Bank commits a first in attempt to prevent boom

Yesterday (26 June), the Financial Policy Committee recommended lenders should limit their LTI multiples to no more than four-and-a-half and that no more than 15 per cent of a lender’s book can account for such high loan-to-income multiples.

The FCA said, as a consequence, it will consult on how best to implement this.

According to CML data, nationally, 9 per cent of new loans are at four-and-a-half times income or more, but the figure is 19 per cent in London.

So if lenders can still have 15 per cent of high income multiples on their books, won’t this simply be ‘saved’ for Londoners?

It seems that since the new Mortgage Market Review regulations came in on 26 March, not a day has gone by without stories regarding Help to Buy fuelling a housing bubble so it is no wonder regulators felt it had to step in.

I believe it is actually the first time that the Bank has attempted to prevent a new credit boom.

While it can only be praised for this, commentators were questioning yesterday (26 June) how effective the limits would be.

The FPC said various countries globally have used limits on loan to values, loan or debt to income ratios, debt-servicing ratios and loan tenors to stem their housing markets.

In fact, an IMF survey of 42 countries revealed that more than one third had implemented product tools on mortgages, including two thirds of EU countries.

Norway and South Korea both have debt or loan to income limits but it seems that the impact of these have varied.

According to the FPC, there is evidence that lending standards have tightened in Norway but household debt remains high.

South Korea’s tightening has “prevented defaults” as house prices fell from 2008 and expectations of housing as a “speculative asset are said to have decreased”.

Only time will tell as to how effective the new measures in the UK, once implemented, will be.

FCA long-stop approval

By far the story that garnered the most attention was the regulator’s seemingly u-turn on its decision to ban a reference to the long-stop clause in an adviser’s client contracts.

Phil Castle, managing director of Kent-based Financial Escape, has included, since 2008, a clause in client agreements that cites the Limitation Act 1980.

The then FSA said in 2009 the clause, which outlined the Act’s provision that complaints must be brought within six years or within three years of damages being recognised up to a maximum of 15 years, may not be applicable as complaints to the Financial Ombudsman Service are covered under the Financial Services and Markets Act 2000 (FSMA), which contains no long-stop.

However, the FCA has backed down by allowing Mr Castle to refer to an effective long-stop defence in his client contracts, following a meeting held this month.

The majority of reader comments on the story praised Mr Castle, while one reader questioned how effective the clause would be due to it missing from the FSMA.

The FCA is currently consulting on re-introducing a long-stop for financial services.

Last month, Apfa met with the FCA to discuss what shape the proposed long-stop may take.

Apfa, which has been campaigning for a limit on the liability period on advice for financial products, has received significant support from the industry for the campaign, including from providers such as Zurich.

There are differing views as to whether the long-stop will be able to simply be added to regulation by the Financial Conduct Authority or if it needs to be written into primary legislation if the FCA does decide to re-introduce the long-stop.

A regulatory lawyer told me if it is the latter, it could take “between six months to a year depending on outside factors”.

Breach of data protection?

FTAdviser revealed this week that the Financial Services Compensation Scheme is releasing information about the whereabouts of advisers to consumers even if they have retired and the firm they owned is not in default.

Derek Bradley, chief executive of Panacea Adviser, questioned in his blog the sharing of information by the FSCS.

A spokesman for the FSCS said: “We appreciate the IFA’s concerns. However, we received general guidance from the ICO on disclosure of IFA details previously, and have applied this guidance to the case.”

While I do not doubt that the FSCS sought guidance from the ICO, this still sounds to me like a clear breach of data protection rules.

Surely if the client desperately wants to contact the adviser, the FSCS could take the client’s details and pass them onto the adviser?

Revealing an adviser’s home address is a huge step too far.