Brokers overwhelmed by regulation onslaught
Liz Syms, Connect’s managing director, said the specialist bridging, buy-to-let and commercial network is seeing five applications a week from unregulated brokers who are overwhelmed by the volume and complexity of regulation that is about to hit the sector.
She said: “We are the only specialist buy-to-let and commercial network offering AR status and I think that’s why they’re coming to us – they know that because we have full permissions across consumer credit and second charge already and will apply for consumer buy-to-let permissions when applications open in the Autumn, they’ll be covered.”
Several separate regulatory regimes come into force between March and April 2016 which affect the permissions needed by commercial, buy-to-let, second charge and bridging brokers.
The European Mortgage Credit Directive will see the creation of consumer buy-to-let meaning any first-time landlord who inherited a property to rent or any borrower using let-to-buy will need fully regulated MCOB advice.
Additionally brokers will have to decide whether to consider second charge loans alongside first charge lending and disclose to borrowers the fact they do not cover the whole of market if they choose against.
Second charge will also become a fully regulated activity requiring various sets of permissions depending on whether brokers choose to conduct business themselves, use packagers or refer leads to a specialist.
Under another regime, consumer credit regulation, brokers will require either full or limited permissions from the Financial Conduct Authority in order to conduct, advise or refer consumer credit business.
Many brokers successfully got their interim permissions last year when supervision of consumer credit transferred from the Office of Fair Trading to the FCA following the former body’s closure.
But in order to get full permissions the FCA requires a much fuller disclosure of brokers’ business plans and scope of advice.
Limited permissions only allow for the referral of consumer credit leads to a regulated broker if those leads arise from a subsidiary business – as in the case of car finance leads referred by a car salesman.
The interaction of these regulatory regimes has caused “utter confusion” in the market, with many brokers simply unable to ascertain exactly what they need to apply for, said Syms.
She warned that brokers going directly authorised with the FCA could fall into the trap of filling out fuller applications than they need to which could have a knock-on delay to receiving authorisation.
She said: “The reality is that it’s not always at all obvious what permissions you need to go for so brokers are going for the lot in order to be safe. But that could see the FCA take six months to process – without application errors.
“Because the FCA is comfortable with Connect doing its own due diligence on each broker we can process applications for AR status within three weeks.”
To complicate matters further, Syms also said that even if brokers have the correct regulatory permissions to conduct business there are lenders which are locking brokers who decide not to seek authorisation out.
Syms said: “I don’t think there is enough awareness about just how many of the mainstream buy-to-let lenders won’t deal with brokers who don’t have full permissions after next year – even if the business doesn’t require fully regulated permissions the lender might.”
Kevin Thomson, sales director at Connect, said demand for AR status was so high that the network was on track to double in size by the end of the year.
He added: “We have 64 ARs today and are on track to be 120 by year end and that is taking account of our due diligence process where we don’t accept every application we get. Coping not only with understanding the new regulation but also the multiple costs and application fees to get permissions is driving many to seek AR status.”