SECOND-CHARGE MARKET NEEDS TO START PLANNING NOW, SAYS FCA
26 September 2014
The FCA has urged all firms involved in the second-charge market to start planning now for the transfer of regulation which will see the sector move from the consumer credit to the mortgage regime from the 21st March 2016.
Speaking at today’s Financial Services Expo (FSE) London in Old Billingsgate, David Geale, Director of Policy at the FCA, outlined the regulator’s thinking around its decision brought about by the fact the European Mortgage Credit Directive (MCD) does not distinguish between first and second-charge mortgages.
Geale spelt out the key changes second-charge advisers and lenders can expect to have to implement and the fact the regulator understood the UK second-charge market was not the same as the first-charge. He said:
“We recognise there are differences from the first-charge market, around the customer profile and the purposes for taking out the loan. It is important that any new regulatory requirement we put in place enables this market to function effectively while offering consumers adequate protection from the risks associated with taking out a secured loan.”
Geale also urged firms to begin their preparations now and outlined the review that was currently taking place to make the authorisation and permission process as smooth as possible for firms. He said:
“Our overall message to firms that are in the second-charge market is that you should start planning now. Remember that you also need permissions to carry out activity and second-charge business from the 21st March 2016. We know that the majority of second-charge firms also carry out other consumer credit activities and we’re currently reviewing our application forms and processes to ensure we can make the application process as clear and as straightforward and as quick as possible. We expect that review to be completed over the next few months and will update our website with the details of that application process as soon as we can.”
Geale also spoke about the MCD as a whole and attempted to play down any industry concerns that further significant mortgage market regulatory changes might need to be introduced. He said:
“Over the past few years we have been very actively involved in negotiations on the MCB. We took a twin-track approach to the work on the MMR. First we sought to minimise the impact of the European regulation by pressing for a consumer protection regime that was very closely aligned with our own and, secondly, where possible we also aligned the MMR rules with the direction of travel of the European work. We attacked it from both sides. That approach has meant that when we come to implement the MCD, certainly compared to some of the other European regulators, we’re actually quite a bit ahead of the curve. For firms this means that the need to make extensive change is minimised.”
Geale also listed the existing rules which would not be changed covering areas such as responsible lending, advice, and arrears management – the FCA believes they will already meet the Directive’s requirements. He also outlined how the Directive allows member state discretion to be used and the regulator, for example, would not be proposing a ban on commission or a cap on early repayment charges. Geale did however warn the major impact for firms would be around disclosure. He said:
“We have no discretion from the Directive [in the area of] disclosure. The Directive introduces a maximum harmonising, pre-contractual disclosure document known as the European Standardised Information Sheet (ESIS). This will replace our existing Key Facts Illustration (KFI). Firms conducting first-charge mortgage business will be allowed to continue to use the KFI until 21st March 2019. However in doing that those firms will need to make certain top-up disclosures.”
Further details on Financial Services Expo London, including how to register, are now available at: www.financialservicesexpo.co.uk/fse-london/
If you are a member of the press and would like to attend Financial Services Expo London please contact Rob Griffiths at White Dragon Communications on: rob@whitedragoncomms.co.uk or 07983 641566.
