Many financial and mortgage industry professionals predicted that 2009 would be one of the most difficult years for the UK and in particular the financial services industry and to date, they haven’t been wrong. The very recent demise into administration of both Chase De Vere and Cobalt Capital, two of the country’s leading mortgage intermediaries, will have come as a shock to many firms and individuals.
Both firms contained high-quality individuals in senior positions who were well known in the industry, but it is a well-known fact that organisations of their stature need a sizable infrastructure to deliver the compliant speed and quality of service needed to sustain their positions. No easy job in the current barren wasteland called ‘intermediary mortgages’. One can only wish the individuals and their former employees good luck in the immediate future and beyond.
But while the headlines may be gloomy there are many firms across the UK who are perhaps smaller or with lower overheads that have made sure they are lean and mean in an effort to survive. These firms are quietly going about their business, several having increased business volumes if not income levels. So the outlook is not all negative however the market continues to be challenging for intermediaries.
So, what of the regulator in amongst this continually changing minefield? Its responsibilities are clear: to help maintain financially sound and compliant businesses providing sound advice and guidance to consumers. Two major events are coming up rapidly which support the need to achieve these goals and while they may be viewed by some as just more regulation to stop us doing business, for others opportunity knocks.
On the 1st April 2009 the ‘common platform-organisational systems and controls’ were extended to non-MIFID firms, i.e. many mortgage and general insurance intermediaries. The ‘common platform’ has applied to firms covered by MIFID and the CRD (Capital Requirements Directive) since 1st November 2007. Firms should read chapters 4-10 of the FSA’s ‘Senior Management Arrangements-Systems and Controls’ (SYSC) sourcebook within the FSA Handbook to establish what is involved and how these change impact upon them.
In addition, in the last month the expected confirmation from the Government via the Treasury and the FSA that Sale and Rent Back (SRB) business will be regulated by the FSA from 1st July 2009, only three months away. Time therefore is very limited for those who are eligible to apply for interim authorisation or a variation of permission.
Q1. I have read now several times references to the FSA’s new rules for firms who are not subject to MIFID or the Capital Requirement Directive, neither of which I understand well, but do know that they do not apply to my firm. We are a medium-sized firm concentrating mainly on mortgages and general insurance. What do we actually need to do to be prepared for the 1st April 2009 when these new rules come in?
A1. The first point to make is that they are not entirely new rules. Currently all authorised firms are subject to the high level rules within the high-level standards section of the FSA’s handbook – SYSC senior management and controls. These are the rules the owners/directors and senior management of authorised firms are expected to follow in order to demonstrate effective management and control within their firm. For example, dedicated compliance responsibility, internal audit and financial crime areas.
It is within these rules that changes took effect from 1st April 2009. What firms need to do is to ensure they review their management and controls so as to be compliant from that date. This may mean for some firms little change, for others perhaps who outsource some of their work, e.g. compliance and/or conflicts of interest management. What it does mean for all firms is that they should review their management and controls to ensure they are fit for purpose. The FSA expect non-MIFID and CRD firms to be aware of the ‘common platform’ and made any necessary changes within the firm.
Q2. I understand why SRB businesses need to be regulated given some of the alleged activities reported in the press. I had been thinking of getting into this market as another income stream, but it appears not all firms are eligible to apply for FSA authorisation. Can you explain why?
A2. The consultation paper numbered CP09/6 issued recently by the FSA takes a different approach to FSA authorisation than that seen previously. This is mainly as a result of the reported abuses that have occurred as evidenced by research carried out into the SRB business sector by the OFT. As a result of this the Government decided to introduce statutory regulation as soon as possible.
It was decided the quickest way to do this was to introduce an ‘Interim Authorisation’ category to be effective from 1st July 2009 and to be followed up with full FSA authorisation in 2010. The requirements to obtain FSA authorisation are no less onerous that any firm applying to the FSA for authorisation whatever the market sector. However, applications for Interim Authorisation are currently limited to those firms already operating in the market and firms wishing to apply for a variation of permission to undertake the four regulated activities under the SRB legislation. Replies to this consultation paper have to be with the FSA by 1st May 2009. The whole regulatory focus is to only authorise those firms who can demonstrate high quality management, controls and ethics in their business model.
