The Financial Services Authority recently published a consultation paper with the catchy title of CP07/23. I’m not going to bore you with the intricacies of the paper but there are some aspects we should all be aware of, particularly mortgage and insurance brokers who are not currently subject to the full range of rules in the FSA’s Systems and controls sourcebook.
Stating that it is acting under a European directive, the FSA is looking to make its sourcebooks consistent and create a common set of high-level provisions.
These provisions will be overlaid with the FSA’s in-tended move towards principles-based regulation.
This is all well and good and could make sense but for an embattled mortgage sector already reeling from strangled supply and a malignant property market, it’s just an-other thing to worry about.
The most controversial proposed extension to the regulations is the requirement for companies to strengthen their systems and controls when it comes to managing risk, in particular in their outsourcing arrangements.
It’s a given that firms can’t outsource their regulatory responsibilities, even under the current rules. But the intimation of CP07/23 is that the scope of firms’ responsibility relating to their outsourced activities is more extensive than has been understood until now.
Methods of outsourcing used by brokers include sourcing systems, packagers, surveyors and secured loan master brokers to name but a few. Under the FSA’s proposals, regulated firms would have to undertake due diligence investigations of outsourced firms they use, as it wants to ensure there is no chance of risk transfer with regard to outsourced services.
So by extending the scope of the Systems and controls sourcebook rules to encompass brokers, a range of additional facilities would get swept in too. But how far do you go?
Firms will be responsible for ensuring all outsourced services they use are assessed for risk.
This includes everything from checking on the financial strength of providers to understanding the disaster recovery plans of sourcing systems used for data storage.
You may think this is relatively straightforward but it begs the question – how much is enough? What will be considered reasonable by the regulator? Brokers can take some common sense steps but ultimately the risk will rest with them.
The UK has long been seen as the gold-plated regulator of Europe. Where other countries work off single pages of A4 we create 500-page rulebooks and these proposals seem to be yet another example of bureaucrats making jobs for themselves.
Make hay while the storm rages
It has often been said that the Chinese have the same symbol for opportunity as they do for threat, and the mortgage market seems to be following suit.
A Florida estate agent had started a bus service with a difference. It’s called the repossession express and provides a tour of homes up for repossession in the area.
The idea is to lure investors onto the bus by offering the services not only of the estate agent on board but also a lawyer and a mortgage broker. Investors can snap up deals quickly and the estate agent can close sales pronto.
Is this idea transferable to the UK?
HIPs are adding to market woes
Last week the Tories said they would scrap Home Information Packs. And about time too. HIPs were watered down to the point of irrelevance but this irresponsible government decided to press ahead and introduce them anyway.
This is despite the fact there were signs that the housing market was in steep decline and the full-scale introduction of HIPs would push many estate agents over the edge.
Now, on top of the liquidity crisis we have one of the worst property markets for 15 years with the threat of negative equity looming and a reduction of some 60% in the number of mortgages available.
So what does the government do? It adds another £400 to the house selling process at a time when most consumers can’t afford it and when the speculative nature of the selling process is badly needed in the housing market. Brilliant.