COVER FEATURE
20
says. “I remember for about 18 months running around the industry
saying the FSA was about to arrive. A lot of professionals didn’t feel
regulated. Regulation didn’t feel up close and personal, and the FSA
certainly didn’t have the impact of the previous regulator.”
He says that in light of this, the FSA authorisation process
should be reformed.
“Bad behaviour was allowed and too many firms were waved
through authorisation when they should have been properly vetted,”
says Cummings.
With regard to recent comments the FSA has made about
instilling fear in the market, Cummings said this was not the way
forward.
● The notion that
small brokers
can stitch up the
likes of HBOS
and make them
do lending their
policies forbid
is laughable
“We don’t want a regulator that
says be afraid,” he says. “We want to
work with a regulator that wants to
work with us and with whom there is
mutual respect.”
The sudden rise in the number of
risky products he put down to too
many specialist lenders emerging
too quickly.
“I remember talking to one US
chief executive when he was launching
in the UK and asking him how
could we trust him – how did we
know that he wouldn’t be here for the
good times and bugger off in the bad?” says Cummings. “He said it
would be different this time,”
Cummings was not in denial that some brokers have mistreated
customers.
“There are bad examples and those people should not have been
allowed into a regulated system,” he says. “Sometimes lenders treat
us as their outsourced lending arms. The notion that all these small
intermediary firms can stitch up the likes of HBOS or Lloyds
Banking Group and make them do lending that their credit policies
forbid is laughable, although I can’t smile about it.”
The highlight of the day came after lunch when Dan Waters,
These are febrile times and nerves are jangling in the
financial services sector. The Financial Services Authority
appropriately held its mortgage conference in the
Renaissance Chancery Court Hotel in London – just the
place for a revival in the amicable traditions of that court.
Sadly this was not what happened as far as I can tell. I was not there
because of a prior engagement but I have had the benefit of reading the
speeches and media coverage, and clearly the broker sector feels
deeply aggrieved by some of the comments made at the event.
As usual with the FSA it was a rather staged occasion with a range of
platform presentations but little in the way of detailed discussion. But
given what has been happening to the mortgage market, there was a
full house. The FSA, trade and consumer bodies dominated
proceedings but there was also input from firms and Lord Myners,
financial services secretary to the Treasury.
director of retail policy and conduct risk at the FSA, took the stage.
Waters focussed on specialist markets including sub-prime, and
brokers proved an easy target for him as many of these specialist
products were sold through the broker channel.
He asked whether consumers use brokers for advice or primarily
to aid their own search of the market for suitable products and came
to the conclusion that in the case of sub-prime mortgages, consumers
use brokers as a principal means of accessing the market.
By this point in the debate a few anxious brokers were starting
to squirm in their seats as it seemed to focus heavily on what they
had done wrong. But by attacking the way the system was being run
Waters was also ironically attacking the regulatory system.
He seemed to suggest that commission was driving many brokers
and that this was at the root of why so any consumers had been
poorly advised. This led him on to the Retail Distribution Review,
which aims to reduce conflicts of interest in remuneration practices
in the investment market.
“The proposal we have put forward and expect to consult on is
adviser charging, which ends the setting of commission levels by
providers and is intended to deliver a knock-out blow to product
bias,” says Waters. “We must consider whether such a structural
intervention in the mortgage market might deliver similar benefits
to consumers.”
The emphasis was on why brokers had been selling these
products and not who was offering them – lenders.
It’s hardly surprising that Waters made few friends on the panel
or in the room by painting brokers as commission-hungry sales -
people. But he was quick to jump to his own defence when faced with
retaliation and said the industry should not underestimate how
much the regulator is looking at other channels, including lenders.
Until that point the conference had been largely focussed on what
had gone wrong in the mortgage market and not what needed to be
done to tackle the problems.
The regulator made it clear that there would be no quick-fix
solutions but also gave the impression that there would be no rush
to address what has gone wrong.
At one point Lord Turner told delegates that “we do not face
Brokers have played a role in the problems we are wrestling with
‘‘
We must be dispassionate
when looking at where we
have been and where we
are going
PETER WILLIAMS
EXECUTIVE DIRECTOR
INTERMEDIARY MORTGAGE LENDERS ASSOCIATION
The focus seemed to be on the part played by brokers in the
downturn, particularly in the speech written by Council of Mortgage
Lenders director-general Michael Coogan. Nuance may be everything
but this speech aimed to cover what could be learnt from the past as
well as present some initial thoughts about the future.
It covered quite a lot of ground including sharing blame between
the FSA, irresponsible lending and brokers. Coogan argued there
should be a rethink on distribution and tighter controls – not least on
the many small brokers he suggested have been largely unsupervised
since 2004.
Chris Cummings, director-general of the Association of Mortgage
Intermediaries, reminded attendees that brokers can only sell what
lenders offer, a point accepted in Coogan’s speech.
The CML’s comments echoed much of what was said in other
speeches by FSA representatives.
The presentation by Dan Waters, director of retail policy and
conduct risk at the FSA, centred on brokers and set out an agenda on
advice and regulatory compliance directed at that sector. Perhaps this
attracted less criticism because it was posed as a series of questions.
Of course, in the cold light of day all would agree brokers have had
a part to play in the problems we are now wrestling with.
Apportioning blame will not solve the problems in the market but
we must take a dispassionate view when looking at where we have
been and where we are going. On the positive side there was a general
acceptance at the conference that brokers will play a key part in the
future of the market and the question now is how best to deal with
issues around advice, payment and the role of lenders and brokers.
MORTGAGE STRATEGY May 18, 2009
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