Why are equity release and later life mortgages in the FCA spotlight?
The FCA highlights the ongoing risk of poor outcomes for later life mortgage borrowers
The Treasury Select Committee asked the FCA to assess the impact of the UK leaving the EU. On the 29th November the regulator has responded with an impact assessment paper, which focuses on three key area areas:
We bring you a summary of the paper.
If we leave without an agreement
In short, the UK would default to being in a ‘third country’ relationship with the EU, meaning passporting rights would cease to apply, and market access would be determined under World Trade Organisation (WTO) rules. EU legislation would no longer apply and would need to be converted to UK law. Statutory instruments that the Government intends to have in place would also need to be signed and sealed before the UK’s exit.
While firms are putting together contingency plans, the FCA concludes that it would be difficult to mitigate the risks post March 2019. This will likely have a knock-on effect to customers and impact financial services more widely, through reduced competition and increased costs of services.
Measures such as temporary permissions regimes will be put in place with guidance, but fundamentally the longer-term arrangements are in the EU’s hands.
Managing this scenario with little disruption boils down to cooperation, notably in regulators managing shared systems for market oversight and treating each other equivalently, which includes sharing between one another.
In conclusion, some of the cliff-edge risks are dependent on the actions of the EU and if the UK were to leave without a framework in place new risks could emerge at the end of the implementation period.
In light of this, the FCA supports an implementation period, stating:
“We believe there is a strong case for continued close cooperation given the size of the UK’s financial services sector and the importance the UK’s approach to applying EU financial services law has for the rest of the EU.”
Draft Withdrawal Agreement
The assessment covers how the regulator’s objectives would be affected by the draft withdrawal agreement, should it be signed off. Whilst many uncertainties would be managed in this scenario, the FCA is still concerned.
There is a chance that during the implementation period, the UK will provide the EU with insight and expertise to help future EU legislation but hold no guarantee that UK interests will be reflected in the resulting decisions made. UK authorities could end up contributing heavily, but not actually play a part in the decision making.
There are some regulations that need to be agreed upon in time for the UK’s exit from the EU. We have some knowledge of what it’s going to look like but there’s still a chance that further requirements will be pushed in the direction of the UK.
While EU regulations would still apply the UK, an introduction of further rules for financial services firms is unlikely due to the amount of time it takes to propose, then pass legislation.
Outlining the political framework
As we already know, EU rules still apply during the implementation period, with the assumption that a deal sits ready and waiting at the other end. Alongside the draft withdrawal agreement, the UK and European Commission have published a declaration that sets out the terms of a future relationship.
This includes commitments to preserve financial stability, market integrity, investor protection and fair competition. It also covers a plan to assess equivalence by June 2020 and create overall cooperation that’s grounded in an economic partnership.
Andrew Bailey’s letter
The principles of a regulatory framework were set out by Andrew Bailey, in a letter to the Treasury Select Committee, hoping to prompt discussions within the sector.
In short, these principles are: