CML sets out lenders' views on three key consultations
Published: 13 December 2012 | Author: Bernard Clarke
In three separate responses we are submitting this week and next, we make the case that a series of separate, but complex and inter-related, regulatory reforms must set out to:
- deliver clarity and certainty for firms through a co-ordinated approach;
- make use of appropriate tools; and
- avoid introducing rules that unnecessarily restrict the potential for market and product innovation that delivers benefits for consumers.
The three submissions we have drafted are in response to the Financial Services Authority’s (FSA) consultation paper Journey to the Financial Conduct Authority (FCA), the joint Bank of England and FSA discussion paper The Prudential Regulation Authority's approach to banking supervision, and the Treasury consultation paper The Financial Services Bill: the Financial Policy Committee's macro-prudential rules.
Plans for the introduction of the FCA
The key points we make in our response to the FSA on its proposals for transition to regulation by the Financial Conduct Authority are:
- The need for the new regulatory authority to strike the right balance between the desire to maintain and promote innovation and competition in the market and its stated policy of earlier intervention and bolder supervision. We believe that this balancing act can be achieved, but that the parameters should be spelled out in advance so that firms can plan and act upon them.
- That any lack of clear guidance and supervisory certainty may make lenders hesitant about developing new mortgage products and reluctant to consider anything other than conservative lending models.
- The requirement for firms to have re-assurance over the transition from the current mortgage conduct of business rules to the new regulations as the change-over date approaches. Firms implementing new processes want clarity on how they will be supervised during this time.
- The need for clear rules about how super-complaints will work. In particular, firms need to understand how the authorities will judge such complaints when they are about the potential for damage to the interests of consumers, if such damage is not yet occurring.
- The requirement for clarity about how the FCA proposes to review the impact of its product intervention powers on the wider market for lending.
Prudential banking supervision
The main points we make in our submission on the Prudential Regulation Authority’s (PRA) approach to banking supervision are:
- Concern among lenders about the PRA’s intention not to issue significant amounts of guidance to clarify its policy intentions.
- Concerns lenders have about the replacement of arrangements for publishing good and poor guidance with a more consultative – but more convoluted – guidance process.
- The need for a clear and consistent framework application of the PRA’s judgement-based supervisory approach, to ensure it works effectively.
- The need for judgements to be made on the basis of sound evidence and not because the PRA is looking to make its mark.
- The potential unintended consequences of the PRA’s proposal that it will not routinely disclose to the market its judgement on how near a firm is to failure. We recognise that there are potentially good reasons for this approach, but our submission also argues that there is potential for the market to draw its own – potentially inaccurate – conclusions if there is an information vacuum.
The main concerns we voice in our submission about macro-prudential tools are about the suitability of some of the measures requested by the Financial Policy Committee (FPC). Our submission argues for:
- Appropriate caution, as well as formal, robust and transparent assessments of the impact of macro-prudential tools. Firms need to be able to understand the rationale for the use of tools, and to adapt lending procedures in an orderly way.
- The need for clarity on the specific roles and responsibilities of a range of new regulatory bodies, including the FPC, the PRA and the FCA, as well as the existing Bank of England monetary policy committee.
- The need for careful consideration of our view that there is already an improved regulatory regime, including new capital requirements, that is capable of curbing effectively any excessive lending.
- The need to avoid the use of blunt policy tools like the imposition of loan-to-value and loan-to-income caps. We believe that these options would have adverse unintended consequences, and would be less effective than upholding capital requirements.
- The need for an integrated approach across Europe, to ensure that UK firms are not at a disadvantage compared to their European competitors.
- The impact on firms of making changes to capital requirements at short notice. Our submission points out that it takes time to raise capital – and it is difficult for firms to reduce capital holdings if market conditions change and the FPC alters requirements.
- The need for the FPC to set out clearly which economic indicators it is tracking in relation to the housing market, and to explain the rationale behind its decisions in a way that ensures the market has time to react to changes.
As we work towards the introduction of a range of new regulatory bodies and initiatives, the CML will continue to lobby for a co-ordinated approach by the authorities, and for the implementation of rules that are appropriate for firms and consumers while seeking to avoid unnecessary restrictions on lending activity, competition and innovation.