Recent reforms to protect financial services consumers in the UK Damon Gibbons

Regulatory architecture Prior to crisis – Bank of England (monetary policy) – Financial Services Authority (deposit taking institutions, insurance, mortgage lending) – Office of Fair Trading (consumer credit) Now – Bank of England (financial stability requirement) Prudential Regulatory Authority (capital & liquidity requirements) – Financial Conduct Authority (conduct for all financial services both mortgages and from April 2014 for consumer credit) Also: – Competition and Markets Authority – Financial Ombudsman Service – Requirement for Money Advice Service (financial capability) to co-ordinate provision of debt advice (levy on the industry)

Financial Conduct Authority Objectives – Appropriate degree of protection for consumers – Protect and enhance the integrity of the UK financial system – Promote effective competition ‘in the interests of consumers’ Permissions to trade – Greater scrutiny of lender business models – Powers to suspend and remove permissions Product intervention powers – Including ‘temporary’ product interventions without consultation where risk of consumer detriment

Financial penalties and orders to provide redress (as FSA, e.g. Payment Protection Insurance) Thematic reviews – interest-only mortgages (but limited action) Rule making powers (e.g. consumer credit) Information gathering powers ‘power’ to cap prices generally ‘duty’ to cap prices for ‘high cost, short term credit’ (HCSTC)

Mortgage market review Affordability of mortgages – Imposition of new rules in April – Verify borrower’s income – Take account of borrower’s committed expenditure and ‘household needs’ – Assess whether affordable if interest rates rise – Interest only mortgages only permissible if a ‘credible’ repayment strategy is in place

Consumer credit Transfer of responsibility from the OFT (April 2014) – Greater flexibility to make rules than OFT – More resources for enforcement – Duty to cap prices for high cost, short term credit (Jan 2015) – Power to cap prices generally New rules on HCSTC – Limit on ‘rollovers’ to 2 – Use of Continuous Payment Authority restricted

Commentary Definition of HCSTC No acknowledgement of wider economic and social policies driving increased credit use – Right to Buy – Help to Buy – ‘Flexible’ labour markets – Cost of living crisis (stagnant wages, rising fuel and food prices) – Reliance on financial services exports – Lack of investment in industry – Etc.....