At the ASTL we always look for opportunities to work collaboratively with our fellow associations in the specialist finance and intermediary lending markets, where it is appropriate to do so for the benefit of our members. This has driven a number of initiatives, such as a joint submission with FIBA regarding the stamp duty holiday and Robert Sinclair from AMI making a presentation at our annual conference.
One initiative that has been really successful, is the launch of a series of joint events with FIBA in which we discuss some of the most pressing issues affecting our industry with a group of invited individuals from brokers, lenders, solicitors, valuers and other industry providers.
We recently held one of these events, virtually of course, and it proved to be a lively and interesting discussion under Chatham House rules, which means that everyone could talk openly about issues which concern them, especially sensitive regulatory issues! This aspect is important in these affairs as everyone can feel comfortable voicing their concerns or suggestions for change and improvements. With this in mind, I thought it would be useful to comment on some of the hot topics that were discussed during the event.
1. Fee Disclosure
We discussed how the FCA’s expectations for the disclosure of introductory (procuration) fees applying to lenders and brokers, and whether full disclosure should be a pre-requisite for all types of mortgage loans. The general sentiment was that full disclosure of fees is best practice and is both the responsibility of the lender and the broker.
There was comment that, regardless of whether it is regulated by the FCA or not, a lender should always look to disclose all fees paid to a broker within an offer letter and that failure to do this could leave the lender exposed from a legal perspective. A previous case where the broker fee was not disclosed, resulted in the loan being rescinded, which was both costly and embarrassing for the lender.
It was acknowledged that it is the duty of the broker to disclose any fees on a regulated loan, and that by including full disclosure within the offer letter, lenders can both ensure they are not left exposed and can also support this aspect for their broker introducers. The general consensus was that fees are a matter for disclosure regardless of the deal being regulated or non-regulated.
2. Government backed loans
The impact of CBILS, the BBLS and the Recovery Loan Scheme were also discussed. It was felt that the Recovery Loan Scheme is expected to have limited appeal and likely to be accessed only by businesses that struggle to secure finance elsewhere, most probably from the travel, leisure, tourism and aerospace industries.
It was thought that there may be refinance opportunities as a result of the other schemes, particularly given that some businesses, having made use of a government scheme, even if only as a precaution, are being viewed negatively by some lenders. With this in mind, there may be a cohort of borrowers who are driven to the specialist finance sector because they chose to access a government scheme, just because they thought it was the right thing to do. This could spell opportunity for lenders and intermediaries in this market.
3. Inducements and entertaining
Under MCOB, the FCA stipulates that firms are allowed to receive indirect benefits such as gifts, hospitality and promotional competition prizes, provided that this is not likely to give rise to a conflict with the duties that the recipient owes the customer.
However, this can become an issue where the offer is directly related to the completion of a loan as it then becomes a specific incentive. The discussion raised that there has been a resurgence of such offers, such as for example the offer of an iphone for a completion, and it was deemed that this stretches what is permissible under MCOB. It was also noted that offers like this raise issues as to whether they should be declared for tax purposes. Overall, the conclusion was that promotions linked directly to a specific loan placement and, or, completion are problematic and should be discouraged.
4. Processing times and legal panels
There was discussion about the lengthening in processing time for loans and the merits, and potential challenges, of lenders working only with approved legal panels. It was accepted that, due to the imposition caused by the pandemic, plus the deadline for the SDLT holiday benefit, almost all areas of the mortgage market had slowed causing substantial delays. It was agreed unfair to place this problem in any single area as everyone was affected in one way or another and generally should become less problematic as we come out of lockdown.
5. FCA quarterly financial reviews
During the past year, the regulator has requested that firms submit quarterly financial status returns with a view to establishing the financial effect and continuing stability of firms during the pandemic period. Concern was voiced as to whether this may be an ongoing requirement. The general consensus was that brokers arranging loans have a different set of responsibilities and obligations to investment advisers handling client money and that there should perhaps be a threshold regarding the size of the broker firm that would determine how frequently it is required to submit financial reports. The time and cost taken in preparing and submitting these four reports (in addition to the twice yearly RegData requirement) was considered an unnecessary imposition and should be dropped as soon as possible.
6. Education
The topic of education was raised again, more specifically whether the industry would benefit from a single training and qualification program. There is certainly appetite for greater education and integration of new intermediaries to help grow the market and the conclusion was that this is a big topic, worthy of more in-depth and focused discussion in the future.
Overall, it was an interesting and valuable event, and I trust that for all delegates, the breadth of topics and in-depth discussions proved helpful. If you are a member of the ASTL or FIBA and would like to attend a future event, or raise a topic that you think should be discussed, please do get in touch with a contact at your association. Sharing information and ideas in this way is the best way for us to drive our industry forward.