Regulation of Financial Services (Land Transactions) Bill

My Lords, I thank the Minister for introducing this short but significant Bill. We on these Benches support the Bill. We have long been of the view that it was anomalous for the FSA to be able to regulate mortgage-based equity release schemes, but not home reversion plans. While we are generally suspicious of increased regulation, we are content that it is appropriate for home reversions to be subjected to the same regulatory regime as lifetime mortgages. The lack of regulation of home reversion plans creates an undesirable incentive for providers to sell them. The safe home income plan trade body has mitigated some of the risks of unregulated home income plans, but nobody could seriously argue against the proper regulation of the whole of the equity withdrawal market on a consistent basis. I do, however, have some issues for the Minister to address. The first is timing. We have been waiting a long time for the Government to act in relation to home reversion plans. The issue is not a new one. The Government’s consultation on the regulation of home reversions was eventually published in November 2003, and the Government announced in May 2004 that legislation would be brought forward. But it then took over a year before the Bill we are considering today was introduced into another place. The Bill before us is, of course, not the end of the story, because the Government still need to bring forward secondary legislation under the Financial Services and Markets Act 2000 to define precisely what is to be covered. The Government finished their consultation on that a year ago but, as I understand it, they have not yet issued a draft of the statutory instrument which will actually give effect to the Bill. Even when this Bill is an Act, and the Government have implemented it by way of statutory instrument, the FSA will then have to draft and consult upon the detailed rules. This is a simple Bill. If the Government had been so minded, they could have implemented it by now. The only conclusion that can reasonably be drawn is that the Government are rather half-hearted about the issues. Will the Minister explain two things? First, why has it taken so long for the Government to get to where we are today? Secondly—and more importantly, given where we are—how long will it take for the combination of the Government and the FSA to complete the job? In other words, when will home reversions actually be within the FSA’s regulatory scope on a fully implemented basis? I have already said that we are content for the extension of regulations implicit in this Bill. That does not mean that we have no concerns about the additional regulation, particularly the costs—a subject already raised by the noble Lord, Lord Newby. The Explanatory Notes say that the costs associated with ongoing regulation of home reversions will be £5.4 million, and that there will be one-off costs of £11 million. That is not an insignificant amount, especially in the context of the amount spent by the FSA on mortgage and general insurance regulation in the past financial year, which amounted to £27 million. The costs could be even higher than those set out in the regulatory impact assessment once the FSA has drawn up the detailed rules to implement the regulation. The financial services industry has general concerns about the cost of the FSA and the regulatory burdens that it imposes. The Government rejected in another place an amendment proposed by my honourable friend Mr Mark Field, which would have increased Parliament’s scrutiny of the final regulatory impact. The Minister in another place said that the existing processes to hold the FSA to account were sufficient, but we are far from convinced of that, and we have some sympathy with the view of the Prime Minister about the FSA’s over-regulation. Are the Government content with the FSA’s approach to regulation in general? Will the Treasury take any specific interest in the way that this Bill is implemented in terms of the regulatory burdens imposed? Or will they just ignore the issue once enactment has been got out of the way? We welcome the regulation of the equity release market, first by putting lifetime mortgages under the FSA and now by including home reversions. The regulation of the equity release market was necessary because of problems that occurred in the past. Indeed, even today consumers are vulnerable if they enter into a home reversion scheme before this Bill is enacted and fully implemented. I have already raised concerns about timing. The Minister will be aware of the instances where home income or shared appreciation mortgage products were sold in the 1980s and 1990s to individuals whose circumstances made those products unsuitable and who were not made aware of the risks. I am sure that he will also be aware of the many cases of genuine hardship that have resulted. We are not only talking about the role of financial advisers and mis-selling in this case; we are talking about some major institutions, including building societies, which actively marketed those products. I know that the easy answer is that only the regulatory regime then in existence is relevant to those hard cases, and I can see a great temptation for the Government to hide behind that legalistic approach. I believe that the Government are hiding behind that legalistic approach. I have seen one recent letter in which the Economic Secretary said that the Government,"““hope that all lenders will continue to take as generous and sympathetic an approach to residual debt as possible””." Does the Minister agree that that is a weak response? What have the Government specifically done to put pressure on the lenders who are still failing to give relief to the victims of those earlier schemes? The Minister will know that the power of government goes beyond the power to legislate. They have enormous powers of persuasion or even of coercion. Will the Minister commit the Government to using all their de facto powers to achieve relief for those locked into those early schemes? If he will not do so, will he please explain in detail for the record, and for the benefit of all those who are desperate for the Government to help them, why they take that approach? I have concentrated in this speech on home reversion schemes. The Minister also explained that the Government intend to use the Bill to bring Ijara mortgages within the scope of the FSA’s regulation. I state for the record that on these Benches we welcome that. It makes good common sense that all transactions that are in substance lending should be regulated in the same way. Regulation should not be delineated by artificial legal boundaries. In that light, I note that the Minister said that the Government do not intend to use the Bill to bring flexible tenure products within the scope of the FSA. The rationale, as I understand it, is that those products are provided only by local authorities or registered social landlords at present. I have two questions for the Minister arising from that. First, what remedies are available in respect of local authority or registered social landlord flexible tenure schemes at present? Are those remedies at least as strong as those available for borrowing regulated by the FSA? I have in mind in particular the role of the financial services ombudsman and the financial services compensation scheme. Is there anything equivalent for flexible tenure arrangements at present, and if not why not? My second question relates to the issue of timing, which is similar to the question I raised earlier. It has taken a long time to get to where we have on equity withdrawal regulation. What procedures will the Government put in place to ensure that they can act swiftly if any other financial schemes related to people’s homes need to be brought explicitly within the regulatory net? For example, if some form of flexible tenure scheme were devised and sold by a commercial company, would the Government act immediately to bring them within the FSA, or would they wait for more financial loss and more human misery to accumulate before acting? I look forward to the Minister’s reply to the questions I have put to him and also to the remaining stages of this Bill.