MIp38-39_0210:MI 12 Jan 21/01/2010 15:51 Page 3
Commercial regulation
39
we are currently seeing in the residential sector
can be applied effectively.
Valid reasons
Looking at the other side of the coin, there are
also some valid reasons why the commercial
mortgage market should be regulated. The
Treasury and FSA cite the existence of fraud as
one strong reason to regulate buy-to-let, and bad
practice also exists within the commercial sector.
The recent advance fee fraud debacle is one such
set of events that could hasten commercial
mortgage regulation. In addition, lack of
transparency in the terms and conditions of
certain facilities could currently disadvantage
businesses who have not read the small print.
With disclosure being such a key component of
current mortgage regulation, its extension to
cover commercial mortgage contracts would
force greater transparency.
In the commercial sector, some bad practices
which FSA regulation has driven out of the
residential mortgage market still exist. For
example, linked product sales where an insurance
product is presented as a condition of finance.
This denies the borrower their right to select a
more suitable products and can fly in the face of
treating customers fairly. Finally. the principles
of mortgage regulation would assist the market
to develop, and certainly the industry could learn
a lot with regard to transparency and
presentation of products and literature.
The mortgage contract is not the sole concern
of FSA regulation. Extending the FSA’s
jurisdiction to the commercial mortgage sector
would bring commercial lenders and brokers
into a principles-based regime that covers
everything from proving to be a fit and proper
person to be authorised; having good senior
management systems and controls; having a
proper training and competence scheme; and
dealing properly with customer complaints.
Among the eleven Principles for Business, firms
will be expected to act with integrity, skill and
due diligence; and to communicate with
Complicated on residential property should help to stem the customers in a way that is clear, fair and not
Regarding the financial products themselves, flow of borrowers turning to unregulated sources misleading. They must also manage conflicts of
commercial finance is complicated in the variety for loans. Could the partial regulation of interest fairly; maintain adequate financial
of products on offer. Funding for business commercial finance products (for example, only resources; and treat their customers fairly.
purposes is not limited to mortgage finance. those secured on property) start a similar This list, in fact, is a summary of what every
Unsecured facilities, overdrafts, factoring migration to unregulated sources of finance? good business should be doing anyway. So,
arrangements, asset finance, equity finance, The types of transaction in the commercial irrespective of if/when the FSA may assume
mezzanine finance, leasing, corporate bonds etc, mortgage finance sector are also significantly regulatory control of the commercial mortgage
are all additional ways in which business finance more varied and involved than a residential market, shouldn’t all firms be striving to uphold
can be obtained. Extending the scope of transaction. Typically, commercial mortgages these principles in the conduct of their business?
regulation into this sector would challenge the can include covenants around business A key feature of our Commercial First
regulator to standardise an approach across so performance and asset performance. They can be Partnership (CFP), which brings together
many different sectors. Where would it start, complicated with structured repayment terms, commercial lenders and brokers to create mutual
where would it end, and if not all forms were independent hedge/swap arrangements, and the business benefits, is the promotion and support
regulated would it drive borrowing entity and its income is a far cry from of the highest standards of excellence in
businesses/brokers/lenders into the wrong type two individuals who can provide pay slips. commercial mortgage broking practice – and we
of solution because it avoided the administrative Interpreting the borrower, its assets and liabilities recommend this aim throughout the sector. If it
burden of regulation? and its revenue/ income model can be highly does not actually prevent the need for regulation,
The FSA’s MMR proposals already contain the subjective and in this context it is so difficult to it will certainly make any future transition into a
argument that full regulation of all loans secured see how the prescriptive regulation of the kind fully regulated regime less painful.
www.mortgageintroducer.com February 2010 Mortgage Introducer
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