We noted in Edition 14 of this SCM Briefing that the UK regulators had begun issuing further information about the UK implementation of the EU Directive on Mortgage Credit, in advance of the Directive's 21 March 2016 transposition deadline (including the Financial Conduct Authority's (FCA) latest consultations on the new regime for second-charge mortgage lending, and establishing the new legislative framework for consumer buy-to-let lending, to which the Directive's provisions will not apply). The FCA has now issued a Policy Statement containing the Final Rules for the implementation of the second-charge mortgages aspects of the Directive, which brings the UK closer to full transposition of the legislation (with the final rules for buy-to-let lending, on the overlap between the consumer credit regime and other outstanding aspects of the framework yet to be issued). The Final Rules for second-charge mortgages are set out in amendments to the FCA's Glossary of Definitions, the Training and Competence Sourcebook, the Prudential Sourcebook for Mortgage and Home Finance Firms and Insurance Intermediaries, the Mortgages and Home Finance: Conduct of Business Sourcebook (MCOB), the Supervision Manual, the Compensation Sourcebook and the Professional Firms Sourcebook. They establish the new mortgage-related regulated activities and set out the detailed rules on (amongst other things) advising and selling standards, pre-contract, initial and ongoing disclosure, record-keeping and reporting, remuneration, financial promotions, communications with customers, responsible lending and knowledge and competence, and set out various transitional provisions (including the FCA's approach to 'pipeline' transactions, which will only be subject to the new regime where a credit 'agreement' exists before 21 March 2016). The final version of The Mortgage Credit Directive Order 2015 (which takes effect in stages between 6 April 2015 and 21 March 2016), which effects the necessary amendments to (amongst other legislation) the Financial Services and Markets Act 2000 and secondary legislation, and the Consumer Credit Act 1974, has also been issued.
Given the cross-over between the new mortgage regulation regime and the consumer credit regime (in terms of the second-charge mortgage regime being regulated as part of the first-charge mortgage regime going forward, and to implement rules relating to lending not secured on residential property but used to acquire or retain property rights in residential property), the FCA has issued Consultation Paper 15/6 which consults on the consequential amendments required to the FCA's Consumer Credit Sourcebook (CONC) to reflect these changes. The new rules would remove the second-charge lending provisions from CONC (but since the consumer credit regime will continue to apply to a limited number of agreements secured on land, certain rules, including those relating to secured lending or broking, will largely be retained), and add new rules to MCOB (with consequential amendments to CONC) to provide rules for lending not secured on a residential property, also from 21 March 2016. Comments on that consultation are requested by 6 May 2015, with a Policy Statement containing the FCA's final rules to be issued during summer 2015. A useful set of Frequently Asked Questions relating to the new regime for second-charge lending, providing guidance on the process for authorisation / variation of permission, have also been released by the FCA.
Please note that the UK regulators have been planning to finalise UK transposition of the Directive in early 2015 to allow UK lenders sufficient time to adapt to the changes, and (subject to outstanding parts of the framework being finalised) will (now) allow early adoption of the new UK rules from 21 September 2015 (the previous early-implementation date given was 21 December 2015 but this no longer applies).
In Europe, the European Banking Authority (EBA) has issued a Consultation Paper on one key aspect of the Directive (as set out in Articles 18 and 20(1)): developing a set of Guidelines relating to the creditworthiness assessment, which are aimed at ensuring competent authorities implement the Directive consistently across Europe in terms of income verification, documenting and retaining information, identifying and preventing misrepresented information, assessing customers' ability to meet their obligations under the credit agreement, considering allowances for expenditures and future negative scenarios, and for identifying groups of loans with higher risk profiles. Comments on the Consultation Paper and draft Guidelines were requested by 12 February 2015. The EBA expects to publish its final Guidelines in mid-2015 and they will apply from the Directive's 21 March 2016 transposition date (by which time competent authorities must inform the EBA of their intention to comply with the Guidelines).
Financial Conduct Authority Final Rules - Policy Statement 15/9
Financial Conduct Authority Consultation Paper 15/6
Financial Conduct Authority MCD Frequently Asked Questions
European Banking Authority Consultation Paper: Draft Guidelines on the Creditworthiness Assessment