Client Briefing: Compliance, Conduct and Risk Bulletin December 2015

1. FCA Quarterly Consultation Paper published 

On 04/12/2015, the FCA published their quarterly consultation on proposed miscellaneous amendments to their Handbook, seeking feedback on their proposals.

The FCA are proposing to make certain consequential changes to rules and guidance relating to controllers and to make consequential changes to various RDR forms as a result of the Senior Managers’ Regime.

They have also proposed to add text to EG 7 to reflect the FCA’s ability to apply to the Court under section 89NA for a voting rights suspension order.

Responses are required to be submitted by 4^th January 2016 for Chapters 7 and 9, and by 4^th February for all other chapters.

2. Competition and Markets Authority consultation outcome 

The Competition and Markets Authority (CMA) have published the government’s response to their Consultation on updating the non-binding Ministerial statement of strategic priorities to the CMA, the Strategic Steer.

The CMA have updated the response to clarify:

• Why competition is important for productivity;
• The importance of the CMA focusing its efforts on removing competition barriers to help all businesses enter markets;
• The need for the CMA to reduce its burdens on business;
• The importance of the CMA providing advice and challenge to central and local government on any intervention that might affect competition.

Find out more: Department for Business Innovation and Skills Competition Competition Regime 

3. CML director general: ‘Single-minded regulators’ stopping lenders from entering niche markets 

The CML director general has recently stated at the body’s annual conference in London that “single-minded” regulators are hampering lenders’ ability to enter different areas of the market such as shared ownership. The director general asked the question of whether “we [lenders] want single-minded regulators who pursue regulatory perfection at the expense of an efficient and functioning market”. He also added: “We want slightly less initiative on the part of our regulators and we also want them to take into account how a competitive economy should function and that their goal should not be solely driven by a regulatory focus.”

The director general took the view that some of the regulators’ more restrictive requirements are preventing lenders from entering certain markets e.g. shared ownership, which in his view will be an important component of the housing market in the future.

Regulators were criticised by the director general for defining their objectives narrowly, particularly in the capital sphere, hampering the ability of lenders to become involved in that market.

Find out more: Mortgage Strategy 

4. Interest-only complaints upheld by Ombudsman 

Two recent decisions by the Financial Ombudsman Service (FOS) in complaints by customers against lenders highlight the difficulties between banks and older customers in the context of interest-only mortgages. 

In the first case, Mr A, a man in his eighties, contacted his lender to ask a question about his statement. During the call, he discovered his mortgage had a 25-year term; he had understood that he had a lifetime mortgage. The customer realised that this would mean that he would be forced to sell his home in his late 90s. He complained to his lender, asking them to change his arrangements. However, the lender refused, advising that they had not given Mr A advice about what mortgage to choose and that he had been given clear information about the terms he was signing up to.

The customer ended up taking this case to the FOS. From the information the lender provided the FOS, they saw that Mr A had an interest-only mortgage with a 25-year term which he had taken out jointly with his wife when they were both in their early 70s (Mrs A died a few years later). At the time, the lender had agreed that the sale of Mr and Mrs A’s home was an acceptable “repayment vehicle”.

The view of the FOS was that the issue was not whether Mr A had been given clear information about the mortgage, rather the concern related to the fact that, in the FOS’ view, the lender had not given personalised advice – taking into account the age and circumstances of the customers. The FOS did not think it was fair that Mr A was facing the prospect of selling his home at nearly 100 years old and with 15 years of worry in front of him.

The FOS upheld the complaint and told the lender to convert Mr A’s 25-year mortgage to one with no fixed end. Mr A’s monthly pension payments were enough to cover the interest payments – with the capital being paid back when his house was sold after he died.

In the second case, Mrs R, a widow in her eighties, received a letter from her lender explaining that the term of her interest-only mortgage was coming to an end and asking her to get in touch to discuss her options.  When she contacted her lender, Mrs R asked if the mortgage term could be extended for the rest of her life, meaning that the capital would be repaid when her house was sold after she died.  Her lender would not agree to this proposal on the basis that it was their policy not to extend the mortgage terms of customers over 75 – and as Mrs R could not pay, she would have to take steps to sell her house.

Mrs R complained, but her lender maintained their position. The matter then went to the FOS who upheld the customer’s complaint.

The FOS found that when they had taken out the mortgage – interest-only over ten years – Mrs R had been 75 and her husband had been 70. They had told the mortgage provider at that time that they did not have any arrangements in place to repay the capital at the end of the term. The lender told the FOS that, in their view, Mrs R still had time to find a way of repaying the capital and other options – such as converting the mortgage into a lifetime mortgage – would require constant reviews; it would therefore be in the customer’s best interests to sell her house.

Looking at Mrs R’s financial position, the FOS thought that her pension covered the interest-only mortgage payments but it was likely that she would be able to pay off the mortgage capital. It was pointed out to the lender that they had already agreed to lend money to Mr and Mrs R into their eighties – knowing that there was no “repayment vehicle” in place. In the FOS’ view, Mrs R was in her current position because of their previous lending decision. In the circumstances, it was not fair to now simply say she was too old and force her to sell her home. The FOS told the lender to extend the term of the interest-only mortgage indefinitely, to allow the capital to be repaid when Mrs R’s home was eventually sold.  

Find out more: The Financial Ombudsman