Q. To what extent do you think lenders had an influence on the Treasury’s decision to regulate advisers?
It is clear that they have had an impact on the Treasury’s view. It recognised that the structure of CP98 would have been changed rapidly once implemented. The Treasury decided that rather than doing that it would regulate the full structure, as we had been urging it to do since 1999.
Q. When can we realistically expect to see the new FSA regime implemented?
I expect it to be Spring 2004. But the FSA will want to ensure that general insurance intermediaries and mortgage intermediaries are regulated from the same date. General insurance advisers are subject to a directive being signed off and the rules being written, followed by consultation and the regulations being finalised ‘ this will all take time. On the mortgage side, the FSA will be adding rules on mortgage advice but, basically, it will follow what we already know from CP98, so that should be possible by 2004. But it is also down to how quickly the authorisation of intermediaries will take place and that depends on the numbers, which are uncertain at the moment. It is estimated that anything up to 20,000 firms will have to be authorised.
Q. What role will the CML have in the shaping of the FSA’s new regime?
We are closely involved with the Treasury on the statutory side of mortgage advice and with the FSA on what the rules should be for regulating advice. We supported much of what the FSA had previously come up with, apart from two areas. One area of concern was that it was asking lenders to regulate intermediaries’ disclosure and we were also worried about the overall cost of the system of lengthy pre-application illustrations (PAIs) that, in our view, people would not read. I believe there will be a move to reduce the length of PAIs so that they are easier to use and technology is likely to provide solutions to the production of these in intermediary offices, branches and via the internet to make the system more cost-effective. The issue for us will be how the FSA regulates advice, to make sure it is proportionate and does not drive people out of the industry.
Q. Do you think that the Treasury’s decision will affect the number of lenders wanting to join electronic trading platforms as a compliance solution?
I suspect that lenders will want to keep costs down and speed up the mortgage process, and anything that does that, including electronic trading platforms, will be looked at closely. Platforms planned to provide compliance solutions by next August that will now not be needed until 2004. But I think there is potential for people to use the PAIs earlier and that platforms will be used to speed up this process in any event. The technology is there, can be used, does reduce costs and does save stress for the customer, so I believe this is definitely the way forward.
Q. Will the Mortgage Code Compliance Board (MCCB) have a role once the FSA’s regime is implemented?
When we first responded to the Treasury we said that we thought regulation of advice should be based on a code, and it would be sensible to use the experience of the MCCB within that. But the whole point of the move is to have a single regulator, therefore the MCCB’s code will have to disappear. But we believe its experience should be drawn upon by the FSA. How this will be done is something we will have to look at over the coming months.
Q. Is it likely that the FSA will demand advisers have more qualifications under their belts?
I think the FSA will support the basic qualification that we and the MCCB have put in place. It was always written with the view that it would satisfy the FSA if it became a statutory requirement. We think the current qualification will be maintained but it is likely that the FSA will build upon it with continuous professional development, as it has done in other areas.
Q. Will there be extensive changes to compliance requirements for lenders and, if so, how will the additional cost of changing systems that have already been developed affect smaller players?
The requirements of presenting clearer advertisements, details of disclosure before a customer has applied for a loan, offering documents in a prescribed form and detailed disclosure when people are in arrears or fall into repossession, will all remain in place. The FSA will also ask how advice should be given, explaining why a particular product is right for the customer ‘ so I think the new regime will be similar to what lenders were expecting.
While there will be an increased risk of cost from statutory ‘ rather than voluntary ‘ regulation there will be less potential for confusion and less likelihood of market disruption. A real problem for smaller players was meeting the August deadline. Different organisations were at various planning stages, but for smaller groups, the extended deadline will significantly reduce the burden and will mean they will not rush into decisions that they may regret later. Larger organisations will want to finish the work they have started. One of the things we want to talk to the FSA about is how far ahead it can publish the new rules, so that people who want to implement new systems early can do so.