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Regulatory Approval Options for Mortgage Firms

Regulatory Approval Options for Mortgage Firms

If you are a professional mortgage adviser, you must determine the best route to achieve regulatory approval. It is critical to consider your options carefully. Meeting regulatory requirements is essential for compliance, client trust, and ensuring your business’s longevity.

Mortgage advisers must receive the Financial Conduct Authority (FCA) authorisation to advise on regulated mortgages. This can be accomplished by joining a pre-existing authorised network or obtaining direct authorisation. Each approach offers distinct benefits and challenges.  Understanding these will assist you in making a choice that suits your business objectives.

Option 1: Joining a Mortgage Network

Joining a network is often favoured by newcomers in the mortgage advising field. This approach provides a faster track to authorisation, as the network is already FCA-approved. The network takes on the responsibility for the advice its Appointed Representatives (ARs) provide. Thereby initially lessening the regulatory load on individual advisers.

Membership in a network provides access to established operational systems and compliance support, including training, continuous monitoring, and evaluations. This support is crucial for advisers who are establishing their practices.

However, networks also prescribe the operational terms for advisers. Which can limit those with established practices and their own methodologies. Networks dictate the lender panel and the systems used, which may restrict your access to certain lenders or products not included in the network’s panel.

While this might simplify compliance, it could also limit your ability to offer your clients a wider array of options unless you choose a network that supports your business model. Access to some lenders and products may require network affiliation.

Option 2: Direct Authorisation

Alternatively, advisers seeking more control over their business practices can obtain direct authorisation from the FCA. As a Directly Authorised (DA) firm, you can create your own procedures, select your systems, and choose which product types to offer.

The direct authorisation application process is comprehensive and generally takes longer than joining a network. It involves submitting detailed information about your firm and its principals to the FCA and a robust business plan demonstrating compliance with regulatory standards.

This path grants more independence but also entails a greater degree of responsibility. Directly Authorised firms must manage their compliance, monitoring, and reporting, which may necessitate dedicated compliance staff or outsourcing, adding to operational expenses.

Considerations for Choosing Your Path

When choosing between joining a network or seeking direct authorisation, consider your business’s scale and scope. Smaller firms or individual practitioners may benefit more from the support and resources of a network, especially initially. Networks provide economies of scale that can reduce costs and offer better commission rates through collective bargaining.

Conversely, larger firms capable of managing their own compliance may prefer the flexibility offered by direct authorisation. This route enables firms to negotiate directly with lenders and, more precisely, tailor their services to meet client needs.

In conclusion, both paths to becoming a regulated mortgage adviser have advantages and drawbacks. Evaluating each option’s immediate and long-term impacts on your business strategy is crucial.

Whether you opt for network affiliation or direct authorisation, your choice should enhance your ability to serve your clients and grow your business sustainably and effectively. Before making a decision, consider conducting thorough research and possibly consulting with compliance experts to grasp the implications of each choice fully.

As seen and written by Liz Syms in the The Society of Mortgage Professionals