EU directive on mortgages will add little benefit: FCA

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EU directive on mortgages will add little benefit: FCA

Firms must prepare thoroughly to comply with the European mortgage credit directive, especially as adviser remuneration is coming firmly into the spotlight, Keith Hale has warned.

The FCA’s technical mortgage specialist warned of potential problems with the directive, and questioned whether it will be beneficial to the industry when it is introduced in March 2016

He said: “As far as the FCA is concerned it adds little of consumer benefit, and we have recognised that we already go well beyond what it is trying to achieve. We want to do the bare minimum and are not going to be prescriptive and tell you exactly what you to need to do.”

The MCD brings second-charge lending and advice within the FCA’s regulatory remit. It also brings changes for advisers to introduce into their provision of mortgage advice – including service and product disclosure – remuneration procedures and commission disclosure.

Mr Hale warned that adviser firms faced changes around the volume or type of product and service they provided and remuneration they received as the directive bans payments linked to volume targets.

He said advisers should check their remuneration policies to make sure they were not in breach of the directive.

Other changes being introduced by the directive include a ban on product bundling, such as loans with protection, and a European Standardised Information sheet replacing the Key Facts Illustration.

Mr Hale said there could be a “three-year period of flux” for advisers as MCD rules can be implemented as early as September 2015, while lenders and providers can choose different timescales to move from the KFI to the ESIS. He warned that advisers would need to get used to issuing different disclosure documents for different clients from different lenders.

Rob Sinclair, chief executive of the association of mortgage intermediaries, said the ESIS could be a major problem for firms. “Disclosure documentation would have to be provided either through email or text, and the firm would need to know it had been opened and read before they could continue with the advice process.”

Last November, speaking at a Financial Adviser mortgage seminar, Mr Hale said the FCA had no power to give the industry a transitional period to adjust to the incoming directive.

Adviser View

Alex Reynolds, financial adviser at London-based Advies Private Clients, said: “We have a more sophisticated mortgage market than Europe so making us fit in with what the EU is doing could be problematic. Should the UK have to take on EU directives?”