JOB OF THE WEEK

As we settle in to 2010 and the new decade, the new world for mortgages is becoming a little clearer.  We have seen the first re-brand of a lender, uniquely before launch.  The brand formerly known as Checkmate is acquiring an entire management structure with an appropriately skilled executive and non-executive team, to satisfy the new rigour being employed by the FSA.  We have to trust that this new approach from Canary Wharf delivers better products and processes capable of sustaining sound commercial judgement.  The target is that any newly approved lender has the team and plan capable of coping with whatever the market will throw at them in the future.  This has to be the right objective.

History tells us however that this may not be bornE out in reality.  Regulatory intervention to protect holders of final salary pension schemes is now seen by some as having only served to drive such schemes from the market.  Controls and guidance on With Profits may have made them safer, but applied restrictions that make them such anodyne performers that they deliver no risk return premium to cash.

This is why I worry about the MMR. The FSA is staffed by lots of very good people with the right objectives and positive intentions.  It is their intention to do the right thing.  In that they have our full support.  That was the case with Pensions and With Profits.  It is however unfortunate that sometimes when government or regulators interfere in markets and products, their actions can have unintended consequences.  

I am hoping that having started the discussions, listened to feedback and analysed all the data, that we will now enjoy a short period of calm reflection.  Where we assess carefully what the objectives are.  Where we consider what are the issues which need to be addressed, to deal with the risks of today, not those of yesteryear.  Perhaps we need a prioritised list of issues and a list of optimal solutions.  In undertaking the work to date the FSA has done a great job in getting all the issues out on the table and debating a great range of solutions.  The trick now is applying the most appropriate and proportionate remedies that deliver a safer market without unduly constraining its ability to operate effectively and grow.  We all need to accept that the old days are gone, but over-regulation risks hindering a return to a "normal" market.  By working together, regulator, lenders and brokers, we should not over-shoot the target and impede growth.

Last week I attended an anti-money laundering conference organised by the Asset Recovery Working Group ‘Payback' Team and hosted by the Serious Organised Crime Agency's (SOCA) UK Financial Intelligence Unit (UKFIU). The conference was very well attended by a real cross section of businesses ranging from financial advisers and mortgage brokers to retail stores and nightclub/casino organisations.

Speakers sent out a very clear message about the Suspicious Activity Reports (SARs) regime; suspicion based reporting works! Now I hear some of you saying that you've submitted SARs in the past but no action appears to have been taken on these. SOCA readily admits that it has failed to communicate well with the industry in the past but is now attempting to remedy this situation. After making its first SAR a firm can expect to get feedback from SOCA to let them know that it has been received and to also help with any further submissions. Another means of communication with the regulated community is "Payback Times", a quarterly publication which gives information on the recovery of the assets of crime.

You might think that making a SAR on what seems trivial to you is not worth the effort. You should remember that an individual SAR may not have much for law enforcement to go on in isolation but it can become part of a jigsaw that builds a case showing criminal activity. Although the reporters' identity remains confidential, SARs are held on a database that can be accessed by local law enforcement and other government agencies. These records are kept for between 6 and 10 years and can highlight not only what most people consider to be organised crime, such as drug crime and/or people trafficking, but also cases of tax evasion and benefit fraud.

At the conference a speaker from FSA talked about the change in regulatory approach of late, mainly due to the economic crisis. Internal fraud is on the increase with employees being targeted by criminals to steal client information for ID fraud; it has also been reported that there's been a 15% increase in attempted mortgage fraud. A thematic review is currently being carried out and although the results aren't due to be published until January next year, early evidence shows that small firms don't take the threat of being used for financial crime seriously enough. One of FSA's four statutory objectives is the reduction of financial crime so we are likely to see more enforcement action against firms and individuals who shirk their responsibility.

As a closing shot FSA said that law enforcement had closed down a document factory which was producing fake ID, evidence of income and such documents which were being used by the perpetrators of financial crime. What was more surprising was that a list of this factory's customers was found and many of these were regulated firms. I'm guessing those firms can expect a knock on the door from the Regulator......................... or worse!

