Arguments for a separate unregulated sector remain valid but, given persistent rule flouting, we could lose this concession
Not enough noise has been made about the FCA’s recent speech on the regulated bridging lenders it oversees. Every lender and distributor should be shouting about the fact it has been pleased by the quality of regulated lenders and the deals they are transacting.
Most interesting was the FCA’s evident surprise that this was actually the case – its exact words being “not what we expected”. For those of us who have fought to ensure our introducers understand that the bridging market is as committed as they are to regulation-focused activity, it is good to see this acknowledged by the regulator.
In the same speech, however, the FCA said it believed only 16 per cent of bridging business was transacted as regulated business and it was investigating reports of bad practice in the unregulated sector.
Regulated lenders also transact non-regulated business but it is highly unlikely the issues stem from them, given the effort they have put in to reach full regulatory status. We rarely use fully unregulated lenders but, from our experience, the quality of short-term lending and the type of enquiries we receive show a marked improvement from even a few years ago.
The FCA’s main concern rests on the line between what constitutes a regulated or unregulated loan. There was always going to be a no man’s land on this issue and an opportunity for some parties to adopt a selective blindness to certain types of deal. But is this a big problem?
Since the credit crunch, the growth in residential lending provision has taken much of the pressure off bridging as an ‘easy’ shortcut. I have seen overwhelming evidence that unregulated bridging is a world away from the market that used to house some of the worst examples of bad lending, customer detriment and plain profiteering. I am confident the incidences of rule bending that have raised concerns at the regulator are actually fewer in practice.
The current issue also demonstrates how mature the market has become. If we are concerned about what constitutes a regulated deal against an unregulated one, we have definitely won the fight to clean up the basics, particularly some of the pond life that passed for bridging lenders in the bad old days. We are now talking about a much more refined issue.
However, this does not mean we should be complacent. Lenders need to take off their blinkers when faced with customers and/or their advisers presenting a case as unregulated when it clearly is not. We call it ‘backtrackanory’: over the space of a few calls, the story we get from an introducer can change more than a little.
If unregulated lenders expect to maintain a dividing line between regulated and unregulated lending, they need to demonstrate they are tuned in to the ‘story’ being told, then either convert it to a regulated deal or turn away any application that is clearly borderline or worse.
The trade bodies fought strongly to maintain that an unregulated sector was important. And rightly so. However, it would be a shame to see all that hard work count for nothing if the FCA found consistent proof of the misuse of the unregulated sector.
The alternative is to see the regulator lose patience and ask for the whole industry to become regulated. I am sure there would be plenty of squealing then.
We live in a largely regulated market. The arguments to keep a separate unregulated sector are still valid but, in the face of more evidence of persistent flouting of the rules, we could lose this important concession if we are not careful.
Phil Jay is director at Complete FS