The Financial Services Authority is proposing that any new lending done after MMR implementation be subject to Banks, Building Societies and Investment Firms prudential regulation rather than Mortgage and Home Finance Firms, and Insurance Intermediaries regulation.
This means non bank lenders will have to hold more capital on balance sheet against new lending than they do currently.
The FSA said: “Generally, policies aimed at restricting the scope for higher-risk lending across the market are likely to have a proportionately greater impact on non-banks as they have been far less involved in originating prime conforming mortgages.
“Based on extensive discussions with stakeholders; review of relevant data; consideration of the feedback we received to CP10/16 and further policy analysis, we have continued to develop and refine the policy ideas that we suggested.”
The proposals up for consultation include a risk-based capital requirement based on the standardised credit risk and securitisation chapters of BIPRU applied to firms’ assets arising from lending after the implementation date of the new rules but not to their back-books.
This will be on top of a 1% requirement applied to any other assets as currently required in MIPRU.
The proposals also want to increase the quality of capital so that at least 20% is in the form of share capital and reserves less any intangible assets.
Lenders will have to demonstrate high-level systems and controls requirements to manage liquidity risk.
The FSA estimates the total costs that firms would incur if they have to raise additional or better quality capital could range between £24.4m to £126.8m per year.
It said it expects the lower estimate to be more representative of the likely impact.
The FSA also expects a one-off cost of £2m and annual ongoing costs of up to £500,000 to set up and maintain the necessary systems and controls for the proposed regime.
