HISTORIC PRESS RELEASE : Better protection for mortgage borrowers – Helen Liddell announces further regulatory reform measures [April 1998]

The press release issued by HM Treasury on 7 April 1998.

Measures to ensure customers receive adequate protection when they take out a mortgage were announced today by the Economic Secretary, Helen Liddell.

The Treasury will have the power to extend the Financial Services Authority’s (FSA) regulatory responsibilities to include mortgages as part of the proposed regulatory reform bill. It could, if necessary, be used if the Code fails to give sufficient protection. The Council for Mortgage Lenders (CML) voluntary Code will be kept under regular review to ensure it is providing adequate protection for customers.

The Code will be reviewed against a number of factors,including:

the extent to which the Code secures good quality advice for prospective borrowers; how well the Code provides remedies for borrowers’ legitimate grievances.

There will be a formal review in 1999 and,depending on the outcome, an interim one in 2000 and further formal reviews every two years after that. The review will also include regular reports from the CML, independent intelligence and, an on-going consultation process with CML about how the Code is working.

Announcing the measure, Helen Liddell said:

“Taking out a mortgage is probably the most significant transaction most ordinary people undertake in their lifetime. I want to ensure that they receive the protection they are entitled to expect.

“I am aware that the CML and its members are making a serious investment in the success of the Mortgage Code and we will allow the Code a fair trial. However, if the Code fails to provide adequate protection for consumers we will not hesitate to use the reserve power in the regulatory reform bill and give the Financial Services Authority statutory power to regulate mortgages.”

The Minister also announced that it would be possible for the Treasury to extend the scope of regulation to retail banking and non-life insurance (this includes a wide range of products from motor insurance to health insurance). These areas, too, will be kept under review. However, regulation would not be extended without consultation, including an appraisal of the costs and benefits.

Mrs Liddell said:

“We have no plans at present to extend the scope of regulation into these areas but standards of conduct in these markets and the risks faced by consumers will be kept under review.

“As we are now in the process of setting up a regulatory framework which will see us well into the next century, we want to ensure that we have relevant powers available to us if action is required.”

The Minister also took the opportunity of welcoming the FSA’s consultation document on the design of their handbook. She said:

“The FSA’s main aim is to ensure that their handbook is accessible and easy to use by managers and advisors in the financial services industry. Self discipline is the key to good regulation. This consultation gives the industry the opportunity to shape the way regulation will work in future. It is in the industry’s hands to get involved in the process.”

Mrs Liddell announced that the proposed legislation would give the FSA a flexible rule-making power to impose requirements anywhere along the spectrum from broad principles to detailed rules. These must be consistent with the imperative for different approaches to wholesale and retail business.

The Minister said:

“Of course we have to distinguish between the retail and wholesale ends of the markets. At the retail end, where businesses have better information, customers must have proper protection. But at the wholesale end we must ensure the regulatory regime is light and flexible enough to give the industry the opportunity to develop and innovate and compete in global markets.”

A consultation document on the future of the Insurance Brokers Registration Council (IBRC) was also issued today. The Government is reviewing the system of registration and professional governance of insurance brokers, and wishes to consult with the industry and others concerned whether it would be advisable to remove its present statutory basis. Such a change would involve repealing the Insurance Brokers

(Registration) Act 1977 as part of the regulatory reform bill. Insurance intermediaries who arrange life insurance business, whether described as ‘insurance brokers’ or by any other title, will be subject to authorisation by the FSA.

Mrs Liddell said:

“We have not yet adopted a final view on the way ahead and welcome views of brokers, insurers and consumer representatives.

“We will continue to look to this sector to provide competitive and high quality services for clients.We are also looking wider, to the insurance industry as a whole, to work with its customers in maintaining confidence in the ways non-life insurance is distributed.”