Amanda Jarvis

March 5, 2003

The Association of Mortgage Intermediaries (AMI) has today (5 March) published the results of a survey which tested mortgage intermediaries’ knowledge of the Financial Services Authority’s (FSA) proposals for the regulation of the industry. 

With mortgage regulation coming into effect in October 2004, AMI has been surprised by the lack of comment it has received about the issues facing the industry, from around eight hundred mortgage intermediaries who have registered their interest in becoming members of the new Association. 

AMI decided to publish a survey to test awareness of the FSA’s proposals.  The survey’s eleven questions, which were posted on AMI’s web site www.namba.org.uk last week (25 February), cover the FSA’s consultative papers which relate to: the regulation of mortgage sales (CP146); extending the regime for appointed representatives (CP 159); and the reform of polarisation (CP166). 

More than 200 responded to the survey within 48 hours of its publication on the web site.

The findings of the survey are as follows:

       Over 50% of respondents did not know that under the new regime, intermediaries will not be able to remain independent for mortgages if they are “tied” for other business.  

       Around 60% were not aware that capital adequacy standards were to be introduced and the majority were concerned about the requirements for PII cover.

    65% either knew little about the proposals to extend the appointed representatives regime or were unclear about what the proposals would mean for their firm.   

    Almost 20% of respondents have already decided that they will cease to provide full advice when the regulations come into effect. This is because of the additional costs which meeting the new requirements – which include an assessment of suitability and affordability – will incur due to the likely increase in the cost of Professional Indemnity Insurance (PII) cover.  

Other findings                  

Very few respondents had any real understanding of their responsibilities under the proposed financial promotion (i.e. advertisement) rules. 

A majority expressed concern about the proposed sales process. Whilst almost all understood the difference between advice and the non-advised filtering questions, very few appreciated that the additional requirements of suitability and affordability would apply to full advice only and the adverse effect this could have on the cost of PII cover. 

None of the respondents were able to offer a solution as to how affordability could be assessed (and therefore advice given) for self-certification mortgages. This is an issue which concerned so many respondents, that AMI has decided that it will address this matter separately in the near future.

The majority of respondents were unaware of the consequences of the FSA's  proposed approach to independence in the mortgage market. If the FSA decides that all firms who have access to the whole of the market (i.e. all lenders) are operating as independent, regardless of their authorised status, this will enable many appointed representatives to provide independent advice. For instance, an appointed representative of a life office may well have access to all lenders and therefore could be deemed to be independent for advice on mortgages.  Most of the respondents thought they would have to be authorised as an independent intermediary in order to provide independent mortgage advice.      

Commenting on the results of the survey, Charles Gooding, Chairman of the  Association of Mortgage Intermediaries, said:

“These findings demonstrate the very real need for the existence of AMI. Mortgage intermediaries are in the dark about how the new rules will affect their businesses and by when. Probably the most astonishing findings relate to the lack of knowledge about the FSA's broader proposals for appointed representatives and multi-ties.

Some mortgage brokers seem to think that they have all the time in the world to make up their minds about their future status. But this is not the case.  Firms will need to decide which status they are going to adopt to meet new regulations on depolarisation, which come into effect at the end of 2003, and in order to prepare for FSA authorisation. The FSA has made it clear that it could take up to six months to authorise those firms who are currently unregulated. It is vital therefore that firms begin making plans for the new regime as soon as possible.”

AMI intends to carry out further surveys of this nature and will be seeking the views of all those registered with the Association. To find out more about AMI and how to become a member, visit www.namba.org.uk

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