The current focus on the mortgage market review is understandable but as we consider the implications, it is clear this is just one aspect affecting intermediaries, lenders and consumers.
FSA CP11/31 is by definition still just a consultation. Time will tell whether the regulator carries through its proposals but we hope it does as, overall, the MMR is good news for brokers.
As lenders will become solely responsible for affordability, this enables advisers to focus on what they are best at, which is advising the client on the suitability of the mortgage.
The proposals for advised and non-advised sales go to the heart of a debate we have been having for decades and it will be interesting to see how banks and building societies will operate in their branches and call centres.
This levelling of the playing field is testament to the quality of advice currently enjoyed by clients who use intermediaries and means it will now be enjoyed by those that seek advice from a lender.
This raising of professional standards will lead to more customers receiving the regulatory protection that a fully advised sales process delivers. But while much recent focus has been on the MMR, a little known FSA thematic review took place last summer that could be equally important.
Lenders were asked about the due diligence they undertake on third parties. This includes solicitors and valuers but also extends to brokers.
This work is ongoing and could mean that lenders have to examine the quality of the brokers they deal with in far greater detail than they have in the past.
This issue could have a significant impact on the future shape of distribution, with potentially far-reaching implications for brokers, particularly those who are directly regulated.
Put simply, brokers who do not satisfy a lender’s due diligence process may not get access to mortgage funding in future.
I believe lenders will have to justify, not only to the FSA but also in their own boardrooms, that the organisations they accept business from are fit and proper, with systems and controls that are open to scrutiny.
Organisations that are well capitalised with professional management and good governance will pass future litmus paper tests – and those that do not, will not.
The MMR has the potential to create a solid foundation for the advice that clients receive from all channels. Strong, reputable and well run businesses that rise to the challenges ahead will be the long-term winners in this new world.
John Cupis is managing director at PMS