View more on these topics

The devil in compliance goes further than detail

Preparing for Mortgage Day should be the biggest item on the list of firms&#39 current projects and two key questions need to preoccupy the minds of senior management while their troops are focussing on implementing the detail.

First, why are we being regulated, and second, what impact will regulation have on our marketplace?

The market is being regulated because the Treasury has decided that regulation will bring about changes in the market that it views as desirable. Its objective is similar to the one behind the creation of the Financial Services Act in 1986 that led to the regulation of life and retail investments. It is in this sector that you would be wise to look for clues that might help tackle the second question on the impact of regulation.

The life and investments market in the late 1980s was characterised by powerful manufacturers, servicing a large number of distributors. The culture was sales-driven with product design becoming complex to enfranchise the needs and status of the intermediary.

Distribution changed immensely under regulation. Initially manufacturers responded by establishing large direct or appointed representative distribution channels. This allowed distribution firms to transfer some of the burden of regulation to the manufacturers, who in turn tried to build market share and scale. However, manufacturers soon learnt the folly of this strategy.

Direct sales forces had different cultures to traditional manufacturers, were expensive to operate and harder to control from the perspective of retention and compliance.

The experience with ARs was similar with control being the key area of difficulty. The manufacturer retained the compliance liability and the regulatory risk but the AR operated in its eyes as an independent business. Eventually, regulatory pressures led to the downfall of large direct and AR sales forces and we saw the growth of independent intermediary franchises.

Alongside a rise in operating and distribution costs in the life and investments market another legacy from the regulation of conduct of business has been the series of mis-selling reviews that have dogged the life sector over the past 10 years, with the pain being felt most acutely by manufacturers who operated direct or AR sales channels. Remember, it is the principal firm that carries the responsibility and liability for its direct and AR distribution.

The FSA is now putting the onus firmly onto senior management to consider the appropriateness of their firms&#39 actions against the FSA&#39s principles for business in areas such as treating customers fairly. Compliance with the detail of the conduct of business rules, while important, will not be enough to ensure a smooth relationship with the regulator. The mortgage market needs to ensure it can comply with the detail regulation (thou shall not present APR figures in brackets), but also that it has the infrastructure in place to judge whether it is complying with FSA principles.

If the market does not lift its head out of the detail it is likely that what goes around will come around. The experiences of the life sector are not to be recommended.

Mark Penton is a consultant at Beachcroft Wansbroughs Consulting which specialises in financial services regulation

All your network questions answered by the industry&#39s leading experts

Q: What are the cost and excess figures for network PI cover?

Andy Valvona is network director at Mortgage Next

This will vary by network. At Mortgage Next, the first year&#39s premium is dependent upon turnover and is as low as £345, with an excess of £500.

Bill Warren is network director at the Complete Network

This depends on the insurer and a firm&#39s track record, but I would say expect around £500 per firm, plus an individual excess of approximately £1,000. Many providers are offering cover, but not confirming premiums yet.

Chris French is managing director at the Mortgage Marketing Centre

This question requires us to provide commercially sensitive information, which is difficult. However, we believe that our business should have higher protection for the consumer than the minimum provides.

Elliot Stoneham is commercial and IT director at Pink Home Loans

Pink appointed representatives can choose to use either their own PI facility, provided the level of cover is acceptable to Pink, or Pink&#39s PI insurance facility which provides comprehensive policy cover at a competitive premium. Pink appointed representatives can therefore choose the coverage, cost and excess figures that best suit their business.

Frank Thurlby is head of compliance at Genesis

With most networks costs and excesses are still to be finalised. I do not anticipate seeing huge rises in costs for individual network members. Their PI costs will be similar to those they currently pay. There is no indication that claims are going to increase substantially in number because of mortgage regulation. As a result policy excesses will reflect this.

Chris May is director of Mortgage Times

This is dependent on the network. Some PI cover will be included in costs, some will not. Costs for networks may vary, while typical excesses are £1,000 but this would change depending on the type of claim.

Jason Gardiner is director of House of Finance

All brokers under the House of Finance umbrella have individual PI policies paid for and managed by House of Finance. In the event of a claim against one of our members the excess is £750.

Martin Cave is managing director of Home Loan Partnership

Subject to your compliance record, HomeLoan Partnership&#39s network PI cover is costed not to exceed 1.5% of your turnover, including IPT. Excesses may vary according to product mix.

Richard Griffiths is managing director of Network Data

Some networks such as Network Data make no charge. Others charge for PI and the broker pays the excess in the event of a successful claim; some networks pay for the PI cover but the broker pays the excess. What is the incentive for these latter networks to defend any claims? Answer – none.

Recommended

Website offers guide to buying abroad

It says that while buying property abroad is a dream come true for most people, sadly some horror stories abound. For example, buying a property without a survey to find that it floods every year. Finding an idyllic property in the winter to find that in the summer it becomes a loud and noisy beach […]

Paymentshield appoints HBOS as underwriter for GI products

The deal will see St Andrews take over the underwriting of Paymentshield&#39s range of award winning products including buildings, contents and mortgage payment protection insurance and will make St Andrews a major underwriter of general insurance products in the mortgage intermediary channel throughout the UK. This move fits with the HBOS General Insurance strategy of […]

Can sourcing systems help brokers source equity release products?

The sales of lifetime mortgages have declined in the first half of 2004 compared with the previous six months. You might think that this is something of an anomaly if you consider that the fundamental triggers for lifetime mortgages remain steadfast. Lenders appear to have played their part to broaden the market with the likes […]

MCCB announces post-Mortgage Day arrangements

The changes will take effect on Mortgage Day when the FSA will assume statutory responsibility for regulating the mortgage industry. The Mortgage Code will no longer apply from this date, and MCCB will cease its activities. MCCB has, however, put in place various arrangements to provide assistance to registered firms and consumers after this date. […]

Guide

Guide: how to change your auto-enrolment support

As we approach the two-year milestone of auto-enrolment, employers have had the opportunity to truly assess the capabilities of their chosen support. They are also now realising that getting to the staging date was the easy part, and that support is required for almost every aspect of the day to day running of their scheme. With the three-year re-enrolment window coinciding for many with the total removal of commission and Active Member Discounts from pension-related products and services, as well as the introduction of the pension charge cap in April 2015, many employers will have no choice but to review their support options. But, what is involved in transitioning your auto-enrolment scheme away from your current support options? This guide from Johnson Fleming aims to outline some of these key areas and provide information and discussion points on what you need to consider.

Newsletter

News and expert analysis straight to your inbox

Sign up