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FCA admits inactive mortgage book buyers can sidestep regulatory oversight

  • 19/06/2019
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FCA admits inactive mortgage book buyers can sidestep regulatory oversight
The Financial Conduct Authority (FCA) has admitted that unregulated mortgage book purchasers are able to avoid complying fully with its protections if they structure sales in certain ways.


It made the admission in its first annual report on the perimeter, which outlines which firms and activities need to be regulated and what the consumer protections are.

The subject of firms that are not authorised lenders purchasing mortgage books has become particularly heated as the plight of mortgage prisoners trapped with these firms has been revealed.

And the FCA admitted that some of these customers are being removed from its protections despite regulatory requirements being placed upon the buying firms.

“These firms are still required to have an FCA authorised administrator,” it said.

“However, depending on how the sale is structured, this may still not be sufficient for us to deliver the same level of protection as for consumers that have mortgages with regulated firms.

“In addition, mortgage book purchasers who do not have lending permissions are not able to offer new products to their customers, some of whom may be unable to switch mortgage.”


Changing affordability rules

The FCA said it was taking action to address this by proposing changes to its mortgage affordability rules, which could allow customers whose current mortgage is with an unregulated lender to access a more affordable external remortgage option that was previously unavailable.

However, it did not address the issue of purchasers avoiding its regulatory oversight.

Mortgage prisoner groups have protested against sales of their loans to inactive lenders, stating that they often fall out of the regulator’s remit.

However, UK Asset Resolution, which manages the sales for government, has highlighted that it requires that buyers “are either regulated by the FCA or have contact with an FCA regulated mortgage servicer”.


Digital increases speed of harm

The FCA is also considering powers over internet providers to compel them to remove false financial adverts and promotions.

It is part of a wider look at how it can more closely regulate promotions online, with firms able to sell financial services products very quickly through digital channels.

“This means that the speed at which harm can be caused by a misleading or unfair financial promotion has greatly increased,” it said.

“Internet or social media adverts reach millions of people in an instant, challenging our ability to detect and act against misleading adverts.

“Historically, we asked traditional media to voluntarily remove adverts we believed to be fraudulent. This is harder to achieve with internet service providers.”


Regulate internet service providers

The FCA addresses concerns by placing warnings on its own website, but admitted this was “clearly not as effective as taking down promotions”.

As a result, it is considering how the Financial Promotions Regime can become more effective in a digital age.

“This may include consideration of additional powers for us in respect of internet service providers,” it said.

“We are also developing and deploying automated tools for detecting online market developments, such as new products or practices that pose potential risks to our objectives.”


‘Significant impact’ of large tech entrants

Furthermore, the regulator is also considering the role of technology companies which enter the financial services market and the “significant impact” they could bring on the sector.

It noted that large technology companies, such as social media platforms and online retailers, are considering or have already made steps towards providing financial services in various ways.

“Some of these have never previously engaged in financial services activities. The market power of these companies could create a significant impact on financial services consumers,” it said.

“This impact could be both from providing regulated activities, such as payment or banking services, and from other activities outside the regulatory perimeter.”

It acknowledged the boundary between providing mostly unregulated technical infrastructure to deliver financial services and providing regulated activities was increasingly narrowing and this raised questions about whether regulators had the necessary tools and techniques to effectively oversee those organisations.

“This is an area we are heavily engaged with and one that we continue to monitor very closely,” it continued.

“As part of this we will be publishing a call for input on Open Finance later this year which will look at how the principles of Open Banking, such as those relating to data sharing, can be applied across financial services.”


Reduced trust in financial services

FCA chief executive Andrew Bailey said the regulator appreciated that the current perimeter is complicated.

“The boundary between which firms and activities do or don’t require regulation is being constantly tested,” he said.

“The recent behaviour of some firms operating around the perimeter has caused serious consumer harm and reduced trust in regulated financial services markets.

“We will publish this report annually from now on, in order to highlight issues around the perimeter.”




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