The Financial Services Authority has been accused of taking a fig leaf approach to mortgage regulation in its Mortgage Market Review.
In a study by David Steven, a non-resident fellow at New York University’s Centre on International Cooperation and a member of the advisory board for JLT’s World Risk Review.
In his report, Time To Stop Betting the House, he says the FSA’s MMR is of benefit to mortgage lenders, but fails to address consumer concerns.
He says it is taking a fig leaf approach and covering up the failures of the mortgage market.
In the report he says: “The worst, the FSA is guilty of fig leaf regulation. In good times, UK mortgages are among the most profitable in Europe for banks, and the most expensive for borrowers.
“In bad times, the sheer size of housing debt, and the proportion of that debt held at variable rates, has substantial, and growing, potential to cause macroeconomic damage.”
But he says the FSA seems interested in change as much to protect the industry, as it does to protect borrowers and the wider society.
He believes the regulator has lost its focus of protecting consumer needs and is instead more concerned with people not losing faith in the financial services.
The report says the FSA has failed to assess a number of risks that could impact the mortgage market, such as rising interest and unemployment rates and a further fall in house prices.
It recommends that a Royal Commission should be formed, independent of industry and regulatory interests, to explore the future of the mortgage market.
The study calls for the FSA to only implement proposals in the MMR on a temporary basis and to consider a much broader and far-reaching debate on the future of the market before implementing change.