rather than working case by case,” she says.
Spink says the mortgage industry responded quicker to the transition to statutory regulation than the GI sector, mainly because of the fragmented na-ture of the latter which meant dealing with businesses ranging from dentists to vets.
The project was instrumental in helping Spink secure her present role, due to the internal knowledge and ex-ternal expertise and contacts she built up across the sector.
“It put me in the best position to do the best job for the sector as we move forward with regulation,” she says.
“This job involves two of my great loves – regulation and dealing with small firms. Small firms are always refreshing because they like to stand up and be counted.
“They say what they mean – they tell you when you’re doing things right and when you’re doing things wrong, and I like that,” she adds.
Brokers are certainly opinionated about the perceived shortcomings of the FSA, not least in their anticipation of difficulties in implementing principles-based regulation.
As Mortgage Strategy columnist Rob Griffiths highlighted on May 21, there is confusion about the FSA’s stance on the transition from rules-based to principles-based regulation. This was highlighted in his review of the regulator’s progress report on small firms’ implementation of its Treating Customers Fairly initiative.
Griffiths makes the point that it is difficult to see in what way the regulator is moving towards an outcome-focussed regime while it is making examples of the small firms that missed its March 31 deadline despite its admission that this does not automatically mean that firms are not treating their customers fairly.
“Principles-based regulation isn’t only about looking at outcomes,” says Spink. “Our job is to play a part in setting outcomes and one of the ways you can see whether firms can achieve satisfactory outcomes is to look at their processes, so we’re never going to get away from not looking at these.
“We are not going to be prescriptive about the processes used to achieve outcomes,” she adds.
“If firms focus on outcomes and how they can achieve them in the most compliant and competitive ways, we think that makes for a better regime for us to manage and a more competitive market for firms to operate in.”
Spink says the FSA’s website is the quickest and easiest way of keeping up-to-speed with principles-based regulation – a somewhat different view from that of Mortgage Strategy columnist Bill Warren who, in last week’s issue, described the frustrations of navigating around the FSA’s vast resource.
Spink promises to think about this criticism because “it’s an interesting point”.
It’s here that you begin to question Spink’s sincerity and wonder if her eagerness to roll up her sleeves and get her hands dirty with issues at ground level is more a result of her recent principles-based training than a genuine desire to develop the market.
But a pragmatic approach is consistent throughout Spink’s conversation, quashing any such suspicions.
Take the example of European legislation. Spink is cognisant of the balancing act the FSA will have to perform when it comes to incorporating European Union legislation, to avoid unnecessary costs for the UK, which she says are a possibility because of the potential overlap of rules.
“The difficulty lies in educating the European Commission about the fact that the financial services markets in Europe fall short of the competitive nature of that in the UK,” she says.
“We have questioned where the market failure is because consumers won’t want to shop across borders due to language issues, for example.
“We’ve asked the EC to think about where integration could be helpful, such as with Land Registry and funding arrangements,” she adds.
For now, Spink will focus on helping brokers improve their compliance standards and digest the ramifications of principles-based regulation.
As for the impact of EU legislation on the broker community, she and her team will keep campaigning with trade bodies and businesses to ensure the UK’s message is heard.
Negotiating with the FSA’s superiors is par for the course for Spink. The watchdog’s remit is set by the Treasury which, as she says, “holds the pen.”
But these negotiations should not concern brokers in the short term. After all, they will be focussed on the outcomes of the regulator’s efforts rather than its processes.