"One or two things are going to go wrong here and not everybody is going to play completely by the rule book, and is there acceptance of that?"
- Nikhil Rathi, chief executive of the FCA
The FCA’s chief executive, Nikhil Rathi, has urged politicians to define acceptable consumer harm, warning that easing mortgage rules could increase defaults and fraud.
Last week, the FCA responded to government calls for regulators to support growth in the mortgage market, outlining a series of regulatory changes it plans to introduce in 2025.
In a letter to the Prime Minister, Chancellor, and Secretary of State, FCA chief Rathi said the regulator is "already working to remove unnecessary regulation and reduce how much data some firms must provide".
This year, the FCA also plans to streamline its handbook, reduce reporting burdens for firms, and make the Senior Managers and Certification Regime more flexible.
Rathi revealed that the FCA will "go further", beginning to simplify responsible lending and advice rules for mortgages, "supporting home ownership and opening a discussion on the balance between access to lending and levels of defaults".
The FCA will also consult on removing maturing interest-only mortgage and other outdated guidance, and work with the government to remove overlapping standards, e.g. the Mortgage Charter.
However, speaking at the House of Lords financial regulation committee today, Rathi warned: “One or two things are going to go wrong here and not everybody is going to play completely by the rule book, and is there acceptance of that?
"Last year, the Mortgage Charter was introduced because there was a political consensus around not having defaults and repossessions, and we were asked to do everything we possibly could... to keep people in their homes and stop them defaulting. That's not going to be compatible with relaxing lending standards."
Discussing what is an "acceptable range of failures" relating to defaults and repossessions, Rathi asked the committee: "If the numbers went up from 1,000 to 2,000, if we relax lending standards, would that be an acceptable outcome here in Parliament, or would you say to us 'Why on earth have you let it go up by 100%?'
"As I say, when the Mortgage Charter came in last year, pretty much every major party said 'Keep repossessions down'."
He added that relaxing the rules could lead to a rise in fraud, stating that “there could be more money mules that get through the system”.
However, Rathi noted "the benefit of that, the other side, is you potentially could allow a lot more first-time buyers into the market who are paying very high rents right now".
"So there are positive benefits for the economy", he said, "but ultimately, that risk calculus is something we do need a bit of political guidance on, a political discussion on, and it needs to stick over time".
Mark Turner, managing director and lead, regulatory consulting at Kroll, commented: “Rathi’s question to Government today is a clear indication of the difficult situation that the FCA finds itself in. With the Government pushing for deregulation to fuel growth, the regulator is increasingly ‘damned if they do, damned if they don’t.’
"Failure to meet the Government’s push for growth will end with the FCA labelled as a stumbling block to economic recovery, however, if deregulation results in consumer harm through increased fraud, the FCA will be equally in the spotlight. It’s understandable and indeed helpful for Rathi to ask the Government for some guidance here, and I would say in the best interests of both businesses and consumers that such matters are discussed openly and transparently.”
