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AMI fears the end is nigh for independents

Trade body’s director general talks about a Doomsday scenario if the FSA forces lenders to police mortgage intermediaries. By Guy Anker

The Association of Mortgage Intermediaries fears that the independent mortgage broking sector could be wiped out if the FSA makes lenders responsible for policing intermediaries.

Director general Chris Cummings says the potential crisis is top of his priorities and wants to nip the problem in the bud before it destroys independent homeloan advice.

The concern is that the FSA is using its treating customers fairly initiative to heap more responsibility on to lenders. The increased risk could lead them to shun the intermediary market in favour of the direct sector.

Cummings’ concerns are shared by a number of lenders and brokers but not by all in the market. He believes this confirms his view that many of his members are unaware of the problem or of its seriousness.

The FSA will reveal its statement of intent on this issue in the summer but has made it clear in previous speeches that it intends to hand more responsibility to product providers in the mortgage market and the wider financial services arena.

In March, TCF director Sarah Wilson made it clear that the FSA strongly disagrees with firms that claim TCF does not apply to them because they have no direct contact with retail consumers. She said: “The product provider that distributes wholly through separate intermediaries, for example, retains responsibility at least for product design and testing and for appropriate marketing to and training of intermediaries. Their actions clearly affect the outcome for the end-consumer.

“We would expect the provider to take an interest in finding out after the event whether the products have indeed been sold to the expected type of consumer.”

Cummings says: “We do not think it is the role of the lender to police intermediaries but we are being pushed down this route. If we get this wrong, then it will be the death of the independent mortgage sector. That is why the industry must unite on this.”

Cummings wants to arrange a meeting with the Council of Mortgage Lenders and Intermediary Mortgage Lenders’ Association to devise a plan to stave off the threat.

The FSA proposed that lenders should take responsibility for regulating brokers in its CP98 consultation paper in June 2001, before mortgage regulation, but the plan never took off. Cummings feels that such a plan is now being put in place in the guise of TCF.

Cummings wrote to the FSA recently about his concerns and says the regulator insisted it does not intend to pass the regulatory buck to lenders but he fears this assurance will not stop the Doomsday scenario becoming a reality.

Cummings is supported by Accord Mortgages managing director Linda Will, who says she may be forced to rethink her business model and go direct if lenders are required to supervise brokers.

She says: “Responsibility for advice rests with the intermediary and lenders should not be getting involved with that. I do not think the FSA ever thought they would end up with so many regulated firms and how difficult it would be to police them. I think it is using TCF to fill in the gaps where MCOB does not work.”

Cummings believes that lack of manpower is one reason behind the FSA’s plans but says: “It is tough luck if they cannot do it all themselves, even if it would make the FSA’s job easier by passing responsibility to lenders.”

Mortgage Advisory Service head Stuart Wilson says: “Costs will be massive if lenders are compelled by the regulator to take responsibility. It could be the beginning of a particular problem with distribution swinging the other way to the current trends.

“A good example of this happening already is the CML trying to get equity-release brokers to sign its good practice check list and then asking lenders not to process applications from brokers that have not signed.”

Brentchase Financial Services mortgage specialist Mike Fitzgerald says: “If lenders were responsible for brokers, then that would not be treating customers fairly. Where would it leave the housing market if intermediaries lost their business?”

The CML and Imla say they have yet to see compelling evidence that the FSA will try to use lenders to regulate intermediaries although both bodies agree that the market would suffer if that were the case.

CML spokesman Bernard Clarke says: “It would be difficult for one business to supervise another. It would add costs and create uncertainty for both intermediaries and lenders and it is not something we favour.”

Imla chairman Guy Batchelor says: “We are not there to regulate brokers to give advice as that is why the FSA is there.

“This is a concern for Imla members. If it happened, it would force members to rethink their model because of the costs.”

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