Published: 19 April 2012 | Author: Bernard Clarke
Our detailed response to the mortgage market review currently being undertaken by the Financial Services Authority (FSA) identified four main areas where we believe that changes and clarification are needed:
- the one-size-fits-all approach to advice:
- uncertainty over supervision;
- help for existing mortgage prisoners; and
- how proposals for the UK mortgage market mesh with the European directive on mortgages.
On advice, we believe that it is important that the proposed rules are not based on a presumption that this is given in a face-to-face exchange with the customer. Many borrowers now prefer to operate through channels like the telephone or internet, so requirements on advice need to work in these contexts, as well.
We are also concerned that the definition of advice is too wide: the requirement to give advice every time there is "spoken or interactive dialogue" risks dragging into the advice process many borrowers who do not want or need it. We are suggesting the FSA needs to:
- ensure there is consistency between the perimeter guidance (which allows dialogue with the customer without it necessarily being deemed to be advice) and the proposed rules (which do not);
- ensure that proposals for advice only capture those instances of contact with customers that will be undertaken by approved persons;
- require that, where new money is being lent, borrowers are encouraged to receive advice but can opt for execution-only if they want to; and
- require that customers in the four higher-risk borrowing groups – equity release, sale-and-rent-back, right to buy and debt consolidation – should not be able to opt out of advice.
On supervisory uncertainty, our concern is that, while the responsible lending rules appear to allow some flexibility to lenders, it is possible that supervisors may be more prescriptive. We would like the FSA to ensure that monitoring, supervision and enforcement are aligned with policy intentions to reduce the risk that lenders adopt an over-cautious approach as a result of uncertainty over supervision.
Finally, we believe that the nature of scale of the proposed regulatory changes mean that 18 – rather than 12 – months would be an appropriate minimum period for implementation, once the final policy has been published. It is crucial that UK reforms reflect the outcome of the European directive, and there is a risk of contradictory requirements if two sets of changes have to be implemented in quick succession.