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FSA takes residence

Earlier this year, the Treasury and the FSA said they would be given responsibility for regulating mortgage lending.

This issue had been the subject of much press comment and few were surprised when the announcement was made.

One of the key drivers behind the decision was that consumers find it hard to compare the products they are offered, partly because of the range available but in the main because of a lack of clear, comprehensible and comparable information.

Both the FSA and the Treasury have issued consultation papers which can be obtained by calling the FSA on 0845 608 2372 or by going to its website www.fsa.gov.uk.

The papers set out the high-level approach to mortgage regulation. But what are these proposals and how will they affect intermediaries?

The first point to consider is what will the FSA actually be regulating? The Treasury&#39s consultation paper proposes the definition of a “regulated mortgage contract” for the purpose of the FSA&#39s regime.

Broadly speaking, the loans affected would be those taken
out on or after the commencement of regulation for a term of five or more years and which have first charges over residential property in the UK, with at least 40 per cent of the property being occupied by the borrower or his/her dependants or imm ediate family.

This is intended to cover the majority of residential retail mortgages, including equity-release and flexible mortgages where the loans meet the specified criteria. The mortgages the FSA will not be covering include second charges and buy-to-let. Mortgages outside the FSA&#39s ambit will continue to be covered by those provisions of the Consumer Credit Act that currently apply (largely on advertising), with the Office of Fair Trading remaining the regulator.

Following earlier Government decisions, the FSA will also not be regulating mortgage advice although this is expected to be covered as part of a revised mortgage code, which is the responsibility of the CML.

Given the regulatory scope, it is also important to note that the FSA will be authorising lenders and not mortgage intermediaries (the latter will continue to need a Consumer Credit Licence) and the MCCB will continue to maintain a register of those committed to comply with the code. However, intermediaries will be affected by the new proposals, certainly by the new legislative framework on financial promotions and possibly by the FSA&#39s proposals on provision of standardised information to consumers.

Looking first at information, the FSA has found that there is a broad consensus not only that consumers need the right information presented in a clear, understandable format but also that, ideally, they need it early in the mortgage buying process so that they can compare the products they are being offered and assess their affordability and risk.

The FSA is, therefore, consulting on whether and, if so, how early provision of standardised information can be achieved, whether the consumer&#39s first point of contact is a lender or an intermediary.

The consultation paper contains specific questions on this subject and we would welcome comments from both lenders and intermediaries on the practicalities.

In the meantime, the FSA is working on comparative information tables for mortgages as part of the consumer information process.

Turning to financial promotions, the FSA&#39s consultation paper looks at regulation of the content and approval of financial promotions through whichever communication channel they are delivered.

All promotions will be expected to be fair, clear and not misleading and the FSA will be consulting on further rules in due course.

In terms of approval, the provisions of the Financial Services and Markets Act require an authorised person to approve the content where a specific mortgage product or particular mort gage provider is being prom oted. This will mean that intermediaries who are not authorised as they do not conduct investment business will not be able to approve their own promotions.

The FSA&#39s consultation paper specifically asks for responses on the question of which authorised persons they can go to for the necessary approval.

The FSA&#39s current consultation covers a number of other areas, including the standards lenders will have to meet to be authorised under the new regime, delivery of information at offer stage and post-sale, contract terms and treatment of arrears and possessions.

A further consultation paper will be issued in spring 2001, and imp lem entation of mortgage regulation is scheduled for January 2002. The consultation period ends on Jan uary 12, 2001.

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