With many networks failing to achieve their targets for signing up appointed representative (AR) firms, compliance offerings are now reaching the stage where they are economically unsustainable.
The Association of Mortgage Intermediaries (AMI) has indicated that it will help firms find potential partners as part of an exercise to help protect AR members who have already joined firms experiencing difficulties. Chris Cummings, director of AMI, said: “As a trade body we look to help members to find a way through regulatory issues.”
The final details of the EMS and Mortgage Next deal are yet to be ratified however Steve Royal, director of EMS, explained that Mortgage Next would act as the Principal for both firms.
Royal said two key compliance staff from EMS would be moving over to Mortgage Next as full-time employees. Claire Wilson, currently director of compliance at EMS, will become head of compliance at Mortgage Next. Sue Summer, an EMS compliance manager, will also switch over.
EMS operates a franchise system based on postcodes and has so far recruited 92 franchisees with around 120 individual ARs. Each franchisee has paid £15,000 to join.
“This is a great deal for Ethical. Our members will be able to access Mortgage Next’s extensive lender panel and benefit from the increased procuration fees they can negotiate,” said Royal.
“The deal also appeals to us because it frees us up to concentrate on building the Ethical brand,” he added.
Justine Tomlinson, marketing director at Mortgage Next, said she believed that Ethical’s unique brand would benefit Mortgage Next and called the deal “an alliance of strength”.
She also said that the industry could expect further consolidation in the future. “This situation will re-occur and I see the potential for more alliances,’ she commented.
Meanwhile Optoma Interpartners’ managing director Matthew Bright said the network was actively seeking a partner to share its compliance functions. He blamed the MCCB for failing to adequately prepare brokers for the forthcoming FSA compliance regime.
“We are having to do wholesale re-training in order to ensure that everyone is fully compliant,” he said. “Optoma had to turn down around 30 per cent of AR applicants because they simply were not up to scratch.”
The MCCB rejected Bright’s accusations. Brad Baker, head of communications at the MCCB, said: “Our job has been to protect the consumer and to ensure that the Code was adhered to.”
Bright admitted that forming an alliance could be complicated but said the cost of compliance meant that consolidation within the market was inevitable.
Commenting on the situation Bill Warren, director of The Complete Network, said: “If networks fail to achieve the numbers of ARs they predicted then the compliance teams they have hired can become very expensive. One solution could be to outsource your compliance but this leaves a very thin margin of profit for the network to operate on; that sort of service does not come cheap.”
He also warned that the sharing of compliance resources could lead to complex IT and technology issues.
Sally Laker, managing director of Mortgage Intelligence, commented: “These situations show how important it is for a network to have strong financial backing to ensure that the best level of compliance can be maintained. It is also the first signs of the long expected industry consolidation that I think will continue for some time yet.”
When questioned over whether Mortgage Intelligence would be seeking to acquire struggling networks Laker said: “We look at each opportunity individually and make a decision at that time.”
Network Data and Genesis both indicated that they would be interested in speaking with networks that were seeking consolidation. A Genesis spokesperson said: “Genesis would be open to talks with any packager or networks that are looking to make life more efficient.”
