Mortgage regulation was welcomed by many about as much as a skunk that had just let one go inside their house. While no one would argue that protecting the consumer from dodgy financial advice was anything other than vitally important, the industry was certainly less than enthused by the mountains of paper work and complex rules that followed.
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The perfect audit trail has become the goal over the past two years and the Financial Services Authority’s (FSA) move to a more principles-based approach has been met with a sigh of relief as the rule book suddenly more than halved in size.
Yet, as one industry is brought into the regulatory fold, so eyes turn to the sectors on the periphery that could be deemed to have just as much potential impact. While packagers, commercial mortgages and buy-to-let (BTL) remain outside the FSA’s remit, many question whether they ought to be.
Back into focus
The regulation of packagers has come back into focus, with the announcement by the FSA’s head of mortgages, Mandy Spink, that it will not seek to regulate packagers this year or in the near future. It has deemed it unnecessary for the time being, as ultimately, for the FSA, it comes down to whether the packager has had contact with the consumer and its impact on the advisory process.
However, for Eddie Smith, operations director for the Alliance of Mortgage Packagers and Distributors (AMPD), the main issue is that the FSA simply does not have the manpower to cope with regulating packagers as well. He explains: “The FSA is way down on staff numbers and it has got a lot of recruitment to do. It is getting its house in order right now. If it went down the packager regulation route now, it wouldn’t have the resources to cope with it.
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“Yet, I have no doubt, it would love to have a good look at us, but I don’t think it understands packagers or the value they add. When it does get its act together, I think it will be all over us like a rash, as it has a view that there is come chance packagers can give advice.”
For Smith, there is no escape from regulation as he believes it is on the FSA agenda. He adds: “I wonder if it’s best in terms of cost and hierarchy, but I don’t think any packager worth their salt will need to fear regulation. However, before the FSA starts looking at us, it needs to understand it from a grass roots level point of view.”
Delaying discussions
John Rice, managing director the Regulatory Alliance of Mortgage Packagers (RAMP), certainly feels the FSA has made the right move to delay any potential regulatory discussions. He says: “I don’t see the logic of regulating packagers. The industry is highly regulated at the adviser and lender end. Packagers don’t affect customers because it’s an administration process and it would just add to costs and time.
“The FSA is all about protecting the consumer, so I don’t think it wants to regulate the process. I think the clamour for packager regulation comes from the mystery shops the FSA did, which found weaknesses in advice. The idea is the FSA should bring packagers into regulation so advisers can be given as much help as they need. But that’s an adviser’s job and if they can’t do it properly, they shouldn’t be advising.”
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Nigel Payne, managing director of The Mortgage Business (TMB), comments: “In reality, the majority of bigger packagers are regulated anyway by having moved into areas that are regulated. For those ‘pure’ packagers, I don’t think they need to be regulated as they don’t provide advice. There needs to be more co-operation between packagers in terms of responding to regulation and their views on it, and that’s now happening.
But you have to draw a line somewhere. If the FSA includes packagers, what other third party suppliers to the mortgage industry will also be included?”
A necessary future step?
James Hall, sales director at Optoma, says: “It is crucial to meet high standards in the packaging industry and regulation may be a necessary step in the future, but should not be rushed through. This period of time will allow for proper consultation to ensure that what develops is considered properly and benefits all parties concerned.”
While packagers can breathe a sigh of relief that regulation remains a distant prospect at the moment, they should not forget that it could happen regardless. Being unregulated gives packagers a greater incentive to prove that they have the standards in place to survive and thrive without the need for governmental rules. Maintaining high standards will ultimately mean that, if regulation becomes a reality, the fallout will be minimal.
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