FSA urges Europe to think beyond market regulation

The Financial Services Authority says regulation of the European mortgage market is not the only solution to increasing cross-boarder activity, and market-led initiatives could be just as effective.

Speaking at the European Mortgage Federation conference in Brussels last week, John Tiner, chief executive of the FSA, told delegates that unless there was evidence of a failure in internal markets for mortgage credit that undermines consumer choice, regulation was not necessary.

He also suggests that progress could be made to integrate markets across Europe through market-led initiatives.

Although he thanked the European Commission for the “open and consultative” way it has considered the case for European mortgage market integration since it published a green paper on the subject 16 months ago, Tiner urged it to consider the most effective tool for achieving this beyond imposing more regulation on the market.

He also criticised consultancy London Economics, which produced a report following the publication of the green paper championing enhanced consumer protection. He says the report didn’t assess the costs and benefits of each proposal in the green paper and therefore doesn’t provide any evidence of market failure at EU level.

The issue of consumer protection is also an issue for Tiner. He says this shouldn’t be the focus of the EC as it risks leading to significant costs and distorting the national consumer protection measures like the FSA provides in the UK.

Tiner says: “Regulation is not the only solution. If the EC decides regulation is necessary it must outline the options, costs and benefits of each measure. If the costs outweigh the benefits then legislation is hard to justify.”

He also urges the EC to consider principle-based regulation should it decide to introduce European regulation.

Another proposal put forward in the green paper is to apply an interest rate cap across Europe. Tiner says this will make credit inaccessible to some customers. He points out this doesn’t sit well with the EC’s aim of opening up markets to consumers or the FSA’s principle of Treating Customers Fairly.

The EC is expected to publish its follow-up white paper in May 2007.

Tiner also spoke of concerns about the UK mortgage market. He says the FSA wants to ensure lenders are stress testing so they know if they can withstand a market crash in the future.