Independent review and analysis

New Lender Origination Reviews

A recent freedom of information request submitted to the Prudential Regulation Authority (PRA) by a leading industry magazine has revealed that, since January 2016, 13 banking licence applications have been submitted to the regulator.  A number of new mortgage lenders have also been authorised and launched during the same period.

The New Bank Start up Unit established in January 2016 by the UK’s financial regulators, the PRA and the FCA, gives clear information and support to any organisation considering creating and launching a new bank in the UK.  Although obtaining the necessary authorisation will still be a challenging process, attention is now shifting to what banks and new lenders can expect in terms of supervision in the early days after market entry, and what that supervision may look like in subsequent years.

From a mortgage lending perspective, regulatory approval is normally subject to an independent review at the 12 month anniversary of commencing lending, or when a pre-determined book size is achieved, whichever is the sooner. That review is necessary to reassure the regulators that the lender is complying with its original business plan, by underwriting loans of the type originally intended and declared in the approval process.  It also looks for confirmation that agreed policies and procedures are being adhered to.  By necessity, that needs to be an independent opinion and Rockstead is engaged in this annual review activity.

In preparation for this type of review, some lenders seek reviews of their lending decisions on a far more regular basis; often prior to or immediately after completion.  Working in partnership with Rockstead can help highlight any potential issues a lot earlier in the process and allow lenders to amend processes accordingly.  That proactive stance can mean that, by the time the annual review is due, systems have been implemented, tested and verified and it should be a relatively straightforward exercise.

The regulators supervisory approach relies significantly on judgement.  It is a lender’s responsibility to judge whether they themselves are compliant, and whether they meet, and are likely to continue to meet, the threshold conditions laid down at approval.  New lenders in particular are choosing to engage with us on a regular basis, after the first annual review, to re-assess their own underwriting decisions, to give them reassurance and to back up their own internal audit and review processes.

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