MortgagesSep 9 2015

RBS tells FCA ‘lenders are scared of you’

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RBS tells FCA ‘lenders are scared of you’

Various mortgage industry stakeholders have complained that it is only now - a year-and-a-half after the Mortgage Market Review - that lenders are able to focus on growth and innovation rather than regulatory compliance.

Speaking this morning (9 September) at a Westminster Business Forum conference, representatives from banks, law firms, software providers and industry bodies, all shared their experiences of the uptake and interpretation of recent regulation.

Benjamin Morgan, chief of staff to the personal and business banking chief executive of the Royal Bank of Scotland, commented that directly following the MMR there was clearly a drop-off in activity and a need to ‘up-skill’ frontline staff to comply with the new rules.

He said: “The bigger impact though, was a lack of innovation on product and how we transact mortgages. There has been a real lack of digital transactions, which is an area where we are lagging (behind the) rest of the banking sector.

“Current focus is still on adherence with policy rather than ways to innovate, although there are signals from regulators that should help improve this.

“The UK’s regulatory environment has been one characterised by fear - to comply with the rules and what we can say to front line staff over being construed as advice - although I think things will loosen over time, as the market opportunities will be too big to ignore in terms of innovation.”

Rosanna Bryant, partner at corporate law firm Addleshaw Goddard, argued regulatory pressures forced many lenders into automated processes to control risk, but this had the side effect of leaving certain consumer groups stranded.

“First-time-buyers, older borrowers and the self employed can’t get easy access to credit because of this tick box mentality. Systems to control the assessment of affordability or advice mean that staff can’t exercise their own judgement.

“As firms asked to comply with more regulation, a simple way of delivering that was to put in place set processes, but where there is anything that structured it is the ‘computer says no’ scenario, whereby if people can’t get through one of the hurdles, then they’ll be unserviced.”

She did note that the Financial Conduct Authority’s recent thematic review recognised this and tried to recognise good practice in the market around the empowerment of staff.

For his part, the FCA’s technical mortgage specialist Keith Hale, mentioned that in reviewing the post-MMR marketplace “we found evidence of things being too systematic, with no scope for advisers to consider individual needs and circumstances”, adding that conversely there were also instances of advisers putting consumers into pre-determined products.

Responding to a question about the regulator’s digital innovation hub ‘Project Innovate’, Mr Hale said he was keep to understand where there is scope for technology to improve the mortgage market, although his experience thus far has suggested with transactions of this scale, people prefer face-to-face or telephone interactions with an actual human adviser.

“This may be a generational thing. Those coming through may be more comfortable with different systems and we certainly don’t want regulation to get in the way of useful innovation,” he added.

Henry Woodcock, principal mortgage consultant at financial software firm Iress, explained that the move to digital could be an opportunity or a threat, depending on how firms build their propositions.

He said: “It doesn’t have to be overnight, but our broker surveys have suggested they would like to see paperless transactions, while customers want the same kind of transparency in their mortgage process as they get from a delivery company.

“Millennials will expect to interact in this way and that demand will only grow, especially with challenger banks, unencumbered by legacy platforms,” he added, mentioning Atom Bank as one provider which appears to have so far got the balance right.

Finally, the Association of Mortgage Intermediaries’ chief executive Robert Sinclair complained that for various reasons lenders are not recruiting anymore, which is one of the biggest risks for the intermediary marketplace, as they “used to be the breeding ground for good advisers”.

He also raised the point around the problem having been in the recent past that when a prospective borrower goes into a bank and “falls over a hurdle” but the “inexperienced staff won’t be able to go fully into details”, of course adding that this is where a broker can help.

peter.walker@ft.com