The FSA recently published its consultation paper CP05/3: Strengthening Capital Standards for deposit-takers and investment firms. But Chris Cummings, director of the Association of Mortgage Intermediaries (AMI), has informed Mortgage Introducer – News the FSA has another CP in the pipeline which could propose that capital adequacy requirements for authorised mortgage firms be doubled.
At the moment the capital adequacy requirements say mortgage intermediary firms must arrange a minimum limit of indemnity as the higher of 10 per cent of annual income up to £1 million, and £100,000 for a single claim or £500,000 in aggregate. FSA rules on minimum excess depend on whether a firm holds client money or not.
Cummings said: “As we believe, this upcoming CP will be talking about capital adequacy requirements for authorised mortgage firms and the possibility of doubling these requirements. We have been in talks with the FSA about this since before Christmas and we know the FSA has been thinking about these requirements for a while now.”
“But our argument is that unlike the investment market which holds client money, mortgage brokers are actually taking money off the client. So where is the consumer detriment? We do not feel doubling the requirements is fitting,” he added.
Stephen Atkins, managing director of The Freedom Network, said: “I’ve had a verbal briefing about this CP. There’s no reason that capital adequacy requirements won’t be stepped up. There is a thinking within Europe and the Consumer Directive that if you fix these levels very high then they will be able to see off the smaller businesses. This capital adequacy has Europe written all over it.”
Mike Fitzgerald, sales director at Brentchase Financial Services, said: “I can’t see why the requirements need to be increased. There might be a slight argument that for large broker firms that take large up-front fees from clients there should be tighter controls but for the average firm it is not needed.”
