A spokeswoman for the regulator said: “Even though the business may be unregulated we still expect the same high standards to be applied to it if the lender is a regulated entity.
“If you see low standards elsewhere in the business you might expect it to be seen in the regulated part. This is certainly something we will be looking out for.”
The clarification comes after Dragonfly Property Finance said earlier this week it had achieved FSA authorisation and would be accepting regulated business from August this year.
Currently Dragonfly pays some brokers override commission related to the volume of business they submit – a practice allowed on unregulated business under the Consumer Credit Act – and which the lender discloses on its offer letter.
And on some cases the lender also charges interest on interest rolled-up over the period of the loan.
But both practices are outlawed under regulated MCOB rules.
On overrides the MCOB rules state: “A firm must not operate a system of giving or offering inducements to a mortgage intermediary, reversion intermediary, SRB intermediary or any other third party whereby the value of the inducement increases if the intermediary or third party, such as a packager, exceeds a target set for the amount of business referred (for example, a volume override).
“A firm must not solicit or accept an inducement whereby the value of the inducement increases if the firm exceeds a target set for the amount of business referred.”
When asked if either practice would cease following its authorisation a spokesman for Dragonfly said: “Following the FSA approval all kinds of developments and changes are taking place and being discussed at Dragonfly.
“So we'll not be able to answer your questions at this stage — it's all too fluid.”
