The announcement by the FSA that it was launching a consultation paper aimed at scrapping audits for small firms and appointed representatives (ARs) has been roundly welcomed by the industry.
The FSA estimates around 3,200 small firms and 1,490 ARs will benefit from the change, saving the industry approximately £12.9m a year, or on average £2,760 per firm. While for many brokers the saving won’t be that high, with costs currently not matching the FSA’s estimate, the change is very much a good thing.
Bill Warren, director of compliance at Complete Mortgage and Loans Service, says: “It’s definitely a good thing. The firms who will benefit are the one and two-man bands and the sole traders. It will simplify the existing process and save them money in work they don’t have to do themselves and accountancy fees.”
However, many sole traders and ARs already receive exemption from audits through amendments to the Companies Act 1985, introduced last September, which scrapped audits for firms just dealing with mortgage and general insurance business.
A major boost?
Many networks will see little benefits for their members as most are already covered.
Mark De Ste Croix, compliance officer at Mortgage Intelligence, says: “The relaxation already applies to mortgage and general insurance companies so there’s nothing new for our members. It won’t make a lot of difference for us but it will make a difference for other firms who aren’t covered, such as independent financial adviser firms.”
However, there are many intermediary firms that will see benefits to their business and for them, it is a major boost.
Julie Bayley, director of Keswick I.F.A. Ltd, comments: “It has been ridiculous as I am a limited company and I’m paying £1,300 for an audit, but I was an accountant before so I do all my bookkeeping and record-keeping, then have to turn it over to someone else to look at.”
Much of the scorn from intermediaries, when it comes to mortgage regulation, centres on the fact that the processes now required often cost large amounts of time and financial resouce. Brokers have often commented they are filling in the same information for an audit as for the the mandatory Retail Mediation Activities Return (RMAR).
However, the FSA has said it has realised this overlap and acted to rectify this, especially with the RMAR being submitted every six months.
The consultation paper states: “Since June 2005, all small personal investment firms have been required to submit the RMAR every six months rather than a single annual return under the old rules. So we now have more data, received in a more timely fashion, and an improved capacity to analyse it better.”
Kevin Morgan, managing director at Consilium Financial Planning, says: “As a regulatory requirement, it was always out of kilter with the industry so it is good to see it go. Now it is collecting RMAR, which will bring up any anomalies, the FSA will find out if things are going wrong that way. The audit is, therefore, superfluous.”
The right move
With the FSA at pains to state it is committed to better regulation, it would seem to be the right move.
Tony Catt, a sole practitioner, says: “The FSA has always said it wanted to go down the road of having lighter-touch regulation so hopefully this is an example of this. It has to work on the basis that we’re doing our best when it comes to the client so it has to trust us a bit.”
However, while the FSA highlights part of the impetus behind reform is to improve the regulation process, it also hopes the move will increase competition among intermediaries and drive down costs for the client.
This is perceived as being short-sighted by some brokers, especially in a world where all sectors of the industry are feeling the squeeze on their profit margins.
Bayley adds: “I don’t charge an awful lot and I’m probably at the lower end of the spectrum when it comes to charges, but it may come down with fee work. We are all taking a hit with various expenses like personal indemnity insurance so there are already pressures there. Also, you’ve now got the Financial Services Compensation Scheme which wasn’t there before the FSA so that’s another thing to pay.”
Bringing down costs
Morgan agrees: “It should bring down costs but the amount of time and money I now spend on completing RAMR; it is costing me around £1,000 in employing accountants to get the paperwork in order. I do not think the cost benefits will actually filter down to the client.”
The consultation process lasts until the start of June and the changes will have the backing of most within the mortgage industry, whether they are affected or not.
Martin Key, senior compliance manager at Pink Home Loans, says: “While this does not effect our ARs, we welcome any measures to relax administrative and cost burdens on small firms.”
However, intermediaries will still need more convincing if the FSA is to shed its image when it comes to overburdening the industry.
David French is a news reporter at Mortgage Introducer
