Whether you are an investment adviser, mortgage intermediary or insurance broker, our regulators are likely to be increasing your costs.
Adding new rules and disclosure, they are also generally wanting to get up close and personal by interfering more directly in how we run our firms.
This obsession with micro-managing the process indicates to me a lack of faith in their own ability to determine strong central controls over and effective supervision of product providers.
So to deliver more control we are seeing another inflation busting increase in FSA fees.
The £500m budget proposal is of course dwarfed in our sector by the additional £300m bill being levied on investment firms by the Compensation Scheme for the failure of firms such as Keydata.
That these represent significant failures by the FSA to identify and deal with high risk firms under their nose is the biggest concern. We pay for them to be involved and we pay for their failures. Being the FSA looks too much like a one-way bet.
The combined cost of looking after mortgages, lenders and advisors, escalates to £28m for the next year. Many of us “old timers” remember fondly the MCCB. 70 people who cost us £4m to regulate 150 lenders and 40,000 sellers in 2004. So where do we think £28m goes.
Taking the average cost of an FSA employee, £57k and discount this as mortgage people cannot be as expensive as Capital Markets staff, let’s round to £50k. If I placed teams of 10 full-time supervisors in all the 25 most active lenders then that comes to £12.5m.
So with the rest I can do policy, ask questions and run some MI (?)……and have some change left over…..
Another way of looking at this is that the mortgage sector accounts for 5.8% of the total FSA budget and by the end of the year the FSA will have 3700 staff. So what are our 200+ mortgage staff doing?
In addition we have to pay for FOS and FSCS and this looks like relatively good value for money.
The additional increases for consumer education and money advice by 33% is a cost we cannot afford at this point in the economic cycle.
Although a desirable and encouraging commitment to improving consumer awareness, intermediaries cannot take the hit for this. Given the average mortgage broker is struggling to make £30k this year, it is difficult to understand the justification or sense of these fees.
At AMI we are reminding the FSA that regulation must be proportionate and affordable.
These fees and costs are becoming a barrier to trade. Intermediaries are a force for good, give consumers genuine advice and choice and keep lenders competitive and honest.
In summary, as the direct and indirect costs of regulation escalate, more and more of the brightest and most flexible in our industry look at this and think there may be better ways of making a living with less personal risk.
The regulator risks damaging one of the greatest forces for good without realising it.
My plea to the industry is to stay involved with the one trade body which has the voice to make a difference. At AMI we will continue to campaign for our members to stem what feels like a tsunami of costs and regulation.