With the MCCB facing mass criticism for handing over half of its £1 million cash surplus to the FSA, Colin Harris explains the reasons behind its controversial decision
I was pleased to have the opportunity at the Council of Mortgage Lenders (CML) Annual Lunch last Friday to thank all mortgage firms for their support of the Mortgage Code and the work of the MCCB during the period of non-statutory regulation.
Based on strong industry support, we were able to raise standards, enhance consumer protection and help the industry’s reputation.
Firms in good standing with MCCB received the benefits of ‘due credit’ under the FSA authorisation process, most firms applied early, most applications were successfully completed, and at least initially the impact on the structure of the market was less than many feared.
And all of this was achieved through your commitment to a cost-effective self-regulatory model.
Finances
Knowing that the MCCB would be ceasing its operations and closing after ‘Mortgage Day’ and that no further funding would be available to it, MCCB’s Board acted prudently and, over the last few years, built up reserves to cover all potential liabilities.
None would have thanked us if we had finished up with a loss – on the contrary, prudence and tough negotiating on our lease commitments ensured we now have a small surplus.
A liquidator will shortly be appointed and on current projections it is anticipated that surplus funds of just over £1m will be available for the benefit of mortgage firms.
The key consideration for the Board was that the surplus be used to provide good value to the industry and continue the work of raising standards and consumer support while the new FSA approach bedded in.
MCCB’s constitution allows the directors to distribute any surplus on liquidation to “either the subscribers or another body with objects similar to those of the company or to some charitable trust, body or bodies, to be determined in any event by the Board”.
We very carefully considered the potential for making repayments to individual firms. However, it soon became clear that the administrative costs were likely to exceed 10 per cent of the surplus and it would delay the final liquidation of the company, so we concluded that this was not a cost-effective option.
The MCCB had managed its finances carefully and reduced fees in 2003 and, most significantly, in 2004, in order to control the potential surplus while ensuring that it retained sufficient funds for all potential liabilities. This had effectively already ‘returned’ around £1m directly to registered firms.
Distribution of final funds
The Board has decided firstly that £300,000 of the residual surplus should be donated to the Money Advice Trust (MAT) which works in partnership with a number of charities helping consumers with debt problems.
The donation will be directed towards updating training materials and particularly in supporting an initiative to develop a team of specialists able to provide technical support on mortgages to frontline agencies such as Citizens Advice.
Secondly the Board has agreed that a further £300,000 should go to assist mortgage advisers in retraining to meet the needs of the new regulatory regime. This will be given by way of grants to charitable bodies involved in mortgage industry training and education.
The Chartered Insurance Institute (CII) will provide a series of workshops on regulatory requirements over the next 12 months, The Chartered Institute of Bankers in Scotland (CIOBS) will provide a series of online ‘mini broadcasts’ on mortgage-related topics and it, along with the Institute of Financial Service (ifs), will be assisted in updating all of their online training materials and test banks.
A significant area of concern mentioned by many was the FSA’s Treating Customers Fairly (TCF) initiative. A specific donation has therefore been made to the ifs to further resource its qualification, the Certificate in
Regulated Customer Care (CeRCC).
The remainder of the surplus arising (probably a sum in the region of £500,000) will be distributed, in line with MCCB’s constitution, to the FSA.
This is based on a commitment from the FSA that the monies paid over will be applied to the appropriate FSA fee block to which ex-MCCB firms have been allocated and would therefore be used to reduce fees payable by mortgage firms to the FSA in the next fee cycle.
The Board believes that such a distribution offers the most practical solution and, as there will be no administration costs involved, would most cost-effectively benefit all active mortgage firms through lower FSA fees.
Looking forward
The challenge for the industry now is to make statutory regulation work even better. This is now an issue the industry, led by its trade bodies, should be taking up, along with consumer groups, government and the regulator.
Costs directly impact the industry but much of the burden gets passed onto the consumer so the right level of regulation is a matter of concern for all.
The FSA’s Practitioners Panel is already reviewing some of these cost issues and if I can be permitted one final request, I would urge you to get involved. Do maintain your involvement with regulation, monitor fee levels and participate in developing a much wider debate on how the cost and future scope of regulation should be determined.
Colin Harris is chairman of the MCCB
