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regulatory line drawing November 27, 2007

Posted by Bradley in : Uncategorized , trackback

The UK Government (Treasury and BERR) is consulting on the question of how to separate the functions of the OFT in respect of Consumer Credit and the functions of the FSA in relation to mortgages. The consultation responds to concerns identified by stakeholders:

Stakeholders have recently identified circumstances where some firms could potentially find themselves having to comply with both regimes simultaneously for certain types of transaction. This paper sets out the issues and the Government’s proposals for legislation to tackle these areas of potential dual regulation.

Before publishing the consultation document the Treasury and BERR discussed the issues with the Council of Mortgage Lenders, the FSA and the OFT (not apparently with any consumer groups, which raises issues about who gets to frame regulatory issues). Parts of the document are particularly technical and opaque:

In order to address these concerns the Government introduced legislation so as to disapply section 82(2) and section 82(3) wherever the modifying agreement was an RMC. In effect, this meant that the first agreement and the modifying agreement were treated as separate agreements for the purposes of the CCA. The RMC would be regulated only by the FSA and the first agreement would be subject to the CCA, where applicable. (footnote omitted)

The Government proposes that mortgages regulated by the FSA are subject only to the FSMA and not to the Consumer Credit Act. The plan is to eliminate uncertainty:

The Government recognises that lending institutions are keen to avoid the possibility of dual regulation. When the financial limit on CCA regulation is lifted in April 2008 there may be more cases where uncertainty arises as to whether both regimes apply. Some lenders have suggested that agreements that are incorrectly documented may be unenforceable, and that they are considering strategies to mitigate these risks,
for example by re-writing any affected agreement. They suggest that this would result in administrative costs that may be passed on to the consumer. Additionally, those lenders that rely on wholesale funding arrangements like securitisation suggest that they may incur further costs if they refinance contracts which have been sold on as part of a bundled package.

I can’t imagine that this document will generate much consumer response. Although it refers to the Code of Practice for Written Consultation, including the principles that the consultation should be “clear, concise and widely accessible”, be clear about who may be affected and allow a minimum of 12 weeks for consultation, it conflicts with these principles in many ways. It’s not very clear to the uninitiated what the implications may be (consider for example the OFT’s recent aggressive protections of consumers of financial services) and the period for consultation includes the holiday season.

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