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Treasury

Answer

Mr. Caplin: To ask the Chancellor of the Exchequer if he will make a statement on the future scope of regulation by the Financial Services Authority. [38430] Mrs. Liddell: As has already been announced, we propose to publish for consultation this Summer draft legislation to reform the structure of financial services regulation. This will bring together regulation of investment business, deposit-taking and insurance business under a single regulator, the Financial Services Authority. The legislation presents an opportunity to ensure that the Financial Services Authority has the powers it needs to regulate effectively, and to provide for the scope of statutory regulation to be extended to new activities in the event that self-regulatory mechanisms fail to deliver the standards that the Government and consumers expect. The Government have been considering how best we can carry forward the Government's manifesto commitment for fair dealing in mortgages, the most significant transaction many people undertake. I have decided that the proposed legislation to establish the Financial Services Authority as a single regulator will include powers for the Treasury to extend the scope of activities regulated by the Financial Services Authority. The activities that could if necessary be regulated will include mortgage business. The case for regulating mortgage business will be regularly reviewed by Ministers. The first review will take place before the Bill comes into force. In the meantime the Treasury will monitor the Code introduced by the Council of Mortgage Lenders (CML) in July 1997 to see whether it can deliver the Government's objectives without statutory intervention. The Council of Mortgage Lenders is currently bringing intermediaries within the Code's scope, and introducing appeals arrangements. It is too soon to decide whether the Code, on its own, is capable of protecting mortgage borrowers to the standard that the Government are determined to see achieved. Whether statutory mortgage regulation is introduced will depend upon a number of factors, including the extent to which the Code secures good quality advice for prospective borrowers and provides remedies for borrowers' legitimate grievances. The Treasury will ask the Council of Mortgage Lenders to report on the impact of the Code, and provide statistical background. The Treasury will also look to the Department of Trade and Industry and the Office of Fair Trading to monitor the impact of recent changes in the guidelines for non-status market lenders and brokers, and the upper limit to which these consumer credit agreements apply from £15,000 to £25,000. In addition, the Treasury will look to the Financial Services Authority for an assessment of the likely costs of activating the reserve power, to assess whether they would be commensurate with any potential benefits. Others with knowledge of the mortgage market would also be consulted before any decision is made. The draft Bill will also make it possible to extend statutory regulation to include the conduct of retail banking and non-life insurance business. We have no plans at present to extend the scope of regulation in these areas, but standards of conduct and the risks faced by consumers will be kept under review. Regulation would be extended only after consultation, including an appraisal of the costs and benefits. The Government have also decided to consult on the future of the Insurance Brokers Registration Council. A consultation paper has been published today by the Treasury. Copies have been placed in the Library of the House.

Secondary information

Type

Written question

Reference

310 c151-2W; 38430

Session

1997-98

Subjects

Banks Financial services Financial institutions Insurance Financial Services Authority Mortgages Regulation Council of Mortgage Lenders Insurance Brokers' Registration Council

Contains statistics

Yes