Four industry experts analyse how the new rules will affect mortgage businesses
The Financial Services and Markets Act (FSMA), which regulates the UK’s bank and insurance sectors, has a far-reaching impact on the mortgage space. In this roundtable interview organised by Mortgage Introducer in association with Mint Property Finance, four industry insiders – Richard Showman, head of lending at Mint Property Finance; Vic Jannels, CEO of the Association of Short-Term Lenders (ASTL); Ray Cohen, director at Jackson Cohen Associates; and Richard Stock, senior associate at Sirius Property Finance – discuss their views on the FSMA’s importance, as well as the challenges and risks it may pose to business.
Cohen first clarified that brokers have “more than just the FSMA to think about” because there are several pieces of legislation relevant to their operations. The rules on mortgage credit, which define the structure and management of buy-to-let properties, are just one aspect of the entire regulatory environment. Considering the nature of the legislation, Showman cautioned that the directors and officers of lending firms have to be mindful of potential criminal liability if found to have “acted contrary to the order”.
Trade associations and lenders must know the different sets of rules and regulations, which stipulate how all parties “can be protected when dealing with consumers and their requirements,” said Jannels. He explained that even though consumers are less interested in the regulations than in their loans, brokers have a duty of care and responsibility to both the consumers and the imposed level of regulation.
“It’s crucially important that we’re aware and we give [customers] the best possible experience in learning, so that they also know what their rights are in the event of things perhaps not working out the way that they might have wished,” said Jannels.
For Stock, the most important part of the FSMA is ensuring that the outcome of a transaction “is correct for our customers and that no matter which type of contract they’re entering into via us, they’re treated in exactly the same way”. He expects the legislation to have a positive effect on the market in the form of improved client experience.
Concerning the difference between regulated loans and related regulated activities, Showman emphasised the importance of “knowing the full scope of the regulation and what loans [brokers] can write [because] the ramifications are particularly serious”.
The complexity of the regulations and lack of clarity in how they were drafted may lead to difficulties in adhering to them. Cohen described the rules on buy-to-let properties as “not as straightforward as [they] should be” and “can be read in more than one way”.
The current regulatory situation leads brokers back to the ‘know your customer’ concept, said Stock. “If we don’t know our customer, then how can we possibly advise them and how can we match them with the appropriate lender and product?,” he asked. “So, questioning in an old-fashioned way, whether that’s hard facts or soft questioning, is ultimately the skill that we need to be on top of while also navigating the ambiguity of this regulation.”
On the whole, the experts agreed on the importance of training and educating consumers about the industry’s rules. Showman said his team at Mint Property Finance is working with Cohen’s firm in answering questions that may arise about the regulation.