Rathi confirmed the situation during his session with the Treasury Select Committee of MPs where he said the regulator was willing to work “in a pragmatic way with lenders” on the issue.
Mortgage Solutions reported last month that the Royal Institution for Chartered Surveyors was working on changes to its External Wall System review, known as EWS1, which was developed to provide clarity for lenders about which buildings satisfied the latest government rules.
Rathi told the committee the FCA was not central to the dilemma for trapped property owners as the “core issue” has been the new rules around external wall safety checks and the number of fire safety engineers who are properly trained to conduct those checks.
He added that the FCA expected firms to treat customers fairly but also lend responsibly.
“Part of lending responsibly is that the building is safe and on the valuation that there’s not going to be a sudden impairment in the valuation of the flat or building because remediation work is going to be necessary,” he said.
“So I think the core of the issue is just unfortunately the lack of quality in construction standards on a number of buildings right across the country in a number of years and the work that’s going to have to be done through fire safety checks and remedial works to get that sorted out and that will take time.”
‘Passing the buck’
Labour MP for Bethnal Green and Bow Rushanara Ali pressed the FCA chief on whether an interim fix could be created by the FCA, Treasury and lenders working together.
“What I’m pushing you to think about is how we avoid a siloed approach,” she said.
“Institutions are passing the buck while our constituents are stuck in their flats which are flammable and not being able to sleep at night.”
Rathi replied: “There’s work going on between government and the banks looking at more risk-based systems so that they are not having to do the full check and that is involving surveyors and others to understand what level of comfort is needed.
“The buyer needs some assurance of what the cost of the remedial work maybe, it’s landing on that cost that is the challenge because you need engineers who can assess that cost.”
He later added: “We are engaging on this and we will work in a pragmatic way with lenders. The core issue is getting the number of engineers out there.
Mortgage Solutions has contacted the Ministry of Housing Communities and Local Government, and UK Finance for comment.