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Don&#39t be afraid of direct authorisation

Last week I came clean. I bared my soul and, while gritting my teeth, I wrote that despite being the chairman of a network, I felt that most mortgage advisers would be better off being directly authorised rather than via a network. Which is not, sadly, the case for IFAs.

Now that we have seen what the authorities are proposing, it is clear that they do not regard the mortgage business to be as risky for the consumer as the investment and personal finance industry. Indeed, they say exactly that in CP146 and, as a result, they are taking a sensible approach to mortgage regulation. This means a lighter touch, which in turn means that the regime will be significantly more straight forward than is the current case for IFAs.

This really is excellent news and will mean that many, if not most, brokers will be able to go for direct authorisation and hence, as I said in last week&#39s article, be able to retain their independence, maintain flexibility and handle regulation at a lower cost.

To my mind, there is nothing to fear from direct authorisation. Sometimes there is an understandable fear of the authorities (and sometimes I feel this fear is stoked by some networks), but this is entirely unjustified.

I was a member of NASDIM, the forerunner of FIMBRA, the forerunner of the PIA and now finally the FSA (there has to be a really rude anagram in here somewhere). I have always found the regulators to be fair and reasonable and actually very pleasant.

I don&#39t agree with a good bit of what they produce and sometimes they seem to take a steam hammer to crack a nut. However, they are genuinely trying to do a good job and no reasonably managed business should have a problem.

There are broadly three routes to running your own compliance. You can do it yourself, employ a compliance officer or, as most firms will probably do, employ a compliance service.

For most, I think that the idea of doing it yourself is a nonstarter. Lighter touch regulation does not mean less rigorous regulation. These days, compliance is a full-time job. If you do not believe me just get hold of CP146 and see how long it takes for you to read (and understand) it. Then multiply that by the 30 to 50 such documents we get each year. Then add in the multitude of rule changes etc we see each year and finally think about the time involved in implementing all the relevant dictums. You can then start to think about construction of the annual compliance plan, checking files, training and competence procedures etc.

All in all, I believe most brokers will be better off doing what they do best, looking after their business. Time spent on compliance is time not spent earning your daily bread.

You can, of course, employ your own compliance and T&C officer. However, including all peripheral costs, this is likely to set you back some £30,000-£40,000 per annum. Great if you can afford it, but in practice it is only likely to be the big firms that will be able to do it.

I believe that most brokerages will opt for a compliance and T&C service. This can range from a consultant working on their own to a large company. Both offer the back-up you will need.They will help with the initial application to the FSA and provide the continuing service. They can look at your business and advise on how best to meet the authorities&#39 requirements.

They will keep you informed of any changes to the regulations and make periodic checks on your files to make sure that they are up to scratch. They will prepare the annual compliance and T&C plans and assist in the preparation of the regular returns.

Also, most compliance services will usually come into your office to attend the FSA visits. Until you have had a couple of such visits they can seem rather daunting and having a knowledgeable professional sitting in can be very reassuring.

The choice between a small compliance and T&C service and a larger company is both a personal and commercial one. The smaller firms are likely to offer a more personal service. However they can be quite expensive with most firms charging around £50-£75 per hour.

In addition, there is sometimes the problem of cover during holidays or illness.

The larger firms are likely to offer a more standard service. There is usually a standard compliance manual which is designed to suit all comers. It is a bit like buying your computer software from PC World rather than having a consultant write you a bespoke programme.

Such an approach is less personal, but does mean that you do not have to spend such a lot of time with your consultant discussing your requirements and you will know that it will do the job.

The larger firms can also often offer enhanced commissions. If so, you may well be able to offset much, if not all, of your new compliance costs.

Finally the traditional word of warning. If you do feel you want to go for direct authorisation, I strongly suggest that you do so by October next year. In my experience, it takes around six months to get authorised but with thousands of firms needing to be registered, I believe that it could well take up to a year.

Can you afford to take the risk that you may not be able to carry on business for a week, a month, or longer? Doing your homework should be your New Year&#39s resolution.

Three routes to compliance

Doing it yourself

This is not the easiest way to go about running your own compliance as it is now a full-time job. Lighter touch regulation does not mean less rigorous regulation and time spent on compliance means less time spent making money.

Employing a compliance and T&C officer

The biggest drawback is cost, as it is likely to set you back around £30,000-£40,000 a year. So, though it is good if you can afford it, it seems likely that only big firms will opt for this.

Opting for a compliance and T&C service

This can range from a consultant working on their own to a large company.

This service will provide support from the initial application to the FSA and advise on meeting the authorities&#39 requirements.

Smaller firms offer a more personal service but can be expensive, with firms charging between £50 and £70 an hour.

Large firms offer a more standardised service but can often offer enhanced commissions enabling you to offset new compliance costs.


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