Our response to the FSA’s consultation paper A Specialist Sourcebook for Building Societies: Enhanced Supervisory Guidance on Financial and Credit Risk Management argues that its proposals must be seen in the context of both the wider review by the FSA of the entire UK mortgage market – already under way – and the consultation on lending and borrowing being undertaken at the same time by the European Commission.
In the light of these two wider reviews, we question the logic and timing of separate proposals for building societies. We do not believe there is a compelling reason for introducing changes in advance of, and in isolation from, those wider regulatory initiatives.
The FSA claims its sourcebook proposals are driven by the need to promote financial stability. But we believe that it is potentially destabilising to seek to accelerate – for the mutual sector, but not for other lenders – a process of review and reform that is already under way.
In setting out prescribed lending classifications for building societies, the paper effectively proposes to shoehorn firms into categories, creating new regulatory hurdles and tensions, particularly for those firms that do not neatly fit into one particular classification.
The proposed classifications could create barriers to buy-to-let and shared ownership lending by societies. There are also implications for the use of automated valuation models by building societies and compulsory mortgage indemnity guarantees for some types of lending. We believe it is more appropriate to consider all of these issues as part of the wider mortgage market review.
The proposed consultation appears to contradict the FSA’s stated preference for its ongoing mortgage market review to look at the whole market, identify what has worked well for consumers and what has not, and explore all the options for putting things right. We believe that that is the correct approach.
