On 12 December 2016, the Financial Conduct Authority (the "FCA") launched a market study into the residential mortgage market to ascertain whether competition in that market is working as well as it could and to identify possible measures to improve competition to the benefit of consumers.
The market study is being conducted pursuant to the FCA's regulatory powers under the Financial Services & Markets Act 2000 ("FSMA").
The launch of the market study follows the FCA's Call for Inputs in 2015 seeking stakeholders' views on the ways in which competition and benefits for consumers in the mortgage sector could be enhanced. In Spring 2016, the FCA published a summary of what had emerged from the Call for Inputs and announced its intention to open a market study into competition in this sector. Following this announcement, the FCA officially launched its market study and its terms of reference in December 2016.
According to the terms of reference the market study will focus on consumers' ability to make effective choices and the tools available (including advice) to make those choices. The market study will also analyse if the commercial arrangement between lenders, brokers and other players lead to conflicts of interest or created a lack of incentives to the detriment of consumers. The FCA states that it wishes to ensure that there are opportunities for better technological solutions to solve the issues it flags up in the market study including a greater use of digital channels to give information or advice.
The market study will focus on first charge residential mortgages which includes new mortgages, remortgages, internal switching as well as further advance and equity release. The study will cover the activities of firms (including estate agents, developers and generally any firms that aids consumers to make decisions) and consumers across the consumer journey. It will not cover commercial mortgages or second charge commercial mortgages.
Two principal questions the market study will examine are as follows:
at each stage of the mortgage process, do the available tools (advice, price comparison websites, online calculations) exist to help consumers make effective decisions? do commercial agreements between lenders, brokers and other players lead to conflicts of interest or produce a lack of incentives or compete effectively to the detriment of consumers?
The study will also include a review of the mortgage process , including an analysis of whether the current framework favours certain distribution or business models.
Mortgage lenders will need to provide relevant information regarding their arrangements with intermediaries and as such should review these arrangements carefully to ensure the compliance with competition law and the current regulation.
An interim report should be available in summer 2017, setting out the FCA's analysis and preliminary conclusions. This will provide stakeholders with an opportunity to comment prior to publishing the final report in early 2018.
If the FCA identifies concerns following the conclusion of the market study it can take a range of actions under its regulatory powers under FSMA to help promote more effective competition. These include amending regulatory rules, introducing firm-specific remedies or enforcement action, publishing general guidance or proposing enhanced industry self-regulation. In addition if they found existing rules acted as barriers at entry or innovation they could propose removing or amending existing rules.
The FCA could using its powers as a concurrent competition regulator refer one or more issues to the Competition and Markets Authority for further investigation as a market investigation reference.