FSA will regulate secured loans

26 January 2011 | By Natalie Thomas

In December 2010 the Treasury launched a consultation on transferring the regulation of consumer credit from the OFT to the new Consumer Protection and Markets Authority.

The government says the transfer of regulation will establish a single regulator for all residential mortgage lending with consistent standards of consumer protection, and ensure second-charge lenders meet the FSA’s prudential standards.

It wants the regulation of secured loans to be implemented when the FSA’s powers transfer to the Consumer Protection and Markets Authority, scheduled for the end of 2012.

It says there are three key reasons for the proposal to move secured loan regulation to the FSA:

• to ensure consistent standards of consumer protection, for all mortgage lending;

• to simplify the regulatory environment for lenders and borrowers; and

• to allow prudential regulation, to limit insecurity for borrowers and wider market disruption that a rapid withdrawal of products and lenders can have, as seen between 2007 and 2009.

The government says FSA regulation of the first charge residential mortgage market may provide some guide to the costs that the regulator would incur if it also regulated the secured loans mortgage market.

The one-off costs to the FSA of introducing regulation of first charge residential mortgages were estimated at £5m, and the annual ongoing costs estimated at £7.6m.

Some of the costs of taking on the regulation of second charge mortgages, including systems change costs, are fixed costs. These costs are estimated to be around £2m.

Fiona Hoyle, head of consumer finance at the Finance & Leasing Association, says: “Today’s announcement is welcome, as second charge lenders have been waiting for over a year to find out when they will be regulated by the FSA. But we do have concerns about the potentially short timescale allotted to make the transfer.

“This will be especially complex for lenders’ back-books of loans, which were granted under one regime and will now be regulated under a completely new one. A sensible timetable will be essential.”

Robert Sinclair, director of the Association of Finance Brokers, says: “We fully support this announcement as we have long been calling for an alternative regulatory regime under FSA. This will benefit intermediaries, lenders and consumers.

“However, we must ensure that the implementation of this new responsibility is carried out in a measured way. We will therefore be working closely with FSA and its successor body to make certain that the new regulatory regime is implemented in a proportionate way.”

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