A year after the introduction of statutory Financial Services Authoriys regulation, the regulator is due to begin a review of how the new rules are working in practice.
The Council of Mortgage Lenders has today published an article reviewing the transition to the regulated environment, in which it argues that the costs of regulation have greatly exceeded the original estimate and that the jury is still out on whether the anticipated benefits have been achieved.
In general, the CML sees the transition from the Mortgage Code to FSA regulation as a success in operational terms. Consumers did not experience disruption, industry systems coped, and there appeared to be little impact on business volumes arising from the regulatory change.
But there is a more negative picture on costs. With transitional costs weighing in at double the FSA’s original expectations, this raises a question about whether the costs of regulation are, in practice, proportionate to the benefits. This provides all the more reason for the FSA to scrutinise whether or not the consumer is better off under the new rules.
Michael Coogan, director general of the CML, says: “A year after the introduction of mortgage regulation, the rules are still bedding down and it is still too early to say whether the costs are outweighed by the benefits.
Certainly, the FSA’s work to date has shown some compliance patchiness, one question is whether this is partly because of the complexity of the rules themselves. The coming year should help to give a much clearer picture of where the rules are working, and where they may need refinement.
“While we urge the FSA to be thorough in its analysis of the new regime, we also ask them not to make major changes in the short-term. All changes are costly to implement, and must be subject to a comprehensive assessment of whether they would, in practice, deliver tangible benefits. We look forward to working with the FSA and the industry as we move into the next phase of the regulated environment.”