It seems the regulator has mixed feelings over extending the RDR’s higher qualifications, changes to remuneration and structural reshaping of the distribution sector to the mortgage market.
The FSA has stated that it has not yet identified any need for the RDR within the mortgage market but will review this if future feedback or analysis shows it would be useful.
It says: “Preliminary analysis of firms’ business models suggests that, for example, some banks may consider reflecting the changes required for their investment distribution business by applying the same model to investment and non-investment business.”
The Council of Mortgage Lenders feels it is inevitable that mortgage regulation will change but a spokeswoman says: “It is too early to say how fundamental the changes will be.”
It admits that some people may not be happy with the timing of the FSA’s impending review, given the mortgage industry’s precarious situation. “But the FSA is under pressure from lenders and advisers to address the shortcomings of mortgage regulation,” says the CML.
How likely is it that the RDR will be implemented in the mortgage market?
Telos Solutions project director Richard Farr says the question may be irrelevant as we still do not have clarity over the changes the RDR will bring, regardless of whether it is expanded to the mortgage market.
He says: “The review of Mcob is a useful thing to do. There are swathes of the handbook which are not much help and there are great big gaps in the handbook where risks should be mitigated.
“Once we have got through that, we should look at the RDR. It cannot be ignored but it will not be the driver behind the Mcob review.”
Lloyds Banking Group sales director for mortgages Nigel Stockton is not so sure. He says: “If we were starting mortgage regulation from scratch today, it would make sense to pay people on trail, like in the investment business, but we are not starting from scratch. Procuration fees up front are the way that advisers are paid and are used to being paid.”
Stockton says the cashflow implications on moving from proc fees to trail should not be underestimated. He says: “You would take everyone out if you were to suddenly change this because of the way people have structured their businesses.”
But Stockton does think there would be an upside to bringing the RDR changes to the regulation of mortgages.
He says: “I think the RDR will bring discipline and challenges in equal measure. It is something the mortgage industry will look at and it may well be that if the market continues to consolidate, an opportunity arises to fundamentally review the way the sector operates.”