What is the background to the FSA? What does it do?
The Chancellor of the Exchequer announced the reform of financial services regulation in the UK in 1997, and the FSA was set up in 1998. Responsibility for banking supervision was then transferred to the FSA from the Bank of England. The Financial Services and Markets Act, which was implemented in December 2001, transferred to the FSA the responsibilities of several other organisations, including the Building Societies Commission and the Personal Investment Authority among others. And shortly, the regulation of mortgages and general insurance will also fall within its scope, as previously there was no statutory regulation for them. The FSA is now the single statutory regulator for the financial services industry, and is an independent non-governmental body.
What is CP146 and what is its purpose?
Following the decision by the Treasury in December 2001 to extend the FSA’s powers to include mortgage advice, the FSA has published a consultation paper to discuss its proposals for regulating mortgage sales. This consultation is just the first in a series that will cover mortgages and general insurance.
For many consumers, taking out a mortgage is one of the most significant financial commitments they will make in their lifetime, so the FSA wants to make sure that consumers get clear comparable information on mortgages and that when they get advice they are recommended a suitable mortgage. The FSA aims to introduce a regime that achieves this goal in a proportionate, cost-effective fashion. CP146 is the beginning of the process which will mean that from around mid-2004, firms that sell many types of mortgages will need to be authorised by the FSA.
How important is it for brokers to get in touch with the FSA and express their opinions on CP146?
The FSA takes all responses to its consultation papers seriously, whether they are from individual intermediaries or from large product providers. It is not necessary for them to come through a trade association and, in many cases, individuals reply to us separately to their trade body anyway. It is not necessary for people to comment on every section of CP146. Sometimes people might just want to respond to one issue and we are certainly prepared to listen to all the points made.
Given that a good proportion of buy-to-let properties on the market are owned on a non-professional basis, do you recognise why there have been calls for its inclusion in regulation?
There have been calls for its inclusion, but it was the Treasury’s decision not to include buy to let in the regulatory proposals, and it was quite within its rights to do so. While buy-to-let properties are not included within our remit we do have a responsibility to raise consumer awareness about financial matters. Consumers considering taking on a buy-to-let property should be aware of the financial implications of entering into such a transaction.
What is the likelihood of brokers having to sit more exams in the future?
The MCCB is asking mortgage brokers to sit exams before Christmas. This is nothing to do with the FSA and there is a chance that when statutory regulation is introduced, it will require brokers to sit further exams to top-up their knowledge of the FSA to make sure they know what they are required to do. However, I would anticipate that those intermediaries who have sat the exams for the MCCB are likely to find that this will be taken into account and, subject to some due diligence, they will be ‘grand-fathered’ into the new regime, but possibly subject to the top-up mentioned earlier.
What do you think will happen to the number of brokers in the market?
I do not know for sure what will happen to the number of firms in the market. The chief concern of the FSA is that consumers have a good range of choice when they are looking round for mortgage advice. Some intermediaries will not be able to comply or find that they do not want to comply and they will leave the market. But if firms do leave the market, it could be because of other pressures, not just regulation. For example, technology and the market structure at the moment will have an impact on the future. Undoubtedly regulation is something that will have an effect, but it is not happening in isolation.
How is the FSA funded and who will end up paying for it from the mortgage industry?
When the Financial Services and Markets Act 2000 came into force, the FSA took formal responsibility for the whole regulatory system and all regulated organisations have to pay the FSA fees directly to meet its funding requirements. The FSA is wholly funded by the industries that it regulates.
Those who are regulated by the FSA also have to pay fees to the Financial Ombudsman regime. We have issued a series of consultation papers that explain how we calculate these fees and raise them from regulated organisations. The fee reflects the size and the complexity of the firm and the business it conducts. With regard to mortgage regulation, no detailed plans have been drawn up yet but whatever figures are drawn up will take into account the different sizes of firms. The FSA will decide on its fee structure towards the end of the year.
Ben Marquand is deputy editor
¢ The FSA will be discussing regulation in more detail at The Mortgage Event in association with Mortgage Solutions in Glasgow, Bolton, Leeds, Bristol, Central London, Birmingham and Gatwick.