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Options for regulatory approval as a mortgage firm

Publication date:

17 April 2024

Last updated:

17 April 2024


Liz Syms, CEO, Connect for Intermediaries

As a professional mortgage adviser contemplating the best pathway to obtain regulatory approval for your firm, it's crucial to weigh up your options carefully. Regulatory compliance is not just a legal requirement, but a foundation for building trust with your clients, and ensuring the sustainability of your business. In the UK, mortgage advisers must be authorised by the Financial Conduct Authority (FCA) to provide advice on regulated mortgages. This can be achieved either by joining an existing authorised network or by obtaining direct authorisation. Each route has its distinct advantages and challenges, and understanding these can help you make an informed decision that aligns with your business goals.

Option 1: Joining a network

For many new entrants into the mortgage advice landscape, joining a network is a popular choice. This route offers a quicker way to authorisation, as the network is already approved by the FCA. The network assumes responsibility for the advice provided by its Appointed Representatives (ARs), which significantly reduces the initial regulatory burden on individual advisers.

When you join a network, you benefit from established systems and processes, making it easier to start your business operations immediately. Networks typically provide comprehensive compliance support, including initial training and ongoing monitoring through file reviews, role-play, and observations. This support is invaluable for advisers who are setting up their business for the first time.

However, networks also set the terms under which advisers operate, which can be restrictive for more established advisers who have developed their own working methods. For example, networks determine the lender panel and the systems you should use, which might limit your access to certain lenders or products not included in your network’s panel. While this could simplify compliance, it might also restrict your business’s ability to offer a broader range of options to your clients unless you select a network that has the full range of options that align with your planned business model. For some lenders and providers, you are only able to access the products if you are part of an approved Network.

Option 2: Becoming directly authorised

The alternative to joining a network is to apply for direct authorisation from the FCA. This route appeals to advisers who desire greater autonomy over their business operations. As a Directly Authorised (DA) firm, you have the freedom to design your own processes, choose your systems, and decide which product types to offer.

The application process for direct authorisation is more involved and typically takes longer than joining a network. It includes submitting detailed information about your firm and its controllers to the FCA, as well as a comprehensive business plan that outlines how your firm will meet the regulator's standards.

While this path offers more control and independence, it also comes with greater responsibility. Directly Authorised firms must ensure their policies and procedures comply with FCA regulations and handle their own compliance monitoring and reporting. This often means either employing dedicated compliance staff or outsourcing this function, which can add to operational costs.

Considerations for choosing your path

When deciding between joining a network and seeking direct authorisation, consider the scale and scope of your business. Smaller firms or solo practitioners might find the support and resources of a network more beneficial, at least in the initial stages. Networks can offer economies of scale that reduce costs and provide access to better commission rates through aggregated volumes.

On the other hand, larger firms with the capacity to manage their own compliance and who value flexibility in their business operations might lean towards direct authorisation. This path allows firms to negotiate directly with lenders and tailor their service offerings more closely to their clients' needs.

To conclude, both pathways to becoming a regulated mortgage adviser have their merits and limitations. It is essential to assess not only the immediate benefits of each option but also how they fit into your long-term business strategy. Whether you choose to join a network or pursue direct authorisation, your decision should support your ability to serve your clients effectively and grow your business sustainably. Always conduct thorough research and consider consulting with compliance experts to ensure that you fully understand the implications of each option before making your decision.