Should the FCA do more to Regulate Mortgage Networks?

Should The FCA Regulate Networks

Should the FCA do more to Regulate Mortgage Networks?

A very good question and certainly not an easy one to answer.  The collapse of a network can and often does have catastrophic consequences.  One of the first indications of a problem is usually late payments on proc fees or more likely commission payments from insurers.   Historically, networks suffering financial hardships have invariably come forward with a string of reasons for the issue with “technical problems in our accounting system” and “late payment from the insurer” being the two front runners.

Having said this, please don’t panic because you have had the occasional late payment, since one of the reasons the two previous excuses are so popular is that with any large operation involving the disbursement of several hundred payments from 20 or 30 different sources to maybe 200 or 2,000 recipients there are always going to be occasional hiccups or cockups  From the feedback we have received from literally thousands of brokers over the last 12 years we have been in existence however, it seems obvious that the Network Route is still much easier and safer than trying to set up a new mortgage business as a Directly Authorised firm, on a wing and a prayer and with no real support.  Learning through the mistakes we make might be the natural way of things, were we still living in caves and foraging for our food, but in a modern business this type of experience tends to be very costly and one of the main reasons the human race has done so well (so far?) is that communication and networking means we don’t continually have to keep reinventing the wheel!

As a mortgage broker I’ll always remember when a very large lender, now bought out by an even larger lender once paid my proc fee to a different company down in Birmingham (my business was in Newcastle).  They didn’t have the same name as us, didn’t use the same bank, and didn’t have a client whose name was remotely similar to that of our client who had taken out the mortgage so I’m at a complete loss as to why this happened, but fortunately it didn’t take too long to sort out and I was paid a week after I should have been.

Going back to the FCA control issue however one of the problems is that the resources required in order to effectively police such action would be massive, and as always it’s us brokers and advisers who would end up paying for it.  Would you check, annually, quarterly, monthly, or weekly and how many staff would that require to accomplish this?  Add to this the question of, what would happen to any networks that didn’t provide the correct data, when one of the principal reasons for a company not providing this data would be if they were going down the pan. In this situation you can see that traditional censures such as removal of permissions or a financial penalty aren’t really likely to be that effective.

Then on top of this we must consider that the FCA was brought about to protect the public not businesses.  I know this is a bit harsh, and I have some very good friends who have suffered big, sometimes calamitous losses which in one case resulted in someone losing their business.  But I would still have to wonder, if this is very different than the pressures facing any small to medium business in the 21st Century. For a personal example another friend of mine, before becoming a mortgage broker was a builder.  He built up his business over a number of years and eventually employed over 100 people taking on work as a subcontractor for large government contracts.  He had just finished one of these in a town in Wales when the main contractor went broke owing him £140,000.  Eight years work building up the business working 12 and 14 hour days, gone.  In spite of a tremendous work ethic, great business acumen and terrific industry knowledge he had to declare himself bankrupt and has only now dragged himself back to owning a profitable business.

The point of the above story is that financial services business is only as inherently risky as any other business and although maybe because it has quite an active community with a number of well supported forums, in uncertain times it’s easy to get seduced into thinking we’re somehow different or less stable even when we’re aware that in the world outside of our industry businesses are booming or going bust all the time.

It will never be the job of the FCA to watch over our businesses, and nobody is going to look after your enterprise like you. What I would advise is please bear in mind what I said in the first paragraph. There’s no need to get paranoid but you should be aware of what is happening with your network and if you’re not happy with the way it’s being run consider a move?  It can be a hassle, a bit like changing bank accounts where you know you should do it but feel just too comfortable where you are.  Just remember, if you have serious doubts about the stability of your current network. It’s usually far better to act now, than to find yourself facing the loss of £20,000 or more in pipeline business, thinking “I knew something was wrong!”