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Association of Mortgage Intermediaries: Sound of two hands clapping

The notion of principles-based regulation carries an inherent ambiguity where actions could be open to intepretation and dispute. But the merits of such an approach means the regulator will be able to spend more time weeding out the bad apples ruining the image of the sector

In the mortgage distribution market place today, it is true to say that big is beautiful. Distribution channels that have enough size and scope to offer lenders guaranteed sales volumes are able to negotiate the most attractive exclusive products. This in turn helps to generate sales.

I don’t believe in astrology. I’m a Scorpio and we’re a sceptical bunch. I do believe in empirical evidence, sound research methodology, and the power of the cost/benefit analysis. I suppose it was how I was raised but I am long on evidence and short on belief. I like rigour of thought to be applied in regulatory matters too. I guess it is just because I used to be a cynic – but now I’m not so gullible.

The need for rational, logical, even methodical thought and action were further instilled in me as a management consultant where process was as prized as output and elegance of thought was particularly well regarded. That is why I always look for the bigger picture, the implications and the long-term results. I am, and will always continue to be suspicious of words that are deceptive. Such sound bites include ‘fairness’, ‘principles’, ‘vision’ and even ‘quick wins’. As one of my favourite management gurus Stefan Stern recently pointed out “quick wins” usually lead to long-term problems because they do not encourage a proper consideration of the outcomes.

It must be said at this point that I am in favour of principles-based regulation, or to give it the full acronym – TMTAMPBRR (the move towards a more principles-based regulatory regime). I firmly believe the promised regulatory dividend will be worth the disruption caused to the industry along the way.

The same is true for treating customers fairly. Who could argue that TCF has now passed into the sector’s lexicon. TCF is the Madonna of this regulator, rather like the pop star who only needs one name, TCF doesn’t even need to be pronounced in full for us to know exactly what we mean. I also believe TCF will help the industry grapple with some difficult issues and emerge as better, more professional and more focused on the consumer.

The sharpest of readers may have noted some of the inconsistencies between the language in these paragraphs. I do believe that these moves by the regulator are positive and welcome but I would like to see some further work being done to prove the case: we have seen the costs, surely the benefits could be identified? I say this not as a criticism but as a plea.” The dividend of a regulator less focused on process and more on outcomes is one to be eagerly embraced”When the regulator wishes to introduce new rules, a process of consultation must be gone through. This is both rigorous and for the benefit of all concerned: the consumer, the industry and even the regulator. This process helps us to identify where changes and improvements to the proposed regulation can be made.

Action through principles is harder to achieve as, rather like fairness, it is open to interpretation, it is open to dispute. I speak as a philosophy scholar well used to arguments about the definition of “the good” and even how one should live the “good life” although, strangely, this has nothing to do with Tom and Barbara’s small holding in Suburbia! If my years of study taught me anything, it was that there is a range of definitions on such matters as what is fair. In addition, my years in trade bodies taught me that ambiguity leads to risk – and we all know that risk is a risky business better sorted out than worried over or ignored.

As a trade body we have made our position clear on principles-based regulation: we are supportive of the move and want to work with the regulator to see it is delivered in a manner that firms can work with, can understand, and that does not increase their risk -profile, given the period of uncertainty that may arise.

The dividend of a regulator less focused on process and more on outcomes is one to be eagerly embraced. It should mean that good firms receive only positive, if interested, interactions with the regulator while the Financial Services Authority is free to spend more of its time both weeding out those firms that are deliberately trying to buck the system or which need help in rising to the challenges. The sooner the bad apples are eradicated, the sounder we will all sleep, as they sully the whole sector’s reputation.

I have long held it to be the case that effective regulation makes the sound of two hands clapping. The regulator and the industry must meet each other somewhere in the middle but the result is worth the journey. We know that the regulator has embarked on its journey toward more principles-based regulation As an industry we just need a little more evidence to ease our path.


Chris Cummings, director general, Association of Mortgage Intermediaries

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