With less than two weeks to go before the onset of mortgage regulation, concerns are surfacing about the considerable number of mortgage brokers yet to be accounted for by the FSA.
Recent figures released by the FSA show that it had received 3,995 applications for direct authorisation and 2,917 applications for variation of permission for mortgages and general insurance.
Given that around 10,500 firms renewed with the Mortgage Code Compliance Board in April 2004, this means that around 3,500 firms are so far undecided and do not have a clear future business model.
FSA director of high street firms Sarah Wilson says: “There may still be some firms that have left a decision on direct authorisation or their chosen network to this late stage. We will do our best to deal with late notifications of appointed representatives and indeed applications before M-Day, but we cannot compromise the integrity of our scrutiny or of our decision making process.
“Outstanding applications and appointed representative notifications should therefore be submitted urgently and firms should make doubly sure that the required forms are complete and correct.”
Premier Mortgage Management managing director Mark Mountney believes the missing number is accounted for by appointed representatives applying to networks, firms that have made the decision to become introducers with the onset of mortgage regulation, and those that have decided to retire from the industry.
Mountney says: “Bearing in mind the fact that we only have a short time to go, you would have thought that the average undecided broker might have extracted his finger by now.”
Premier Mortgage Services managing director John Malone believes a substantial number of mortgage intermediaries are struggling with lack of technology, which means they will find it difficult to produce key facts illustrations and will be unlikely to receive authorisation as a result.
Malone also believes that there are some intermediaries who do not realise FSA regulation is approaching.
“There is probably an army of intermediaries out there who don't realise they have to do anything and think they will be able to continue as MCCB registered firms come November,” he says.
Association of Mortgage Intermediaries director Chris Cummings is looking on the bright side and hoping that those intermediaries who have not applied for authorisation are already safely ensconced in a network.
However, a recent conversation with the FSA informed him that the number of people requesting application packs is going up much faster than the number of packs being returned to the FSA.
So far the FSA has issued minded to authorise letters to 79 firms that wish to operate a mortgage network and serious concerns are starting to be voiced in the industry about the ability of all these networks to meet their appointed representative number expectation.
Cummings points out that it would be a physical impossibility for all the networks to get the number of appointed representatives they have predicted they need.
He says: “Even if every mortgage intermediary signed up with networks there would still not be enough appointed representatives to go round. And of course a number of these intermediaries will be directly authorised anyway.”
Mountney is predicting a contraction of the number of mortgage networks operating, either by withdrawals or through mergers and acquisitions. “The critical mass for many of the networks simply cannot be met. The next month or so will have a few surprises in store,” he says.
Malone is also expecting numerous problems to start to emerge with networks in the next three months as the viability of business plans comes into doubt when numbers are not realised.
“If networks have not got their desired numbers – and there is no way all of them will be able to achieve this – then I don't think they will be able to sustain their businesses and a number of networks will fold,” says Malone.
This will, of course, put enormous pressure on those intermediaries who have signed up with failing networks.
More information is emerging from the FSA about firms that have been rejected for FSA authorisation. Cummings says that the Regulatory Decisions Committee has been sending out letters to mortgage firms telling them that given the information the firms have submitted, they will not be authorised by the FSA.
Authorised if you appeal
Curiously, it seems that if firms appeal against the FSA's refusal to authorise them, they will be deemed authorised until the tribunal finds either in their favour or against them.
CML head of external affairs Sue Anderson says: “The main big piece of news over the past week was the FSA's announcement about how it would treat firms and individuals refused authorisation, but who appeal against the FSA decision. These firms will be deemed authorised from M Day until the conclusion of their appeals tribunal process.”
Malone is concerned about this as he believes it will look bad from a consumer perspective. He points out that a tribunal can take months to reach a conclusion and in the meantime a consumer could be receiving advice from a broker who is refused authorisation from the FSA.
With so many issues still up in the air it would seem that regulation is approaching far faster than many would like.