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Critics round on the regulator

Guy Anker says the FSA is coming under increasing accusations of unsettling the industry and encouraging complaints from borrowers

The FSA’s role in the mortgage market has come in for severe criticism in the past two weeks.

The regulator has been accused by Association of Mortgage Intermediaries director general Chris Cummings of promoting consumer complaints by announcing a number of investigations into various sectors of the market, which he says breeds panic.

It has also been blamed for unsettling appointed representatives after failing to reveal the identity of four mortgage networks that have agreed voluntarily not to recruit further ARs following an FSA probe.

The regulator has come under further fire for the small sample size used in its equity-release mystery shopping exercise and for deterring brokers from working in the sector with its subsequent messages.

The dissenting voices are loud but the FSA has had a number of firms springing to its defence, resulting in some lively debate.

Cummings’ comments came after Loancheck announced its intention to offer a service for borrowers who believe they have been missold a mortgage to seek redress through the legal system.

He fears the plethora of recent FSA announcements about investigations it is carrying out into the interest-only, sub-prime and equity-release markets are creating a sense of “no smoke without fire” in the public’s eyes.

Cummings says: “Just because the FSA is looking into a market, it does not mean something is wrong.”

The FSA defends its decision to reveal such probes as a sign that is it being open and transparent.

Loancheck managing director John Whittaker says: “The FSA has a job to do in regulating the market and it needs to be seen to do its job. The irregularities reported on have been known about for years and even been discussed repeatedly in Parliament.

“When a problem persists and fails to be resolved behind closed doors, consumers have a right to know what is going on, so they themselves can explore all avenues open to them to take action where it is appropriate.”

While being open on one account, the FSA is refusing to name four networks out of 12 investigated which have been found to have inadequate systems and controls to manage their ARs.

GHL Group compliance director Frank Thurlby says: “This is all a bit unsettling for ARs of the new mortgage networks. Some may be wondering if their principal is one of the four and, if so, the implications of the FSA action. We have had no restriction placed upon our recruitment.”

But the FSA has also received backing for its stance. Pink Home Loans managing director Tony Jones says: “It is very difficult for the FSA because it is not a formal enforcement so I do not think it can do more because it is following a plan for the firms to sort out their problems.”

The third area of controversy surrounds equity release. The FSA announced two weeks ago, following a mystery shopping exercise, that there are too many dabblers in the market that are harming overall standards because they do not have adequate systems and controls to ensure customers are given proper advice.

Some have questioned the legitimacy of its findings as only 23 firms were sampled. Earlier this month, the Financial Services Practitioner Panel claimed that the regulator’s tests are statistically useless because of the small sample sizes used. The FSA has promised to review its arrangements but has come to a number of strong conclusions, albeit supported by much of the market, from the recent equity-release exercise.

Key Retirement Solutions business development director Dean Mirfin argues that it is a difficult situation for the FSA because its sample sizes are too small but it will struggle to find enough firms that advise on equity release because the market has not grown as fast as many people hoped.

Mirfin says: “You could argue that 23 firms is not many but then it is difficult to find firms that are clearly in this market as there are the big headline ones and then those that dabble in the market. But a big concern has always been the sample size. We would like to see considerably more sampled.”

The FSA’s communications might also be harming the market by deterring some brokers from doing equity-release business. Scottish Widows Bank head of product development & marketing Murdo McHardy claims some brokers may be turned off the market because the FSA wants those that do little equity-release business to pass leads on to experts or exit the market, without mentioning the possibility of these firms training their advisers.

But McHardy stresses that the FSA has a tough job on its hands because on the one hand it needs to drive up standards and address any shortfalls while not discouraging intermediaries from entering the market.

He says: “The dilemma facing the industry is one of chicken and egg. We would all like to see more brokers involved in selling lifetime mortgages but only if there are robust sales and compliance processes in place. The market has not grown in line with recent predictions and this means the volume is not there for the non-specialists to dedicate enough resource and training to this market.

“Recent FSA coverage will continue to put high-street brokers off this market and this will remain the case until the market grows significantly and fulfills its potential and high-street brokers see the rewards available from the investment needed to be in this market.”


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