CML news & views

We support the right sort of action to stop rogue individuals entering the mortgage market, and to track them to make sure that they cannot operate elsewhere if they break the rules. Appropriate measures that promote consumer confidence – and reduce mortgage fraud – will also help promote the market recovery.

In our view, there is a compelling case for greater regulatory scrutiny of the intermediary sector, but the justification for the Financial Services Authority’s (FSA) proposals to include lenders’ staff in its plans for an extended ‘approved persons’ regime is less clear. 

In our response to the FSA proposals, we argue that there are distinct differences between lender and intermediary firms. We are not convinced, however, that the FSA has recognised them – or the unintended consequences of the uniform introduction of new regulatory requirements for lenders and intermediaries.

As part of its intrusive and intensive regime, the FSA already has better regulatory tools to apply to lenders – and with better effect – than an extension of the requirements for approved persons. And lenders already put a high premium on mitigating financial risk and sustaining consumer confidence in established brands.

The FSA recognises this, and that there is not therefore a significant lack of training and competence in lending institutions. As a result, the risk of consumer detriment is low.

We are concerned that the regulator’s cost-benefit analysis of its proposals does not reflect their full impact on lenders. The FSA has now made it clearer which roles it intends to include in its expanded approved persons regime. But the rules, as drafted, will not apply consistently to all lenders. 

It is also likely that a significant number of individuals will be unintentionally captured. Based on estimates we have collected from the majority of active lenders, some 14,500 staff from lenders alone would be captured by the proposals. Considering the number of intermediaries, the FSA’s own assessment that there would be 20,000 new approved persons looks like a significant under-estimate.

We also believe that the FSA’s analysis does not place enough emphasis on how the regime will be upheld in practice. Its success depends on how it is policed and supervised. Effective supervision will be costly – and the costs will be borne by firms and ultimately by consumers. But, without it, the register of approved persons will not provide certainty and confidence for firms or consumers.

Lenders operate different business models and processes, and provide mortgages through different sales channels. That means that the FSA’s assumption that its proposals can be applied uniformly to lenders and with a uniform result is flawed. The likely outcome therefore is that the FSA will disproportionately restrict or inhibit lenders with different business models, irrespective of the competence and integrity of their staff.

The risk is that the FSA’s proposals will distort the market, or delay its recovery. This is particularly true as they do not take account of how the regulatory landscape will change as a result of the FSA’s own mortgage market review. One likely outcome of the review is that there will be significant change in what constitutes ‘advised’ and ‘non-advised’ sales, and this will have implications for the approved persons regime. We have already suggested that all intermediary sales should be advised in the future as part of our response to the review.

Additionally, second charge and perhaps buy-to-let lending are likely to be regulated by the FSA, further increasing the number of individuals captured by the expanded approved persons regime proposed by the regulator.

In our view, the FSA need to re-think its one-size-fits-all approach for lenders and intermediaries, and to recognise the greater risks associated with the intermediary sector. So, action on approved persons for intermediaries may be appropriate sooner rather than later. But we are not convinced there is a compelling case for intervention targeted at lenders, and now is not the time to make changes that add to costs and do not help market recovery.