MIp38-39_0210:MI 12 Jan 21/01/2010 15:51 Page 2
38
Commercial regulation
The question
of regulation
Stephen Johnson, sales and marketing director at
Commercial First, considers whether or not the
commercial sector should be regulated
E
ver since the Treasury decided protection. The FSA’s Mortgage Market Review (chief executive of the NACFB) pointed out in a
to give the FSA regulatory (MMR) states: “We firmly believe that effective recent Mortgage Introducer article (June 2009),
control of first charge delivery of a stable and sustainable mortgage when the £25,000 ceiling on CCA-regulated
residential mortgages, the topic market calls for similar standards to apply across loans was abolished, the definition of an
of commercial mortgage all secured lending to consumers.” This is a “individual” was also changed to include sole
regulation has regularly reasonable enough statement of intent, but traders and partnerships of three or fewer
emerged as a talking point. hidden away within it is a major change of people. This already brings commercial mortgage
Should commercial mortgages be regulated? emphasis. Whereas borrowers taking out buy-to- contracts taken out by this class of small business
After all, sole traders and the owners of small let mortgages were formerly classified as business owners within the CCA-regulated framework –
businesses are just ordinary, fallible human owners engaged in a commercial transaction, possibly a fact that many commercial mortgage
beings – so don’t they deserve the same and therefore able to look after their own brokers remain unaware of.
protection that the FSA provides to individuals interests, they are now classified as “consumers”. Looking at the broad scope of commercial
taking out a mortgage to buy their home? mortgage regulation, there are arguments for and
As we all know, the answer to that question is Regulatory lines against. Regarding the “against” arguments, a key
currently “no” – as FSA regulation only extends If the regulatory lines can be re-drawn in terms question is the aforementioned distinction
to mortgage contracts for a first charge over of property class (“residential-v-“commercial”), between consumers and business owners. In its
residential property and buy-to-let mortgages then there is nothing to stop them being redrawn introduction, the FSA’s Mortgage Market Review
where the property will be occupied by a person in other ways, as the appetite for more extensive (MMR) goes so far as to suggest that consumers
who is connected to the mortgage borrower. regulation in the financial sector grows. For cannot be trusted to make their own decisions
However, in late 2009, there was a significant example, the aforementioned sole trader or small correctly – and need protecting from themselves.
change in the thinking of the Treasury and FSA business owner may be the next class of It says “We also recognise that consumers are not
regarding the sort of mortgage contracts that mortgage borrower to be drawn into the always able to protect their own interests and
they believe should be regulated. Switching from regulatory net, after which it would be a small therefore propose to rely less on disclosure and
their earlier stance, the Treasury and FSA have step to regulating the whole of the commercial to intervene where necessary . . . “ On the other
proposed that second charge mortgages on mortgage market. hand, by definition a business operator requires
residential properties and ALL buy to let Before discussing the benefits and drawbacks acumen to set up and trade a business entity.
mortgages should come under the FSA’s that FSA regulation may bring to the commercial This is a strong differentiation and demands a
regulatory control. mortgage sector, it should not be forgotten that level of sophistication above that of a consumer,
The reasons for this change of thinking are as some commercial loans (including mortgages) who - it can be argued - needs a proportionately
much to do with ensuring a stable mortgage are already subject to regulation under the greater degree of protection.
market as they are with strengthening consumer Consumer Credit Act (CCA). As Adam Tyler
February 2010 Mortgage Introducer www.mortgageintroducer.com
Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44