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Surprise package

The raft of regulatory changes that are set to hit the mortgage market are going to hit brokers hard.

As we all know, from the beginning of 2004, the FSA will demand that those who provide consumer advice will need to put in place exhaustive compliance procedures.

For the large number of brokers that operate on a reasonably small scale, this is likely to herald a step-change in administrative burden – both in terms of time and money.

The cost of putting in place the sort of compliance regime that is likely to be required by the FSA is beyond the means of some businesses.

Many are too small to finance the costs of compliance easily and the lengthy audit trails that are envisaged.

The paperwork that will be required from brokers will mean many hours spent each week on completing documentation rather than on selling.

For packagers, the future looks similarly uncertain. We are still awaiting the FSA view&#39s on packagers but some in the industry are forecasting a similarly heavy compliance burden for packagers that, in addition to providing a packaging service to the industry, also offer point-of-sale advice.

They say such companies may have to reverse back in the direction their business came from by ditching consumer advice to concentrate solely on packaging, with the consequent loss of lucrative procuration income that entails.

Some of the doom-mongers forecast that much of the packaging sector is destined to go into meltdown.

Unlike many of my colleagues in the industry, however, I am not downbeat about packagers&#39 prospects, or about the outlook for those introducers likely to feel the compliance burden most.

I think the regulatory changes will enable big mortgage packagers to create a new role for themselves by coming to the aid of their introducers.

The time has come to repay introducers&#39 loyalties by utilising packagers&#39 expertise in compliance and IT. Packagers can help meet the needs of the mortgage brokers in dealing with new regulation under the FSA.

At the County Group, we have taken this approach to heart and have launched new compliance software for introducers and are testing new compliance management.

We have taken a cluster of introducers which do not want to deal in the residential mortgage market, either because of the focus on financial services or commercial lending and we have assumed their compliance responsibilities with their clients. The two key areas of benefit are the removal of their responsibilities under the mortgage code and the ability still to receive income on the back of their association with The County Group.

I have to admit that there are an alarming number of packagers which have done nothing to prepare themselves for the changes and, more important, there is also a lack of understanding by many introducers as to their current requirements under the mortgage code.

The consultation period with the FSA is over, although some of my colleagues within mortgage packaging market do not realise this and we now wait to see if mortgage packagers will be regulated in the same way as mortgage brokers offering advice at point of sale.

The argument is clear in my mind – if you have a packaging arm which only administrates mortgages and the advice is the responsibility of your introducing broker, then this sector should remain unregulated.

Compliance software is also something that packagers can help brokers with. Those brokers that decide to continue offering advice will need a helping hand with their various admin requirements under new legislation.

Software can allow the introducer to create listings, mortgage illustrations, terms of business documents, reasons why letters, fact-finds, information checklists and other documents required for compliance audit trails quickly and cheaply.

The software that we offer (accessed free via www.countymortgages.com and www.bestadvice.net) is internet-enabled and only requires the packager to enter the relevant customer details on the documents, the system takes care of the rest.

Such software will provide brokers with a lifeline during these testing times and allow them to focus on what they are good at – generating sales and completing.

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