Despite Regent Street having been decked in lights since what seems like July, it now officially feels like Christmas in the BSA’s press office. The conversations are about what is the perfect present for dad, sore heads after Christmas parties and, of course, the traditional requests for “that was the year that was” year end reviews.
As we all know, 2004 will go down in the annals of mortgage market history as the year regulation came to pass. And last week, Clive Briault, managing director of retail markets for the FSA, managed to conjure visions of Christmas past, present and future in his speech to the Council of Mortgage Lenders’ annual conference.
In 1999, Briault explained, a study by the FSA showed that there was substantial price dispersion across similar mortgage products, suggesting “considerable scope for consumers to benefit from greater competition and more shopping around”. Regulation was needed to ensure the clear disclosure of information and a high quality of advice to consumers.
And so Briault sped to Christmas present, to defend the regulatory regime as “proportionate…which sets strong standards in the right areas and will generate significant benefit for consumers”. Running through figure after figure, he demonstrated the health of the market; 7,400 firms have been directly authorised to conduct mortgage business, of which 4,500 were new authorisations and 2,900 were variations of permission of existing authorised firms; and authorised firms with a mortgage permission have a total of 12,800 appointed representatives.
“We have policed our new standards throughout the authorisation process,” he told the audience, “and will continue to do so”. Surprisingly, 75% of new applications for authorisations raised issues requiring further enquiries and half required substantial investigations – with many having to take remedial action before permission was granted. To date, 210 firms have either withdrawn from the application process or have been given a final notice of refusal.
One area of Christmas present which is bound to spark further debate into 2005 is the differing approaches firms have taken to Key Facts Illustrations. Briault praised the layout and clarity of most of the documents the FSA has so far examined. However, he went on to point out that the length of these documents can vary dramatically from just over three pages to double figures. This, he suggests, “discourages consumers from reading the document in the first place and tends to obscure the key elements of information with unnecessary detail”. Key Facts, explained Briault, are definitely an area where “less is more”.
And what of Christmas future? An early priority for the FSA will be to “enforce the perimeter of the new mortgage regime and crack down on any firms that are carrying out unauthorised mortgage business”. In addition the regulator will review financial promotions, focussing on ensuring that mass-market material distributed by lenders is clear, fair, balanced and not misleading.
Lifetime mortgages will also come under the spotlight in the future and the regulatory regime for home reversion schemes will be taken forward. Close attention will also be paid to higher risk areas such as sub-prime lending and debt consolidation and the FSA will be reviewing marketing literature on this area.
It is hard for regulators not to be Scrooge-like when it comes to Christmas speeches, after all they are in the business of managing risk. Briault apologised in advance for “dampening Christmas spirits” by referring to the FSA’s Financial Risk Outlook, which highlights areas of concern for the FSA and firms, which will be published next month. However, he warned of the “potential for a housing downturn and a generally weaker economy combined with high levels of household debt, leading to the risk of increased numbers of households facing difficulties in repaying their debts.” However, as Scrooge says: “Are these the shadows of the things that will be, or are they shadows of the things that may be only?”