Consultant Zone

Regulatory Risk

More on the Mortgage Credit Directive from Rockstead.

A timely warning from the Financial Conduct Authority (FCA) has been issued to both intermediaries and lenders highlighting the inherent dangers that are on the horizon if they are not prepared for implementation of the Mortgage Credit Directive (MCD) by March 2016.

From an introducer’s perspective, offering advice on second charge loans without looking at the complete picture by taking into consideration a customer’s first mortgage requirements, will be looked upon with scepticism by the regulator. From a lending perspective, the spotlight is firmly focused on second charge lenders where, from March 2016, the regulatory requirements will be exactly the same as for lenders operating in the first charge arena. Such lenders will also have to adopt the Mortgage Conduct of Business rules, which are very different from the regulatory regime they will have been used to.

Since the introduction of mortgage regulation in 2004, existing first charge lenders have had to adapt many of their practices. Further significant changes were needed when the Mortgage Market Review (MMR) was implemented last year. This should mean that for first charge lenders who also offer second charge loans, any additional changes needed in preparation for the introduction of the MCD should be minimal.

For existing second charge lenders it could be a different story. The introduction of loan to income caps, affordability models and stress testing for future interest rate rises may well be unfamiliar territory to them. In addition, during the course of authorisation, many operational procedures will need to be reviewed and possibly completely overhauled. As examples, it is likely that investment in staff training will be needed as well as review and update of suites of documentation to comply with new reporting obligations.

Most of this work will have to be completed in a “business as usual” situation, creating significant resource challenges. Bringing in external expertise to complement the existing skills within lenders makes a lot of sense if deadlines are to be met.

Rockstead has already assisted a number of lenders, particularly with procedures and process reviews in a rapidly changing regulatory environment, so if you are seeking an independent review, or simply want to chat about the challenges ahead, please get in touch.