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Mark Chilton on mortgages

It is reckoned that you hit the wall in a marathon after 22 miles. How appropriate that something concerning mortgage practitioners hits their desks on the 22nd and many hit their own personal wall. I am referring to this month&#39s deadline for applications to ensure FSA approval for Mortgage Day.

Anecdotal evidence suggests that, given a handicapped finish, the mortgage team is running ahead of the insurance mob and that independent brokers are at the head of the group.

Many of the premier league brokers are wondering which way to turn at Canary Wharf, with fundamental issues such as whole of market still unresolved. There will undoubtedly be an unholy rush for the line to meet the midnight cut-off but I suspect a significant set of appeals to take place.

Much press activity in recent months has been given on whether networks will gain the lion&#39s share of the independent broker market.

Current opinion is strongly moving in the direction of direct regulation being the majority. I think this is likely to be right. As I have often observed, our market is deeply fragmented and the FSA&#39s approach to regulation has exposed an interesting additional divide. The turnover benchmark of £1m creates its own chasm.

The vast majority of independent mortgage intermediaries fall below this barrier and the application process for these businesses which miss the annexe requirements for corporate and regulatory business plans are benign. Application is straightforward and the support provided by John Tiner&#39s new regime is laudable. Quite correctly, the majority of such businesses are opting for the direct regulation route.

Above the threshold, there are probably no more than 10 firms in the UK which have the vaguest concept of proper corporate governance and even they are struggling to submit applications on time. What hope is there for the firms that fall between these two stools?

In London and the South-east, there are myriad businesses of a few brilliant brokers and no corporate sense whose turnover exceeds the £1m threshold. For many of these, the implied and explicit language of regulation is as alien as starting the marathon in Marathon.

If the start is hundreds of miles away and running late, the real nightmare will come at the second wall. That is when the first regulatory visit happens and reality bites for most of these business. Who is going to help? It is another strong motive for consolidation but it just may be that this starts at the higher end of the market rather than the mass end simply because of the differing perception of risk brought about by the FSA benchmark.

Already, there is a lot of restlessness in the B-list firms and the existing majors cannot cope with acquiring historic risk at this stage of the cycle. I am not sure where it is coming from but a new solution will emerge as either a specialist high-end compliance network or a new consolidator.

Mark Chilton is chief executive of Clearly Financial


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