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October 27, 2004 12:01 pm

M-day ‘pain in neck’ for lenders

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Mortgage lenders and general insurers have already spent millions of pounds in staff training and IT upgrades as they gear up for the start of regulation by the Financial Services Authority.

Mortgages were regulated by the Mortgage Code Compliance Board using a voluntary code. However from October 31, they will be regulated by the Financial Services Authority.

A study by National Economic Research Associates, a consultancy, estimated last year that around 155 mortgage lenders will be covered by the new mortgage rules as well as 13,725 intermediaries such as mortgage brokers.

But the new rules will not cover certain types of mortgages such as buy-to-let loans and all equity release schemes.

So far most of the banks and building societies have found the additional regulation time consuming and costly.

Barclays, the UK’s third largest bank, has had to train 5000 staff to comply with the new standards and Nationwide, the largest building society, has devoted 6000 hours to staff training.

Roger Davis, chief executive of UK banking at Barclays, said: “As with all regulation we spent a great deal of time on it.

“It’s been a distraction for everyone. We’re comfortable we are track for it - we’re confident we will have a well trained specialist salesforce. Regulation is here and it is not going away. We accept it is part of our licence to do business.”

Matthew Bullock, chief executive of Norwich & Peterborough Building Society, said the new rules had cost double what his organisation had expected although he would not divulge the exact figure.

“In terms of IT systems work it has been as large a project for us as the Year 2000 project was,” he said.

One consultant, who advises banks, said: “It has been a pain in the neck for the industry.”

However despite the cost, very few mortgage lenders have exited from the mortgage market because of the new regulation.

Direct Line, the Royal Bank of Scotland subsidiary, has been forced to close to new business for nine weeks in the run-up to mortgage regulation.

Sainsbury Bank also pulled out of the mortgage market in July but this was not due to mortgage regulation but because of poor sales.

The new rules have been costly for many of the UK’s smaller building societies but some believe mutuals will have an advantage.

Paul Winter, sales and marketing director at Ipswich Building Society said: “Mortgage regulation offers societies a great opportunity,” he said. “Traditionally we have been totally transparent in our charging structure and with everyone having to disclose fees and charges in the same way this will be emphasised.”

General insurers have also had to devote considerable time and effort to preparing for forthcoming FSA regulation.

Up to 20,000 firms are expected to come under the FSA’s jurisdiction when it takes over general insurance regulation early next year.

The FSA is implementing the rules so that any firm selling insurance or acting as an intermediary must be authorised from January 14.

While this includes insurers and brokers, it also mean a host of secondary players, from car dealers to estate agents, may also need authorisation if they are involved in recommending insurance to customers.

The FSA has so far authorised about 10,000 companies, which potentially leaves a similar number without the authority to trade. The large insurers have largely welcomed the onset of regime.

The Association of British Insurers, the industry body, said: “We want consumer protection but we don’t want the industry bound in red tape. We think that’s what we’re getting here.”

Norwich Union said it had invested significant amounts of time and money in staff training, changing IT systems and working with brokers.

“This is the culmination of two years work and marks a significant investment in moving towards a new regulatory regime,” Norwich Union said.

For insurance brokers, the new regime is credited with hastening consolidation among the smaller players.

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