The letter follows changes in the regulation of second charge lending. In the past these loans were deemed secured lending under the consumer credit regime. The implementation of the Mortgage Credit Directive (MCD) on 21 March 2016 saw these loans move to the mortgage regime, also regulated by the FCA. The FCA now wish to understand how firms have adapted to the responsible lending requirements of the Mortgages and Home Finance: Conduct of Business Sourcebook (MCOB) and how they are complying with their system and controls requirements under the Senior management arrangements, Systems and Controls (SYSC) module of the FCA Handbook.
The FCA are concerned about poor practice in the following areas:
- Overall affordability assessment
- Income assessment
- Expenditure assessment
- Oversight arrangements; and
- Financial crime
Firms are expected to conduct a review and provide written confirmation of the review, to the FCA, by 1 May 2018. Where a firm cannot meet this deadline they need to contact the FCA confirming when the review will be complete.
In conducting their reviews firms are asked to consider the findings of the 2016 thematic review TR16/4 Embedding the Mortgage Market Review: Responsible Lending Review. Firms must also be able to evidence their review and their compliance with regulatory requirements.