Journey to the FCA; to make financial markets work well so consumers get a fair deal

12 December 2012

Response by the Intermediary Mortgage Lenders Association


1. The Intermediary Mortgage Lenders Association (IMLA) welcomes the opportunity to respond to FSA’s CP The Journey to the FCA.

2. IMLA is the representative trade body for mortgage lenders who lend through intermediaries. Our members include banks, building societies and specialist lenders.

3. The FCA has a considerable task before it – the creation and operation of a new regime for building a consumer focussed regulatory regime for the financial services industry. Perhaps inevitably this first paper is very much an overview, setting out the underlying philosophy and approach the FCA wishes to adopt. It is helpful to see this though clearly we will want to see more detail in relation to the mortgage market and not least the interaction with the new final MMR rules.

4. The FCA seeks views on the paper as a whole and on two specific areas – competition and information gathering. We respond to both of these in our document but first we provide feedback on the paper as a whole.

The vision

5. The FCA is keen to reset conduct standards for the industry with the aim of getting consumers the financial services they need, creating sound, stable and resilient markets with transparent pricing information and ensuring effective competition. The FCA wishes to secure these outcomes in an unbroken chain from boardroom to the point of sale. It will ban products, identify misleading promotions and take disciplinary action. It will impose these new standards on existing firms and new entrants and there will be a new focus on senior management and the culture they have created. The FCA indicates it will have a lower risk tolerance and will intervene earlier and act faster.

6. This is a demanding agenda and the FCA will need to be appropriately staffed and resourced to deliver this. It is noted consumers and firms will have responsibilities.

New Powers

7. The document sets out the new powers and how these are shared between the FCA, PRA, FPC, and HM Treasury. These are real concerns as to whether this new structure is capable of delivering what is required. Experience does suggest organisational boundaries are real and discussions with FCA staff at the launch did reveal great uncertainty as to who might be responsible for monitoring the impact of the new regime.

8. The FCA sets out to intervene early not least by scrutinising firms’ product governance and whether appropriate attention has been paid to target markets, the scale of internal oversight and the relevance of the distribution strategy. This implies a substantial awareness of what individual firms are doing. It will require FCA staff with deep knowledge and understanding of internal processes and financial products. The FCA suggests products are often sold to other than their target market – this is a product of supply and demand. It is almost impossible to predict who all the users of a product might be and why – much turns on circumstances, timing and alternatives. Presumably as long as a firm can justify the sale outside of the planned target market and then extend the target to include such households this will be acceptable?

9. The FCA sets out its plans for temporary product intervention. This implies a level of market scrutiny and market data which has not yet been achieved. The powers themselves are quite draconian and will trigger a workload which is not inconsiderable. Unless these processes are fair and credible the FCA could be generating a huge case load as well as triggering uncertainty and confusion amongst providers. Moreover with many products the problems do not emerge on day 1 and might be triggered through specific events surrounding the consumer. It suggests levels of insight into the mortgage market we have yet to achieve. IMLA intends to give further scrutiny to the draft statements of policy on temporary intervention draft guidance on super-complaints. We welcome the desire to avoid vexatious complaints.

10. Again the FCA is setting out these proposals for the market as a whole rather than just the mortgage market. The scale of the task is very substantial.

11. The FCA wishes to ensure markets are competitive. The UK mortgage market has seen considerable consolidation during the last few years and the prime mortgage market is dominated by a few players. Many other lenders are being forced into niche market areas and over time this will probably mean the number of lenders decline. Despite the clear shortage of mortgages at present it has proved difficult for new lenders to enter the market and there has not been the expansion though overseas lenders that some anticipated. The strains on securing a more competitive market have been amplified by the difficulties non-banks have had in getting access to the government related funding currently enjoyed by some banks and building societies. Indeed with the much increased reliance on retail funding following the closure of securitisation markets, it has been difficult for all lenders without a retail base. Understandably the focus of government has been on securing stability of the financial system and this has led to a neglect of competitive issues. The FCA needs to look at this question very closely. The re-opening of securitisation markets has helped but it is clear at present that those firms accessing the Funding for Lending scheme (FLS) have a considerable advantage.

12. IMLA welcomes this focus on competition and sees this as an important driver of improvement in customer focus and products. The FCA‘s job is to help mould this competitive process rather than direct it.

The Perimeter

13. This relates to comments already made regarding entry to the sector and regulated activities. We would want to underline our desire to see individual registration for intermediaries selling loans in the mortgage market. The FSA has indicated this issue is on hold though it has linked registration to PERG guidance. We would like to see this issue brought into the frame. We see this as a vital step in improving the quality of the customer experience as well as helping ensure high standards are maintained. IMLA will be working with the CML and AMI to develop this process in advance of the regulator taking on that responsibility.


14. We note the risk based approach which is logical given the scale of the task. However the market is often driven by niche players so scrutiny across the market is important. In general terms IMLA accepts the approach set out

Taking action

15. The planned approach is noted. There is a risk that the costs of compliance with this new regime will become unduly onerous for firms. There is little to suggest that this is a material fact in the process?

Understanding markets

16. We note this ambitious plan and the focus on evidence based policy. We welcome this and the research that might underpin this. We would expect this research to be published so it can be subjected to scrutiny. We note the use of behavioural economics as a means of developing customer insight.


17. IMLA has already commented on relationships with other parts of the regulatory family. We are pleased to note the planned engagement with firms and trade associations. We welcome early engagement so direct practice based knowledge can inform your work. IMLA is keen to establish a close and effective relationship with the FCA.


18. We have no comments on this

Specific questions on competition and information gathering

19. IMLA remains concerned that it is not clear how the FCA will balance its ambitions regarding competition and innovation with its plans for earlier intervention and tighter supervision. On the one hand firms are encouraged to be innovative and on the other conservative. The FCA needs to spell out very carefully how these two ambitions are to be balanced.

20. This raises the issue of regulatory certainty which is so important at firm level. We need to understand how the FCA might react. Part of this will develop over time but it is also about dialogue and engagement rather than outwardly random events. This agenda is compounded by the MMR/MCOB transition and how supervisors will actually work through this. It is important the FCA accepts that its approach is mobilised through individuals as much as through a rule book. Those individuals like the firms they supervise will also be finding their way. IMLA would suggest that one way through this is regular joint events where open exchanges can take place around supervisory issues. Clearly much turns on trust and it is essential that trust drives this relationship from the outset.

21. On information gathering there has been a tendency to view the FSA as a black box – data goes in but rarely comes out. It is difficult to access the data held by the FSA and its website adds to the problem. IMLA would like to see the FSA and by extension the FCA offer a much more open and transparent approach to data with all firms and trade bodies having easy access to the regulated mortgage survey and the product sales database. There is also no consultation or discussion of the FSA research programme and results are hard to find. We would hope the FCA can make significant improvements in this area.

22. If the FCA could start on a new and much more open basis (as its principles suggest it should) that would be most welcome. This will encourage firms and trade bodies to share findings with the FCA.

Further information

This response has been prepared by Peter Williams, Executive Director of IMLA in consultation with the Directors of IMLA. If there are any questions or comments these should be directed to Peter Williams on 07718 120858 and ““

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