WELCOME TO CHARLES RUSSELL SPEECHLYS.
We would like to place strictly necessary cookies and performance cookies on your computer to improve our website service.
Otherwise, we'll assume you are OK to continue. Please close this message
On 16 May 2016 the Financial Conduct Authority (“FCA”) published its feedback following a call for input from the market and consumer representatives on which aspects of the mortgage lending market may not be functioning well from a competition perspective. Having identified a number of key areas in which competition within the mortgage market could be improved, the FCA further announced that it will be carrying out additional scoping work before announcing terms of reference for a full market study in the final quarter of this year. It will also be conducting three smaller items of follow-up work in light of its findings from the call for inputs.
The FCA had indicated in its business plan for the 2015/16 Financial Year that it was intending to undertake a review of the mortgage lending market to identify any barriers to competition that may be adversely affecting smaller providers and, moreover, consumers.
In its press release announcing a “call for inputs” on 7 October 2015, the FCA hinted at a number of complexities to the mortgage market, particularly in terms of supply chain relationships and product information, that made it potentially susceptible to a dampening in competition to the detriment of consumer choice and value for money:
“The provision of mortgage products is characterised by a number of complex relationships, and is intrinsically linked with firms’ funding models and wider retail strategies.
Some of these relationships and activities, which are key to mortgage or house purchasing transactions, fall outside our traditional regulatory perimeter. These include (some) third party administrators, packagers, and surveyors.
We are interested in how these activities or relationships might affect competition, for instance by affecting entry, expansion, and/or the ability of consumers to make effective mortgage choices.”
It was particularly interesting to note the FCA’s desire to explore how relationships between funders and other agents within the marketplace (notably, brokerages) was affecting the marketing and provision of mortgage products at the consumer level. The FCA’s feedback statement now makes for pertinent reading for all those involved in the mortgage industry, since it foreshadows those issues and practices which the regulator is likely to target during its more comprehensive market study exercise later in 2016.
The FCA’s feedback statement has identified four key aspects in which competition in the mortgage market may not be working effectively, namely:
In light of the findings of its call for inputs, the FCA has decided to commence a full market study focusing on the key issue of consumer choice so as to address those areas which are currently preventing competition in the market from functioning properly in customers’ interests. In particular, the FCA’s list of outline questions for exploration through its study indicate that lenders and other providers in the sector should expect scrutiny of and, in due course, fresh regulatory recommendations and requirements in relation to:
As alluded to above, the FCA has also announced three smaller actions in the competition field within the mortgage sector which it will be undertaking immediately, namely: (i) inputting into workstreams regarding transparency in mortgage fees and charges currently being pursued by the Council of Mortgage Lenders and Which?; (ii) reviewing certain aspects of the FCA’s existing regulatory regime with a view to reducing any negative impact it may be having on competition; and (iii) engaging with representatives of the industry to increase awareness of competition law.
The above exercises and the FCA’s forthcoming market study promise to shape lasting change in the conduct of business across the sector. If you have any questions about the impact this will have for your business then do not hesitate to contact the EU & Competition and Financial Services teams at Charles Russell Speechlys.
This article was written by Rory Ashmore.
Please contact Rory Ashmore on +44 (0)20 7427 1031 or email@example.com