The Association of Mortgage Intermediaries is keen to establish a voluntary arrangement with lenders to subsidise intermediaries' payments to the Financial Services Compensation Scheme after the industry becomes regulated.
A similar subsidy has until now been in place for life and pension IFAs via the Pass scheme set up by product providers although this subsidy is under review.
The AMI also believes that mortgage intermediaries should be placed in the same fee block for the FSCS as banking IFAs. Director Chris Cummings says mortgage brokers are in a very different position from other IFAs as they have not been as strongly affected by misselling scandals.
He says: “It would be good if we could establish something voluntary without the pain of a misselling scandal forcing the issue. The issue of subsidies is on our agenda and is something we will certainly have to do.”
The FSA is due to release a consultation paper on the fee blocks that mortgage intermediaries will be placed in but will not comment on Cummings' statement.
IFAs in the life and pension industry have had their FSCS levies subsidised by providers for the last three years but Cummings is concerned that there is no clear indication as to what providers will do for mortgage intermediaries after they become regulated from October 31.
He says: “IFAs have relied on a subsidy from providers although as yet we have no firm proposition. This issue is on our radar for mortgage intermediaries. We are very aware of the cost of regulation and it would be ideal if the industry could come up with a solution to the growing cost that brokers will face.”
FSA managing director David Kenmir recently expressed concern that over 600 IFA firms failed to pay their combination of FSCS, FOS and FSA fees by this month's deadline. IFAs have seen fee increases of up to 2,000 per cent in the last year as compensation claims have soared, highlighting the potential problems that could be faced by the mortgage sector in future if no provider levy is raised.
Charcol senior technical manager Ray Boulger says from a mortgage intermediary's point of view, anything that helps keep down the levy would be welcomed. However, he says it is difficult to know how enthusiastic lenders will be to get involved.
Boulger says: “Lenders do recognise that they see 60 per cent of their business from the intermediary market. Clearly, it is in their interest to help the sector thrive.”
But Nationwide, Halifax and other lenders say they are unable to comment on Cummings' proposal for a subsidy. But there is clearly concern within the mortgage community over whether lenders would subscribe to a subsidy on a voluntary basis.
Keep It Simple mortgage administrator George Davies says: “It is not unreasonable to ask lenders to help out with the levy. However, if it is on a voluntary basis, on historical exp-erience there will not be many people to take it up.”
Spicerhaart group compliance director Peter Gladdy says he fully supports the idea but suspects the likelihood of it happening is very slim.
Protection IFAs will also be affected when regulation of their sector begins in January.
Unum Provident corporate services director Joanne Hindle suggests a group of providers should find out whether there is a need for support for newly regulated intermediaries from October and January. She says this must be established first before any steps are taken.
Hindle says: “Most of our distribution is not through those IFAs which support the FSCS. For us, the big issue is not whether subsidy continues for IFAs but what will happen in January when general insurance and protection are regulated.”
Kingsland Consultancy managing director Karen Monaghan thinks there may not be a need for lender subsidies. She says: “A lot of the estimations as to how much this will cost have not been too onerous, according to feedback from mortgage intermediaries. I do not think it is one of their major concerns at the moment.”
The Council of Mortgage Lenders says it has yet to be approached by the AMI on the issue and feels it cannot comment until it is asked to investigate it. Head of external affairs Sue Anderson says: “This seems to be a precedent set by other product providers and there is a direct parallel for lenders and intermediaries. If we were approached by the AMI on this, we would take it through the usual channels with our executive board.”
Imla chairman and Kensington Mortgages chief executive John Maltby stresses that, whatever happens, lenders and intermediaries need to take responsibility for their actions and recognise each other's costs of doing business.
The AMI hopes to be able to have a clear proposition in the coming weeks. Cummings says: “If we can achieve a similar position to that of the current IFA community in having provider subsidies of the FSCS, this would be a really good thing.”