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Mortgage View: The year of enforcement

If 2005 was the year of regulation, then 2006 will surely be the year of enforcement. Let us hope so. Initially opposed to mortgage regulation, I still maintain that the MCCB was doing a perfectly good job. The endowment misselling phenomenon wrought regulatory overkill, wherein the then regulator’s own culpability on unrealistic illustrative growth rates went unaccounted for.

But we are where we are and recent FSA announcements are defeating my earlier cynicism. Furthermore, the FSA will continue to enjoy growing support if it can now deliver on its latest manifesto.

Its new principle-based approach still tastes like a fudge and may well come back to bite the regulator. But on the plus side, there has been a willingness to get stuck into the following – streamlining a verbose and opaque handbook; stimulating the Financial Promotions Active Group, with specific “yellow cards” being shown to the sub-prime, lifetime and second-charge sectors; lightening its touch – the first 30 proposed improvements to the way it regulates is an excellent start and warning off pan-European proposals from Brussels.

Most of this is laudable. But a constructive relationship with the AMI will wane unless the FSA sharpens its incisors on what are some fundamental issues for law-abiding brokers. These include the use of single-premium MPPI, the role played by some, but not all, lead-generation firms and, of course, financial promotions. The Sipp U-turn was a bloody saga but at least it demonstrated to the FSA just how easily such infractions can go unpunished, jurisdiction issues not withstanding.

However, the regulator has to show some magnanimity on the following subjects and accept that surgery on some original conceptions is overdue and elementary.

These revisions are universally sought and accord with what TCF is all about, starting with a pruned KFI of five, universally accepted, pages. Follow that with the phasing out of APR illustrations for everything except lifetime products and, most meaningful of all, introduce tariff reductions for well managed businesses. If a business is consistently compliant, why should it be funding the delinquency of those which are not?

Moving on to regulation costs, we are told that the Deloitte study will now be a quarter late as the exercise was more complicated than originally envisaged. I’ll bet it was.

When the number is finally known, I am convinced that the FSA may have to concede that, for the consumer, who will have borne much of the cost, the benefits will have been disproportionate and, worse still, completely underappreciated.

I believe that the FSA knows this already and that, as 2005 progressed. some boardroom conversations at Canary Wharf will have featured the lines: “You know, we underestimated this mortgage lot. They are largely passionate and professional folk who know their business and give the consumer a fair shake. Have we overcooked this one?”

I now concede that relevant regulation is wholly beneficial. It will encourage more new lenders but, like the man in the street, we want small government with big enforcement. A local copper on the beat whom we can have a regular dialogue with, who protects the good guys but puts the fear of God in to the bad guys. We don’t mind paying taxes for that.


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