Playing safe with dual authorisation

Should brokers apply for direct authorisation as well as trying to become an appointed representative of a network principal so they have a fallback position in case anything goes wrong?

Mortgage Strategy asks two industry commentators, one from a lender and one from a network, for their views on dual authorisation.

Southern Pacific Mortgage Limited director of credit Stuart Aitken says: “It has been suggested that firms opting for AR status should have an application for direct authorisation ready, just in case the chosen network fails to get authorisation as a principal.

“Now a view is being promoted that firms applying for DA should try to get dual authorisation as an AR in the event that their application is turned down.

“Firstly, the majority of mortgage adviser firms already have a good record under the MCCB. If firms have proper systems in place and have planned well for direct authorisation there is no good reason to suppose that the FSA will turn down substantial numbers of applications for authorisation.

“Mortgage intermediary firms who have any doubts about their ability to gain DA – for example, if they have a poor record under the MCCB – should be taking steps to set up compliant systems and procedures rather than seeking the safety net of AR status as an afterthought.

“AR firms must maintain high compliance standards so it is not a soft option for firms that are unable to clear the DA hurdle.

“My view is that the majority of firms that are well run, well prepared and large enough to handle their own compliance should have no trouble gaining DA status. If they are in doubt about anything, many lenders – including SPML – will be happy to give them advice.”

Meanwhile Bill Warren, network director of The Complete Network, says: “It is important to understand that DA and AR status are options that suit different business models. Being an AR should not be regarded as second best or as an afterthought should a firm&#39s application for DA status fail.

“Right now broker firms are making significant decisions about their status and all those that favour the AR route should be looking carefully at the overall costs and services that networks have on offer. Not only that, but also whether the personalities of the two organisations fit each other.

“The very essence of a network is to take on the compliance responsibility for its ARs as well as providing access to enhanced products and services. This is fundamental to the business relationship that holds together a principal and its ARs and it would be wrong to position it as a mere add-on to a broker&#39s business strategy.

“The principal/AR business relationship goes far deeper than a one-off transaction of paying a fee to get a piece of paper that allows you to keep trading. It is all about synergy and networks supporting their members as individual businesses.

“Nor can any organisation applying for principal status afford to issue an open-ended invitation for all-comers to be its appointed representatives – especially those who have already failed to meet the FSA&#39s standard for direct authorisation.”