The consultation period for interested parties to respond to the Financial Services Authority (FSA) over CP146 ended last week and the overall consensus has been positive.
The FSA has portrayed itself as a body willing to listen to market ideas and not one looking to impose its will. It has also been quick to point out it was the Treasury and not the FSA that set the agenda for the areas of the market to be regulated. Many believe the FSA must take the initiative and, having heard the concerns of the mortgage market, lobby the Treasury to ensure it provides the appropriate level of regulatory protection in those areas not currently included.
However, John Ellis, head of public affairs at the Life Insurance Association (LIA), which represents those giving advice in the personal finance market, remains concerned. He said: ‘It seems inconsistent the sale of Home Reversion Schemes is not within the scope of the regime. Considerable harm could be done to customers if proper advice is not given. We realise the scope is a matter for the Treasury, but would urge the FSA to represent to the Treasury the need for Home Reversion Schemes to be included.’
This sentiment has been seen throughout the market. The National Association of Mortgage Brokers and Advisers (NAMBA) has been working with the Association of Independent Financial Advisers (AIFA) to give feedback to the FSA. In their response, they said: ‘The omission of buy to let, home reversion plans and second charge loans is disappointing as borrowers are left unprotected and major product areas are excluded.’
They continued: ‘Should the Treasury be unable to take the suggested action, we will ask the Council of Mortgage Lenders to recommend to lenders ‘ as best practice ‘ to only accept home reversion mortgage applications from regulated advisers.’
While it is laudable the market is willing to self-regulate areas it feels have been missed from the FSA’s proposals, it may add to the confusion in the long run. The FSA’s regulation must be seen as complete, so the level of protection afforded to the customer cannot be questioned.
It is for this reason the lack of clarity surrounding the use of filtering questions must also be resolved.
Lender, Southern Pacific Mortgage Limited, said: ‘We welcome in principle the improved clarity the three sales categories will bring to the mortgage sales process, and they are regarded as an improvement on the current Mortgage Code definitions. How-ever, there were concerns on the non-advised filtering questions.’
As NAMBA and AIFA said: ‘We are concerned with the potential for inadvertent advice being given and how this can be identified by appropriate arrangements, systems and controls.’
The LIA has suggested it could be solved by: ‘A clear distinction between advice and execution only, with nothing in the middle albeit that the advice could be streamlined through filtering questions. In other words, filter questions should be an optional part of the advice process.’
The FSA has much to consider between now and the first quarter next year when it aims to publish its revised rules. A spokesman for the FSA said it had been pleased with the response from the market, but could not comment on its content at the moment.
We will have to wait and see if it takes the opportunity to deliver proposals that are clear, workable and enhance the confidence of the market. Without that confidence, the FSA will be launching its regulatory regime on shaky foundations. What is encouraging is that the Mortgage Code Compliance Board (MCCB) is working closely with the FSA to help it through the transitional stage.
Although it raised its own concerns over the likes of filter questions, Luke March, chief executive of the MCCB, said: ‘We support the Government’s clear direction on the future regulation of the mortgage industry and welcome the opportunity to contribute from our own regulatory experience.’ The FSA will appreciate the help.