Don't allow directives to stifle ideas, FSA warned
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Industry experts are urging the Financial Services Authority not to stifle innovation in its review of product intervention.
Launching the FSA’s discussion paper on product intervention last week, Lord Adair Turner, chairman of the FSA, claimed an important change was needed in its approach to regulation.
He says: “Our analysis has led us to the conclusion that a significant shift in approach is required but there are important tradeoffs to be struck - between consumer protection and consumer choice, between effective regulation to protect customers and the costs which that will inevitably impose.”
The mortgage industry has long feared caps on LTVs and other more direct rules on product intervention could be on the cards if the Mortgage Market Review is implemented.
But David Hollingworth, head of communications at London & Country, warned the regulator should not stifle innovation.
He says: “You don’t want to stop lenders from developing new things because ultimately the consumer benefits.”
In its discussion paper the FSA says products wrapped up with other products, such as bundled mortgages and offset mortgages, can confuse customers.
It also proposes a cap on the rates lenders can charge borrowers in mortgage arrears and suggests similar limits could be imposed on credit-impaired mortgages.
But the FSA insists the limits will be a temporary measure and will only be imposed in extreme circumstances.
Melanie Bien, director of Private Finance, says the regulator must be careful not to micro-manage every product as this will have a negative impact.
She says: “Theoretically, capping rates for vulnerable borrowers is a good thing but in a competitive market there is more risk to lenders and some may pull out.”
The paper also suggests advisers should gain more qualifications so they can sell specialist products.
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