The immediate pre-Christmas period is traditionally a time when trading activity is reduced and time is found to entertain, amuse and bond with colleagues and clients alike. Among all this mayhem, there is a distinct risk that the latest FSA consultative missive may have been overlooked. If so, there is an urgent need to review what is being proposed, determine how it may affect our businesses and ensure that relevant views are expressed to the FSA before the March closing date for comment.
The paper makes much of the effort being made to ensure that the proposals are in line with those being proposed across the EU although it does acknowledge that in some areas, the FSA proposals are effectively goldplating. If the common market is to be taken seriously, then such a situation cannot be acceptable and any such UK proposals need to be made conditional on them being adopted throughout all member states.
Equally important is the need to ensure that there are no gaps in the way that regulation is applied. There may well be a case for applying a common set of rules to all cases where credit is made available to consumers and there is already evidence that some lenders have sought to devise products in the belief that some regulatory regimes are less onerous than others. Some consumers will always have an appetite to get credit and it must be recognised that a requirement to disclose APR does not prevent people from taking credit on terms that “might be injurious to health”.
A failure effectively to protect all borrowers damages the reputation of the whole industry and does not create a regulatory dividend for those who act prudently and in the best interest of clients.
The FSA is proposing that the great majority of sales of regulated lending products must be advised and, except in a very limited number of circumstances, execution-only transactions will be prohibited.
Given the findings that most borrowers believe they have received advice when this may technically not be the case, there is probably a strong case for the requirement to be mandated but given that the majority of sales carried out by lenders fall into the non-advised category, implementation of this requirement will impose a training requirement to ensure an adequate supply of advisers or a review of distribution channels.
The new proposals on advising impose a very considerable responsibility on the individual adviser and virtually absolve the consumer of any duty of care, provided they have openly and honestly answered the questions asked. Advisers will need to be able to justify any advice given, a requirement that goes far beyond the existing test of suitability. Consumers seem to be presented with a one-way bet in their favour, which carries with it the risk of creating a market that is highly susceptible to compensation seekers.
While it must be acknowledged that the regulators must be concerned with the long-term viability of the market, we already find ourselves in an economic climate where the immediate future will be difficult enough without any further changes.
Richard Fox is chief executive of the Society of Mortgage Professionals