Contracting out regulated activities such as compliance services will cause unnecessary confusion for brokers after M-day, warns Purely Mortgages chief executive Mark Chilton.
He says brokers which farm out compliance will be sending mixed messages to consumers.
Under the new regulatory regime, brokers will have to disclose which company they are an authorised representative for. However, it is unclear whether this will be their parent group or the company that oversees their compliance.
Self-cert and sub-prime specialist Ethical Mortgage Solutions has handed over all its compliance and network responsibilities to Mortgage Next, which becomes principal to Ethical's 120 franchisees.
Ethical Mortgage Solutions chief executive Steve Royal describes the new business model as a “franchisee network”. Commission will be paid by the lender to Mortgage Next and then passed on to Ethical Mortgages, which in turn pays its brokers.
Ethical says it will provide marketing and advertising support to franchisees building a national brand in the non-conforming side of the market.
Royal says: “This move has freed us from having to run a compliance team so we can focus on what we do best. The responsibility for any compliance problems will lie with the principal.”
Chilton says: “Who do these individuals end up being appointed representatives of and how will this be disclosed to consumers? This is one of the issues with sub-contracting regulated activities. It is very unlikely that Mortgage Network would take the liability for members if Ethical were to go under.”