The FSA has published a speech by Jon Pain (Managing Director, Retail Markets, FSA) entitled The way forward.
Mr Pain refers to the FSA’s Business Plan for 2008/09 in which the FSA announced that it would be reviewing the mortgage conduct of business rules. However, the FSA is now convinced that changes to this regime alone will not deliver the right outcomes to consumers. Therefore the FSA has expanded its review to include the full range of options available to it - conduct of business and prudential requirements, the approved persons regime, and the financial capability agenda, as well as issues currently outside its scope.
Mr Pain also states that timing is important. This is on the basis that the European Commission is currently working on measures to promote responsible lending and borrowing. The Commission plans to present policy measures in the autumn, as well as to create a framework on credit intermediation. The FSA’s ability to do what it wants in its review will depend on the approach taken in Europe and therefore it is vital that the FSA fully contributes to the debate to ensure a good outcome from the discussions in Brussels.
On the FSA’s Discussion Paper due in September Mr Pain states that it “will likely include some new ways of thinking about the market.” However, he adds that the FSA won’t try and fix what isn’t broken and anything it proposes will be based upon an analysis of what has happened in the mortgage market and why.
Mr Pain then gives a broad overview of some of the issues that will be covered in the September Discussion Paper:
- Disclosure. Here Mr Pain discusses what place disclosure has in the mortgage sale and advice process and whether it should have a place. If disclosure does have a place, should it keep the same form or be made less prescriptive and more flexible, focusing on, say, initial disclosure on a few key information requirements?
- Should the FSA change its rules to require income verification for all mortgages with lenders required to verify the plausibility and authenticity of the documentation provided by the customer before an offer is made.
- Lending thresholds. Mr Pain states that the high-loan-to-income mortgages have been a feature of the recent house price boom. The Discussion Paper will assess the strength of the arguments for and against introducing lending thresholds. This will lead the FSA to consider whether more effective regulation of the mortgage market, through either tighter conduct rules or direct product regulation, would also require the extension of the FSA’s remit to cover second charge mortgages and buy-to-let mortgages.
- Funding. In the Discussion Paper the FSA will consider the extent that securitisation in certain sectors of the market has encouraged excessive risk taking and created an unsustainable and poor performing market.
- Arrears and repossession handling. The Discussion Paper will consider the extent to which rules are delivering intended outcomes for consumers and whether the FSA’s work provides evidence of a need for a change.
View FSA speech - The way forward, 12 May 2009