Brokers face cost hike to keep up

Mortgage brokers may need thousands of pounds in capital backing to stay in

business after regulation, under proposals the FSA will float in December.

The setting of capital adequacy standards falls under the FSA&#39s high level

requirements for authorisation of mortgage intermediaries. The rules ensure

that a firm has the financial muscle to control the “risk associated with

its business profile”.

An FSA spokeswoman told Mortgage Strategy: “There is some sort of capital

adequacy, or threshold, for every firm we regulate.

“We are not prejudging how capital adequacy may apply to mortgage firms. We

may ask whether people think these standards should apply – it may well be

we think they should, but we will consult on that at the end of the year.”

Such requirements already cover investment firms, insurance companies and


It is not clear how these standards would be extended to mortgage brokers,

or to what extent the capital requirements for individual firms will be

calculated by size or risk.

Pundits say the impact of capital adequacy on the intermediary

market will be proportional to the values set. Rob Clifford, managing

director of mortgageforce, says: “The key thing is where the threshold is

set. If it is set at £50,000 then it&#39s possible that a good number of sole

traders could not continue to trade.” He adds: “I see nothing wrong with

capital adequacy as part of the barrier to entry to the mortgage advice

industry. It is a means of making sure someone is fit to give advice.”

But Bob Riach, proprietor of Scunthorpe-based Riach Independent Financial

Advisers, says: “I don&#39t see why this should be relevant for brokers. We&#39re

not handling a client&#39s money, and we are only introducing them to a lender

after all.”