Small mortgage and general insurance intermediaries have been given a veiled warning to concentrate on customer services or they will not get authorisation from the FSA.
Sarah Wilson, director of the FSA's high-street firms division, admits that regulation poses an issue for advisers but says there is no agenda by the regulator to force them out of business when it formally takes on its powers on October 31 for mortgages and January 15 for general insurance.
Wilson says: “Both the mortgage and general insurance markets have huge numbers of small intermediaries and we will be delighted if that remains the case, as long as those intermediaries provide a good service to consumers.”
But she says it is hard to predict the precise impact of regulation on small intermediaries as they are being buffeted by a number of other factors such as technology and product changes. She says: “The cost-benefit analysis we have done and the constant dialogue we have had with the industry has never suggested to us that there would be a significant market impact of doing this.
“We have thought carefully about the diversity of the market and the fact there are small lenders, specialised lenders and so on within the market as well.
“We recognise that there are a range of factors affecting small intermediary firms at the moment in all financial markets – technology, product change, all sorts of things. Regulation is adding to the range of factors affecting those firms and is more difficult to unravel. We have never concluded that there is significant market impact.”
Wilson says the FSA is comfortable with the number of firms applying for authorisation. The deadline for intermediaries to guarantee that their applications will be dealt with by the end of October passed at April 30. She still expects 20,000 authorisations to be approved from the two sectors, with the majority coming from general insurance companies.
The latest figures at the end of April were that over 15,000 firms have registered with the FSA for an application pack, of which nearly 6,400 are in the mortgage market. So far, 5,600 registered firms have applied for authorisation, of which 3,700 are mortgage firms.
Wilson says the FSA has already sent out 1,135 minded to authorise letters, of which 806 were to mortgage companies. “This feels comfortable, particularly because, although we have passed the key deadlines for the mortgage market, we have not passed key deadlines for general insurance.
“What happened with the mortgage deadlines, which was entirely predictable and human nature, was that many applied in the last week or 10 days in the run-up to the deadline and we would expect to see the same thing happen for general insurance. We expect to say that by the end of May that there has been another significant number of applications.”
However, she admits no networks have yet been sent minded to authorise letters although she denies concerns by the Association of Mortgage Intermediaries that this has left firms in limbo as to which might be the most suitable to join as an appointed representative.
Wilson says: “There is not an issue. When we issue a minded to authorise letter depends simply on when they applied and also how large and complicated it is. Networks are typically large and complicated applications that we have to take particular care over. They are setting themselves up to oversee the compliance of thousands of other firms and it matters hugely to us that they show themselves capable of doing the job. So we obviously do more work to look at the controls they have put into place and that takes longer.”
She thinks that most applicants will get authorisation. “We are seeing applications come in from all sectors. It is always fair to say that the significant majority of firms that apply to the FSA become authorised firms so you definitely expect that to be the case in these sectors.”
Wilson says the FSA has been trying to help small providers and intermediaries deal with the terminology and volume of paperwork required. “We have done a huge amount in the introduction of regulation to make ourselves a bit easier to do business with, largely because both sectors contain huge numbers of very small players and we have always said we have not the desire to cause problems for those constituents per se.
“We have done things such as streamline applications and produce a guide to the FSA handbook, which is very different in style to the FSA's normal handbook. We are running a contact centre and website as well as attending conferences, such as the Manchester Mortgage Business Expo.
“On volume, the impact of regulation varies hugely depending on the firm you are. If you are a small firm in either mortgage or general insurance, your business might be quite varied or it might be within the certainty of a few products. Obviously, the more variety of product lines you have, the more the rules will apply to you. For example, in mortgages we have a particular regime for lifetime mortgages and I do not make any apologies for that as they are high-risk products. If you do not sell them, then that whole part of the regime will not apply to you.”
As a result, she expects regulation to improve consumers' ability to shop around and says the effect on intermediaries and providers will be proportionate to their costs, even if not all companies survive.