The key points of MCCB’s response include:
• Support for the proposals for compulsory Professional Indemnity Insurance (PII). These form an appropriate and necessary element of consumer protection and are broadly in line with existing MCCB Requirements.
• MCCB supports the view that the FSA’s Principles for Business should apply unamended to regulated mortgage activities.
• MCCB questions whether the requirement for mortgage intermediaries to be subject to the proposed financial resource requirement is appropriate, given the costs of maintaining and reporting on such resources. Mortgage broking firms do not generally hold client money and MCCB believes that adequate safeguards for the customer will be in place through compulsory PII and membership of the Financial Services Compensation Scheme.
• MCCB is unclear on how the proposed requirement that mortgage lenders only use the services of, and accept business from, authorised intermediaries will work in practice. The costs of complying with this requirement do not appear to feature in the FSA’s Cost Benefits Analysis and there are no proposals to provide lenders with a database of authorised firms to enable them to check a firm’s status and simplify the process – as MCCB currently does. Due to the likely costs and complexity of compliance, many existing mortgage intermediaries may under the new regime choose to act simply as ‘introducers’ to authorised lenders and intermediary firms in future, and will therefore be outside the authorisation regime. This proposal therefore needs greater clarification.
• MCCB believes that the data used as the basis of the FSA’s Cost Benefit Analysis is drawn from too small a sample (7 mortgage lenders or administrators and 12 mortgage intermediary firms, within an overall sample population of 36 mortgage and general insurance firms) to be statistically valid or to inform the statement, such as the FSA has made, that the proposals in CP174 are unlikely to generate a sizeable exit of firms from the market.
• Further costs are applied incrementally, based on actual activities of firms in the sample. This approach disregards what firms are already required to do under current regulatory requirements – such as the voluntary Mortgage Code and MCCB regime. The approach also appears to dismiss concerns from firms in the survey about the costs – and time spent – in the application process itself. The majority of mortgage and insurance intermediaries will be new to FSA regulation.
• Ongoing annual costs for firms are estimated to be in the range of £60m-£190m. The width of the interval between lower and upper levels is unhelpful for comment purposes.
Whilst the benefits of improved standards in the mortgage and general insurance markets through the introduction of the new regime are difficult to quantify, it should perhaps have been possible to estimate a value for consumer detriment existing under current regulatory arrangements and to demonstrate how this will be reduced in the future.
