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Lending and Mortgages Regulatory News

Compliancy Services Directors
Our Directors and Consultants share their insights and opinions on the important regulatory issues facing the UK Lending and Mortgages sector.


Featured Articles

Regulatory Updates

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PRA - Amended Loan To Income Rules - Mortgage Lending
27th February 2017 - Prudential Regulation Authority

In CP44/16 the PRA proposed amending the PRA’s rules to change the current fixed quarterly limit into a four-quarter rolling limit.

The limit would still need to be complied with and monitored at the end of every quarter, but the relevant flows of loans for compliance with the limit would now be those during a rolling period of four quarters in total, instead of one quarter as currently applied.

These four quarters refer to the immediate quarter under consideration and the three quarters preceding it.

The change is implemented with immediate effect, so that the loan to income (LTI) flow limit is applied on a four-quarter rolling basis from the current quarter onwards.

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FG 17/1 Guarantor loans: default notices
19th January 2017 - Financial Conduct Authority

The finalised guidance from the FCA constitutes general guidance to consumer credit firms. It concerns the FCA’s interpretation of the requirement in section 87 of the Consumer Credit Act 1974 (CCA) to serve a default notice before the creditor (or owner) enforces a guarantee or indemnity following breach of a regulated agreement.

The guidance relates to regulated credit agreements and regulated consumer hire agreements under which an individual other than the borrower or hirer provides a guarantee or indemnity (or both). For convenience, the FCA refer to these agreements as ‘guarantor loans’ and the person providing the guarantee or indemnity as the ‘guarantor’.

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Early arrears management in unsecured lending
13th December 2016 - Financial Conduct Authority

In the Business Plan for 2015/16 the Financial Conduct Authority (FCA) said they would examine the ways in which unsecured consumer credit debts are collected and this would focus on how customers are treated by lenders when they first experience arrears and payment difficulties.

This report gives the findings from the FCA’s thematic review into early arrears management in unsecured lending. The review looked at the way lenders treated customers in the early stages of arrears.

The FCA found that many firms are improving the way they deal with customers in early arrears, however, there are several areas where consumer credit firms still need to improve their practices

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FCA launches market study on competition in the mortgage sector
12th December 2016 - Financial Conduct Authority

The Financial Conduct Authority (FCA) has launched a market study to consider whether competition in the mortgage sector can be improved to help consumers.

The FCA wants to understand whether consumers are empowered to choose on an informed basis between products and services and can understand whether these represent good value for money.

In the published terms of reference document the FCA gives further detail on the scope and procedures of the market study and aims to publish an interim report in summer 2017, setting out their analysis and preliminary conclusions. This will provide stakeholders with an opportunity to comment prior to the publication of a final report in early 2018.

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The fair treatment of mortgage customers in payment shortfall: impact of automatic capitalisations
19th October 2016 - Financial Conduct Authority

The FCA have been considering how firms calculate contractual monthly instalments (CMI) for mortgage customers with payment shortfalls (commonly known as mortgage arrears) and whether this meets the rule requirements and how customers have been affected.

This follows on from the introduction in 2010 by the FSA a rule that firms must not automatically capitalise a payment shortfall where the impact on the customer would be material.

The FCA is now consulting on new guidance that covers remediation for mortgage customers who may have been affected by the way firms calculate these customers’ monthly mortgage payments.

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Underwriting standards for buy-to-let mortgage contracts
29th September 2016 - Prudential Regulation Authority

This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to the responses to Consultation Paper (CP) 11/16 ‘Underwriting standards for buy-to-let mortgage contracts’, and the final Supervisory Statement (SS) 13/16 ‘Underwriting standards for buy-to-let mortgage contracts’.

After reviewing the feedback received, the PRA has made amendments to the proposal for the implementation timeline and provided further clarifications. The precise details can be found in the actual PRA Policy Statement (Chapter 2). However:

  • The PRA expects regulated firms to ensure that the standards contained in the Supervisory Statement (SS) are adopted by other firms undertaking buy-to-let lending within their groups

  • The PRA’s clarification on the small and medium-sized enterprise (SME) supporting factor is relevant to all firms within the scope of the Capital Requirements Regulation

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Handbook changes related to mortgage borrowers with a payment shortfall
10th June 2016 - Financial Conduct Authority

The FCA have recently reviewed a number of firms’ allocation of payments processes.

As a result, the FCA believe it would be helpful to amend MCOB 12.4.1BR and the Glossary definition of ‘payment shortfall’ to clarify their expectations and to help ensure an appropriate level of consumer protection.

This Consultation Paper proposes two changes to the Handbook:

  • An amendment to the wording of the rule in MCOB 12.4.1BR on the allocation of payments received from customers with a payment shortfall
  • An amendment to the Glossary definition of ‘payment shortfall'

The CP also outlines the PRA’s Pillar 2 objectives and scope. In addition, it provides an early overview of planned future work to develop the Pillar 2 approach where the PRA is not yet setting out proposals. As such, this CP constitutes the first of two planned CPs on Pillar 2.

