When the amended Financial Services and Markets Act 2000 came into force on 21 July following the UK’s exit from the European Union (EU), one of the changes exempted certain high net worth borrowers from the Treasury’s regulation provided they met particular conditions.
This change was updated from the original Financial Services and Markets Act 2000 as the UK no longer needed to comply with the EU’s Mortgage Credit Directive.
Specifically, ‘article 3(1)(b) credit agreements’, meaning agreements not secured on residential land where the purpose is to acquire or retain property rights in land or in an existing or projected building, can now be treated as exempt agreements.
Additionally, article 60H previously required borrowers to meet certain conditions such as the agreement being secured on land or having a value exceeding £60,260, entered after 21 March 2016 and for a purpose other than the renovation of a residential property.
The amended article 60H states that agreements entered into by high net worth borrowers who are residents of the UK and have resided in the country for at least 183 days in the year before the credit agreement are within the scope of exemption.
FCA considers changes
The Financial Conduct Authority (FCA) is now asking the industry if its Perimeter Guidance manual (PERG), Consumer Credit sourcebook (CONC) and the Mortgages and Home Finance: Conduct of Business sourcebook (MCOB) should be amended to align with these changes.
The PERG guidance currently exempts high net worth individuals based on the previous article 60H rule. The FCA wants to change this definition to coincide with the Treasury’s updated exemption.
As for CONC and MCOB, the regulator wants the changes to reflect the amendments as well as “ensure continuity of treatment for article 3(1)(b) credit agreements entered into by high net worth borrowers who do not meet the new UK residence requirements”.
Currently, the FCA’s article 3(1)(b) rule does not treat agreements entered into by high net worth borrowers as exempt from regulation unless the agreement falls within an existing regulatory exemption, such as bridging finance.
The FCA said: “We propose to preserve this so that, going forward, high net worth borrowers under article 3(1)(b) credit agreements who do not meet the UK residence requirements newly set out in article 60H of the Regulated Activities Order (i.e., they have been in this country for less than 183 days of the year before the agreement is entered into) can still benefit from this lighter touch regime.
“We are also proposing a related amendment to the glossary definition of ‘exempt article 3(1)(b) credit agreement’ to give effect to these changes.”
