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We must learn from this warning shot

I’m sure nobody was under any misapprehension that things would be easier under Financial Services Authority regulation rather than the Mortgage Code Compliance Board. But a principles-based regulatory process, which the FSA is committed to, can give firms a feeling that they are on the right track even if they are not.

Such illusions were not possible under the prescriptive system adopted by the MCCB but I can’t see the FSA changing.

If the industry thought it was doing well, recent industry press headlines questioning the quality of advice being given by brokers will have been depressing. Similar headlines in the consumer press must be seen as a short sharp shock for our industry.

Although headline writers often pick up words from press releases and focus on those that sell papers, our industry has to change when newspapers such as The Times Online use headlines like ‘FSA slams mortgage advice’. After all, giving advice is where brokers add value and if they can’t do that they will die a slow death.

But if anyone reads the FSA press release, its headline focusses on the fact that firms need to improve their processes for giving advice. The text details findings showing that only a third of the firms it sampled had robust processes in place to provide customers with suitable advice. This is different from two-thirds of firms giving poor advice.

That does not mean firms need do nothing. This report is a strong warning shot from the FSA. Firms ignore it at their peril.

Again, advocates of the network model will argue that directly authorised firms cannot survive in the FSA regime. Nobody will be surprised that I do not agree. Just look at IFAs who sell products with a greater consumer risk than mortgages and who have worked under FSA regulation for longer than mortgage firms. Around half of them are DA.

Forget the fact that good mortgage clubs already offer DA firms robust compliance services, take a firm which wants to stay DA and do its own thing without the help from a club. The FSA website and particularly the pages for small networks and firms list six areas where firms should take action. There are also examples of good and poor practice and a number of case studies. With such help from the FSA firms have no excuse for getting it wrong.

The future is bright for mortgage brokers. The apparently endless increases in the numbers of lenders and products mean consumers need the help of professionals in choosing the right mortgage. Let’s take this warning shot in the spirit it has been given, sort ourselves out and not give consumers the excuse to try to do their own thing.

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