Will THe ProPosed euroPean sTandardised informaTion sHeeT rePlace THe fsa’s key facTs illusTraTion? AM: The ESIS will replace the KFI both to prevent confusion and to try to keep costs down. RB: In some ways the ESIS is more detailed than the KFI in that you have to include an illustrative repayment table in the ESIS which I think is helpful. On the other hand the requirement to include a comparative APRC [a measure of APR based on the Consumer Credit Directive] on all products could be misleading. The FSA recognises that it’s meaningless to compare different products on the APRC alone. MS: From lenders’ perspective the single most expensive element of regulation was the development of the KFI. The single most expensive element of the directive will be the removal of the KFI and the dispensation of the ESIS. This is why the MMR has done its level best not to tamper with the KFI too much because it knew the ESIS was coming down the line. A finger in the air estimate of
implementing the ESIS comes into the tens of millions. It’s not going to be a cheap exercise. Most agree that the KFI is a good record of the process the consumer went through to get the product and changes to it may not be worth the cost. But the EU is on a completely different page because it believes that disclosure is one of the impediments to cross-border harmonisation of the mortgage market. It’s fairly safe to assume on that basis that the ESIS is coming, will be costly and may not be better for UK consumers. RB: The principle of the ESIS will only work if lenders are required to issue it in all 27 member states’ languages, which is of course completely stupid. But that’s what it would take to make cross-border harmonisation work properly.
HoW Will THe PassPorT regime Work, esPecially given THe rigorous sTandards for individual
auTHorisaTion of inTermediaries THe fsa is ProPosing? MS: I would hope and imagine that this is one of the FSA’s primary concerns. Under the directive an intermediary firm anywhere in the EU can passport into the UK giving a short notice period. For the UK, which will have exacting standards under the approved persons regime, passporting will undermine those standards. This issue is twinned with the
short-term finance on residential properties and also buy-to-let lenders lending to residential borrowers. Paragon is currently regulated
prudentially but not for conduct of business and that may change where they offer buy-to-let mortgages to residential consumers.
are THere any PoTenTial PosiTives for THe uk morTgage markeT driven by THis direcTive? JC: Increased competition among lenders in the UK would be positive and also the increased opportunity for brokers to do business abroad within the EU. If you have an internet or telephony based broker in the UK under the new rules you’d be able to provide mortgages across Europe.
WHaT are THe nexT sTePs for THe indusTry? MS: The key message is that the industry is trying to work on this together. It’s not a CML or AMI issue, it’s a UK market issue. We’re trying as best we can to join up on these issues while also addressing the needs of our own constituents. We intend to work with the FSA,
qualifications standards laid out in the directive which are likely to have minimum harmonisation requirements rather than maximum. RS: The bigger danger is that any intermediary firm authorised in another member state can decide to sell mortgages in the UK and they don’t have to be based here – they can transact by phone or over the internet. Nor can the FSA enforce its approved persons regime on that intermediary because they haven’t set up their business here.
are THere any insTiTuTions noT currenTly regulaTed THaT Will be caugHT by THis direcTive? RS: Yes. Secured loans after they transfer to the FSA, some bridging firms that offer
Treasury and consumer groups as well to try to achieve that. It’s as holistic as we can make it. RS: I agree. We’re trying to work out all the things we can agree on rather than the things we disagree on for a change. The scope of the draft directive will be a
topic of discussion and whether residential buy-to-let, bridging and lending to high net worth borrowers for tax mitigation purposes should be captured by the European regulation in the UK market is something AMI will be looking at. AM: There’s always a way through and the UK market is very adaptable when it needs to be. RS: It’s important to remember that people in the UK still want to buy houses, they need money to do it and there are lenders that will want to lend it. Whatever rules regulators put in the way the market will find a way of continuing to meet that consumer need. n
mortgage introducer MAY 2011 43
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