The Financial Conduct Authority 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 consumer credit to the mortgage regime from the 21 March 2016.
Speaking at the Financial Services Expo London yesterday (25 September), David Geale, director of policy at the FCA, pointed out that the European Mortgage Credit Directive does not distinguish between first and second-charge mortgages.
He explained the changes second-charge advisers and lenders can expect to deal with, particularly around the customer profile and 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.”
Mr Geale warned that firms should begin preparing now and outlined the ongoing review to make the authorisation and permission process as smooth as possible. He also reminded those in the second-charge market that they need permissions to carry out activity from 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.”
Mr Geale attempted to play down industry concerns that further significant mortgage market regulatory changes might need to be introduced, noting that the regulator has been actively involved in negotiations on the MCD.
“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.
“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.”
Mr Geale also mentioned that in areas such as responsible lending, advice and arrears management, the FCA believes it already meets the directive’s requirements. He added that the regulator would use its member state discretion to not propose a ban on commission or a cap on early repayment charges.
Mr Geale did however warn the major impact for firms would be around disclosure, pointing out that the FCA has no discretion in this area.
“The directive introduces a maximum harmonising, pre-contractual disclosure document known as the European Standardised Information Sheet; this will replace our existing Key Facts Illustration.
“Firms conducting first-charge mortgage business will be allowed to continue to use the KFI until 21 March 2019. However in doing that those firms will need to make certain top-up disclosures.”
