17 Feb 2016

Client Briefing: Compliance, Conduct and Risk Bulletin February 2016

Client Briefing: Compliance, Conduct and Risk Bulletin February 2016


1. Fears raised over FCA mortgage competition review

The Financial Conduct Authority (‘FCA’) is being urged to focus on specific concerns around online sales and trapped borrowers, instead of launching into a full-blown review into competitiveness in the mortgage market .

Since the FCA published its 2015/16 business plan in March 2015, mortgage competition has been under heavy scrutiny from the FCA. One of the aims of this business plan is for the FCA to check barriers to competition in the mortgage sector.

Calls have been made upon the FCA by various bodies, including the Council of Mortgage Lenders (‘CML’) and the Association of Mortgage Intermediaries (‘AMI’), not to intervene in a market that is already competitive enough.

The AMI have in fact told the FCA that they need to pay closer attention to execution-only sales and trapped borrowers. They have also highlighted the fact that people buying mortgages online may be doing so without having enough information.

The AMI have noted that the issue depends on whether lenders treat online mortgage sales as advice, where the customer is not expected to know what they want and so should be taken through a range of discussions, or execution-only, where the customer knows exactly what they want.

The Intermediary Mortgage Lenders Association (‘IMLA’) has noted its concerns to the FCA regarding online mortgage sales, particularly through price comparison websites. The FCA has also been warned by the AMI of its concerns around trapped borrowers. This is a group of people that are locked into expensive or unsuitable mortgage deals.

The CML has raised concerns that as the mortgage market is already competitive enough, the FCA should avoid layering on even further regulation to increase competition. The CML have in fact made a case for ‘modest de-regulation’ to encourage more competition in the market.

Find out more: Mortgage Strategy Competition Review

2. Equity Release Council urges FCA to relax mortgage affordability

The Equity Release Council has urged the Financial Conduct Authority to relax its mortgage affordability rules to encourage equity release customers to pay interest.

The Council has asked the FCA to consider whether a relaxation of rules originally designed for residential rather than lifetime mortgages would help more consumers unlock their housing wealth while protecting a larger amount of equity in their property. A relaxation might also support existing providers' ability to expand their product range and encourage new entrants.

The request from the Council formed part of its evidence submission to the FCA's Call for Inputs on competition in the mortgage market. The FCA is set to outline next steps in the form of a summary statement in the first quarter of 2016.

The Council's submission included a separate request for the FCA and Government to consider the long-term impacts of decisions relating to tax and regulation which may affect equity release lending.

It also recommended that the FCA engages with the Prudential Regulatory Authority (PRA) to consider how equity release is currently funded, the extent to which current prudential requirements create barriers for firms and whether a broader approach could be taken which would enable alternative sources of funding to be accessed.

Nigel Waterson, chairman of the Equity Release Council, said: “We welcome the proactive decision by the FCA to review whether there are any barriers to competition in the mortgage sector. Retirement lending is a crucial part of this and there needs to be careful consideration of the factors which differentiate ‘residential’ and ‘lifetime’ borrowing…There is a growing recognition that equity release has an important part to play in the planning of funding for later life, and we look forward to working together with the FCA on the back of its findings.”

Find out more: Mortgage Introducer

3. FCA complaints numbers released

The FCA has published its complaints data for 2015.

The regulator received 491 complaints in the year to November 2015. The flow of complaints against the FCA was even all year, with 246 made between December 2014 and 31 May 2015, and 245 between 1 June and 30 November 2015. The FCA’s latest data bulletin states that the regulator did not investigate 47 per cent of the allegations. A total of 291 allegations were investigated, of which 42 per cent were fully or partly upheld and 58 per cent were dismissed.

The FCA has commented that “[complaints] can be for a variety of reasons, including… a general expression of dissatisfaction where no misconduct has been alleged, or that the allegations are excluded, referred, deferred or outside of our scope”.

The FCA also reviewed 1,108 complaints about financial promotions between 1 July and 30 September 2015, down 69 per cent on 3,604 in the same period of 2014. The majority (65 per cent) of the 2015 cases related to consumer credit.

Find out more: Mortgage Strategy Complaints in 2015

4. Minimum Conduct Standards in Collections

Key figures from UK Creditors (including Santander) have been meeting over recent months in an attempt to agree standards for best practice in collections and have identified Affordability, Quality Assurance, Complaint Handling and Vulnerable customers as priority areas.  In between meetings sub groups have conducted research in these areas recording variance in creditor conduct requirements across each of them.  Whilst this may appear to be somewhat removed from our modus operandum it is worth noting that Complaint handling and Vulnerable customers feature as priority areas.  It will be interesting to see what recommendations come from this Group and how they might be applied within the credit industry.  This is not a regulatory issue as such but does cover the key areas highlighted by the FCA and produce an agreed framework going forward.

5. Mortgage Credit Directive (MCD) – Minor change to rules consultation

A new consultation released by the FCA due to close on 15 February 2016 is currently consulting on some minor changes to the MCOB (Mortgages and Home Finance: Conduct of Business sourcebook).

There are two main MCD related changes:

  • Initial Disclosure Requirement – the MCOB rules were updated in March 2015, but it was brought to the attention of the regulator that the amendments went further than what was imposed by the MCD. This was not the intention of the amendment and therefore the rules will be corrected to remove, in certain circumstances, the obligation on lenders to provide information in a durable medium to customers on any limitations in the range of products it offers and the basis on which it will be remunerated. This documentation will still have to be provided, but not necessarily in a durable format.
  • Topping up the Key Facts Illustration (KFI) – Firms choosing to provide a ‘topped up ‘ version of the KFI, instead of the European Standardised Information Sheet (ESIS) will now be required to show the monthly payment amount alongside APRC (Annual Percentage Rate of Charge) and monthly payment illustration for a 20-year high interest rate.

Although these proposed changes are relatively minor and act as fixes to the current MCOB rules it is important that lenders ensure that they are compliant.

Find out more: Financial Conduct Authority


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