So party conference season is over for another year, and last but not least was the Conservatives up in Manchester. Unlike Brighton the previous week, the conference was full to the brim with delegates, journalists, lobbyists and exhibitors - I was told there were 2000 accredited journalists alone.

A couple of the main highlights were certainly Osborne and Cameron's keynote speeches. Osborne made a tough speech which seemed to go down well with delegates and was one of the main talking points of the conference. Osborne outlined in surprising detail the cuts a Conservative government would impose to reduce the public debt. This fascinated political pundits who were unsure whether the tactic of specifying precisely which cuts he would impose before voting day would backfire. However it was widely agreed by most the speech was a success and a pivotal point in the conference.

Apart from outlining the specific spending cuts, Osborne's more general message was that the economy needed to be moved "from one built on debt to one sustained by saving and investment", commenting that "a savers society is our ambition". He said encouraging savings is why he made his promise that only millionaires would pay inheritance tax, and added that at every stage the Tories will support the culture of saving, for those who "show responsibility for themselves and others". However Osborne admitted the ambition of a saving society will only be able to fulfilled once a Conservative Government "have got on top of the deficit". It's therefore an ambition that may well take more than one parliament to achieve.

As for pensions, Osborne claimed the Tories are going to stop more and more pensioners being driven onto the means test, and affirmed that in the next Parliament they will resolve to restore the earnings link for the basic state pension. However he said it was another one of those trade-offs "any honest government has to confront", and that the state pension age will have to rise as a result. The women's pension age is already set to start rising over the next decade to 65. And by 2026 the pension age for men and women will reach 66. However the Tories aim is to bring forward this date when the age will rise, although it will still not happen until the second half of the next decade. For men this means the pension age will not start to rise to 66 until at least 2016. For women this means the pension age will not start to rise from 65 to 66 until at least 2020.

On taxes Osborne said the Tories should not accept Labour's new 50 per cent tax rate on the highest earners as a permanent feature of the tax system, but said he could not even think of abolishing the 50p rate on the rich while at the same time he was asking many public sector workers to accept a pay freeze. He also pledged to target tax evasion and off-shore tax havens.

Following Osborne's speech last Tuesday, all eyes then turned to David Cameron who was speaking at the close of the party conference, and staking his claim to become the next prime minister of Great Britain.

Unlike Brown in Brighton the week before, Cameron used his leader's speech to address the size of the country's debt, saying there was only one real option for him - to pay down this deficit as soon as possible as "the longer we leave it, the worse it will be for all of us". He said the progressive thing to do is to get a grip on the debt but in a way that would brings the country together instead of driving it apart, adding this would involve cutting ministers' pay, freezing public sector pay for all but the one million lowest paid public sector workers, and showing that the rich will pay their share, which is why the 50p tax rate will have to temporarily stay and Child Trust Funds for those on middle and higher incomes will have to go.

Cameron mentioned the issue of pensions too, commenting that our pension system was designed in a time when many people didn't live till 70. He said it is out of date and it has to change, hence why the Tories have made the decision to bring forward the raising of the pension age.

Touching briefly on financial regulation, while making a dig at the Prime Minister in the process, he said it was Brown who "designed the system of financial regulation that helped cause the financial crisis". Cameron says it needs to change which is why he will give back to the Bank of England its power to regulate the City, "powers that should never have been taken away".

As well as these comments and policy announcements on the main conference stage, meetings behind the scenes were equally interesting, and certainly highly productive. While it is hard to go into too much detail, AMI managed to meet a range of Shadow ministers from across the Treasury and Business teams, all of whom were fully supportive of the role of intermediaries, and receptive to many of the issues we raised with them. Bridges have certainly been built, and we look forward to following up with these MPs on certain issues in the coming weeks, in the hope they will help to further AMI's causes if and when they take power next year.