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Loan brokers facing IFA-style regulation

Independent mortgage brokers could face the same regulatory requirements as IFAs if they want to retain their independent status under FSA proposals for the regulation of mortgage advice released this week.

One of two options for the regulation of independent brokers outlined in CP146, The FSA&#39s Approach to Regulating Mortgage Sales, is for independent brokers to match the compliance requirements that IFAs face such as suitability and know your customer.

The proposals, which follow the Treasury&#39s final regulations published last week will force brokers to consider if a mortgage is suitable for a consumer, whether the specific product is suitable and which product or lender is best to meet the consumers&#39 needs.

If this definition of independence is introduced, then independent mortgage brokers would have to comply with any changes to polarisation as a result of CP121 or Sandler.

This would mean fitting into the defined-payment system or a fee-based operation, effectively spelling the end of procuration fees as a way of remuneration.

The second definition of independence would require little change from the current situation, other than brokers would have to disclose to consumers exactly what part of the market they represent.

Generally, mortgage brokers will have three options in the new regime. They can sell execution-only, provide information but not advice or offer full advice.

Charcol senior technical manager Ray Boulger says: “If the proposal of independence is implemented, I would think that a lot of brokers who are calling themselves independent will not choose to do so in the future.”

Mortgageforce managing director Rob Clifford says: “If an IFA-like definition of independence were to be introduced, it would be a very significant market shift in the mortgage industry.”


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