VH: The CML’s response to the MMR aims to overturn the mandatory advice proposal. Why?
Paul Smee: You have to break the problem down into different categories. Firstly, at the moment, the definition is wrong. The proposal is going to drag people into the advice process who are just looking for information. It’s the old problem of defining the difference between advice and information and I just don’t think they’ve drafted it right. This is a technical point.
VH: But isn’t there some truth in the old adage you can never have too much information? Isn’t it fair to say, advisers often use their own discretion on these things in an interview?
PS: The end question is does everybody need advice? What we need to try to avoid is the situation where people are on an advice escalator and can’t get off because the regulation says they have to be advised.
VH: Often, people may think they don’t need advice, but actually aren’t aware of other options that might be better for them, regardless of experience.
PS: At the moment the proposals look very much like one-size-fits-all and they need to be fit for purpose. The proposal is based on a face-to-face interaction, rather than phone or any other kind of communication. The advice need is very different for someone who has remortgaged several times and a first-time buyer. What I’m not asking for is the retention of non-advice. What I fear is that consumers will be confronted by a process with no exit point and the only way to exit is to discontinue the conversation totally. This isn’t a million miles away from where other members of our industry are.
VH: Wouldn’t having a fully trained adviser available at all times be the ideal in any bank?
PS: What many banks are saying is we have a model based around telephone sales.
VH: Call-centres often, perhaps, not telephone-based advice.
PS: All scripts are mandated by regulation and you have to have scripts that ensure you don’t cross-over into an advised regime, which is why non-advised suits telephony. Consumers need to have some sort of flexibility within the way this works. This isn’t downplaying the importance of advice or indeed advisers, but this sort of service has to be delivered to everyone in the same way, you’re going to annoy a lot of people.
VH: Cost-cutting plays a key part of this conversation as well. Qualified advisers are much more expensive than call-centre staff.
PS: This is all in the detail of our response. We say where new monies are being lent, advice should be encouraged. That’s very consistent with the message from AMI and the FSA’s consumer panel says exactly the same thing.
VH: Turning to interest-only, there is a rising level of panic about the capping of interest-only SVRs. Can you offer a sense of where the market might be heading?
PS: I am clear with interest-only it shouldn’t be sold to everyone that comes through the door. I am equally clear there are people for which it is the best option. I think it would be very unfortunate if interest-only became a niche product. A lot of the outcomes will depend on the regulator’s implementation. What concerns me is that FSA supervision staff will view interest-only not as the consequence of a grown-up conversation but as a sign of a probable regulatory breach. If supervisors are sensible, I think you will see a reasonable market in interest-only products developing.
VH: The final MMR rules are expected out in the summer but given the Olympics, might be out as late as August or September. However, the regulator has suggested the rules will be subject to market conditions. How much flexibility do you expect on rule implementation timings?
PS: I think the likelihood is the regulator could intervene to bring actions forward if problems in the market make it necessary. Equally, if lenders for systemic reasons simply cannot implement a rule in a year, the rule might be deferred. An unexpected event from the Eurozone would also be reason for a review.
VH: The EC Directive – how confident are you UK lobbyists will succeed?
PS: We are trying our best but it isn’t easy because there is a high level of intra-parliamentary debate going on – much more than you usually expect in fact. Conservative MEP for the East of England, Vicky Ford submitted over 130 amendments to the European Commission’s original proposals, including 50 requests to delete unnecessary provisions, which could delay things further. However, the previous flood of information to sift has become a series of drips.
VH: Buy-to-let regulation. Any steer on whether this is more or less likely to happen?
PS: This is exactly the wrong moment to try to predict any outcomes – when European Parliamentarians are arguing with each other. The latest couple of versions of the council text have offered a partial exemption. Members can to choose to “turn off” key articles – disclosure and creditworthiness are the key ones – but countries will still need to look at the domestic position.
VH: How key is that?
PS: It’s a significant step forward.
VH: Self-employed mortgages – how long will it be until a competitive market returns?
PS: There has to be greater regulatory certainty, with lenders exacerbating each other’s caution. The key word is confidence. There’s no regulatory confidence at the moment so lenders are not lending to certain groups for fear of regulatory action at a later date. There’s no economic or industrial confidence either – but it will happen because markets turn. They always do. These new regulatory requirements must not bar people who don’t get P60s from getting a mortgage.
VH: It’s not melodramatic to suggest mortgage advisers are feeling a breach of trust between themselves and certain lenders.
PS: Don’t underestimate the amount of business brokers do. It strikes me if there is a total breach of trust advisers wouldn’t hold such a large share of the market. What I would say is that there is a change in the relationship between brokers and lenders and what we do have to do is make sure that relationship evolves and becomes healthier.
VH: There have been questions raised in the past over the quality of some broker business. Some lenders are rumoured to be looking into payment determined by business quality. Do you think lenders are satisfied brokers can deliver the quality of business they need to under the next regulatory regime?
PS: I think the relationship between lenders and intermediaries can be made to work. The two parts of the value chain are so interlinked. Each is so important to the other that it is in both sides best interest to forge a stable relationship – therefore, one can be found.
