Preparing ourselves for more regulatory changes

There, I’ve done it, and there’s no taking it back. The reason I ‘sometimes’ feel this way is that there are often occasions when the regulator is often damned if it does and damned if it doesn’t. Generally, there are very few people lining up to defend the regulator regardless of the course of action it chooses to take, and with regulation often coming from the European Union rather than its own hand, it often finds itself struggling to breathe between the proverbial rock and a hard place.

This was certainly my view of the most recent consultation paper on the new rules that will be introduced into the mortgage market as a result of the European Mortgage Credit Directive. There is really no let-up in terms of regulatory changes these days – we have moved quickly from the MMR to MCD – but I suspect there will be many within Canary Wharf who, quite frankly, would have liked to have ignored this particular Directive. Unfortunately, that won’t be the case.

Instead, to be fair to the regulator – there I go again – what the FCA has tried to do with the MCD is firstly, pre-empt some of the changes it requires, and secondly, where it can use ‘transitional relief’ which effectively means it can choose not to implement some of the measures or, at least, give practitioners some extra time before they have to comply. The MCD rules will be implemented from the 21st March 2016 but in certain areas firms will have a longer lead-in time in order to show compliance.

The big news from the MCD in terms of the later life sector is probably what is happening in the lifetime mortgage market. Lifetime mortgages are exempt from the MCD rules however in order that the FCA can achieve this, it has to change their definition. This means there will be no reference to the age of the customer anymore and it has to ensure that products that we might describe as ‘hybrids’ – those that allow the customer to pay back some of the interest and/or capital - can no longer be described as a ‘lifetime mortgage’.

Now, written down like that, you might imagine this will not have a major impact, however as a few notable equity release commentators have already pointed out there will be consequences of both the positive and negative kind. Firstly, what about the positive? Well, if there are no age restrictions for lifetime mortgage customers, then this does open up the sector to a much wider target market and, as Simon Chalk has pointed out, it could open the door much more to not only  mainstream acceptance but more flexible products that will still come with all the guarantees afforded by the Equity Release Council/SHIP guidelines. The no negative equity guarantee, etc, which could herald a further push forward for equity release lending.
 

However, as Geoff Charles has stated, with hybrids no longer defined as lifetime mortgages, is the FCA essentially saying that non-equity release qualified/specialist advisers will be allowed to advise on these products? This would certainly be a retrograde step from the regulator given firstly, its ongoing definition of equity release products as high risk, and secondly, its focus on specialist qualifications for specialist products. Will the FCA allow non-specialists to advise on hybrids or will it introduce specific technical and qualification standards in order to let current non-specialist advisers offer these products? These products still allow the release of equity so shouldn’t they be confined to equity release advisers?

As so often is the case, the law of unintended consequences often kicks in when we are provided with new regulation and I suspect this consultation paper will receive a number of responses pointing this out. The good news of course is that this is a consultation and the industry will get its opportunity to outline these issues and potential problems. My inclination is there will have to be an acceptance that hybrids are a specialist product and require advisers to have reached a certain qualification standard in order to offer them. This has been the precedent set by the regulator for some time and it would seem unlikely to change...but you never know.

The point we should all get used to however is that the current status quo will no longer be in existence in 18 months. The rules will change and so will our marketplace – let’s ensure we firstly respond to the suggested changes whilst at the same time preparing ourselves for whatever might be coming over the horizon next. You can be sure of one thing; this is not the end of regulatory changes.