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Embedding the Mortgage Market Review: Responsible Lending Review
16th May 2016 - Financial Conduct Authority

This review is the second of two market-wide thematic reviews examining the impact of the MMR. It forms part of the FCA’s wider programme of mortgages work that also includes the proposals outlined in the feedback statement of the mortgages Call for Input which the FCA have published alongside this report.

This report summarises the key findings of the FCA market-wide thematic review of how firms are applying the responsible lending rules introduced in April 2014 following the Mortgage Market Review (MMR).

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FCA Regulatory Round Up Speech - Mortgage Credit Directive
20th April 2016 - FCA

Speech given by Lynda Blackwell of the FCA on the key issues that the FCA believe will affect the home finance sector (specifically second charge mortgages) following the implementaton of the Mortgage Credit Directive.

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Future regulatory treatment of CCA regulated first charge mortgages
18th March 2016 - FCA

In November 2015 the FCA consulted on the future regulatory treatment of first charge mortgages which were entered into before 31st October 2004 and are regulated under the Consumer Credit Act 1974 (CCA) and the FCA Consumer Credit sourcebook (CONC).

This policy statement makes the final rules and will be of interest any firm currently administering, or advising on or arranging variations on a book of pre-2004 CCA mortgages.

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MCD: Minor changes to FCA rules and guidance
15th January 2016 - FCA

The Government intends shortly to lay draft legislation which will make amendments to the Regulated Activities Order (RAO) and other relevant legislation, in connection with the implementation of the Mortgage Credit Directive (MCD).

These amendments will among other things, clarify the regulatory status of housing association mortgages, and other agreements which were entered into before 1st April 2014 and regulated under the Consumer Credit Act (CCA).

If this legislation is made and comes into force, as anticipated, the FCA will need to make changes to the Handbook; in particular, to the Perimeter Guidance manual (PERG) and Glossary of terms.

There are further changes proposed to the disclosure regime under MCOB 4.4 and "Topped up" KFI's.

These changes are being consulted on now so that they can be made before 21st March 2016 when the MCD comes into force.

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Reminder - Implementation of the Mortgage Credit Directive
10th January 2016 - Other

The Mortgage Credit Directive (MCD) enters into force on the 21st March 2016. Any firm wishing to transact business in MCD activities will require the appropriate regulatory permissions in place to do so on this date, or they will be unable to undertake such activities, until permission is granted by the FCA.

The application window to apply to the FCA for is open and any firm who has not applied and / or requires a variation of permission to transact MCD business may wish to consider doing so at the earliest opportunity.

An application, even for a variation of permission, can take many weeks to be determined by the FCA and firms may wish to consider this timeframe when developing any new business model or seeking changes to its regulatory permissions.

If you are unsure of a) your next steps and/or b) if the MCD applies to you, or if you have any other query please contact our help desk for assistance by calling 01462 510021.

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Consultation on Financial Policy Committee powers of direction in the buy-to-let market
17th December 2015 - HM Treasury

The global financial crisis exposed deep flaws in the financial regulatory architecture. As a result, the government created the Financial Policy Committee (FPC) within the Bank of England. The FPC is empowered to make recommendations to HM Treasury that it exercise its statutory power to enable the FPC to direct the Prudential Regulation Authority (PRA) and/or Financial Conduct Authority (FCA) to ensure the implementation of specified macro-prudential measures.

In respect of buy-to-let mortgages, (BTL) the government stated its intention to consult separately on the recommendations by the end of 2015. This consultation document fulfils that commitment.

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Future regulatory treatment of CCA regulated first charge mortgages CP15/36
6th November 2015 - FCA

Prior to 31st October 2004, first charge mortgages were regulated under the Consumer Credit Act 1974 (the CCA) if they fell below the relevant CCA financial threshold.

This consultation paper sets out the proposed rules for firms performing activities in relation to these mortgages, which are referred to as ‘pre-2004 first charge CCA mortgages’. The rules attached to this consultation paper will also transfer second charge mortgage contracts entered into pre-31st October 2004 into the mortgage regime, in conjunction with the Treasury legislation.

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Implementation of the Mortgage Credit Directive
31st July 2015 - Consequential Changes to the Consumer Credit Sourcebook (CONC) PS15/20 - Financial Conduct Authority

In this Policy Statement the FCA summarise the feedback received on the MCD elements of the consultation and their response. Generally, respondents agreed with FCA proposed amendments and now the FCA are publishing final rules, the majority of which come into effect on 21st March 2016.

The FCA has made a number of changes to the draft rules in CP15/6 relating to the implementation of the MCD, but it does not consider the rules significantly differ from the draft rules.

FCA responses to the non-MCD changes to CONC consulted on in CP15/6 will be published later this year.

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