Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2009

This order extends the scope of the Financial Services Authority regulation to include the sale and rent-back market. Regulation will bring important protection for consumers in this market, preventing exploitation of vulnerable homeowners and providing a means of redress for those who experience problems. Full regulation of this market will commence in June 2010, but this order introduced real protections for homeowners now by introducing an interim regulatory regime on 1 July this year. The sale and rent-back market, sometimes referred to as the sale and lease-back market, offers homeowners the option of selling their properties at discounted rates in exchange for tenancy agreements. Sale and rent-back agreements effectively combine two transactions: first, individual homeowners sell their property at a discount and, secondly, they are offered an agreement to remain in the home as a tenant. A range of stakeholders, including consumer groups and mortgage industry representatives, have raised concerns about the sale and rent-back market. The main concerns are, first, that these arrangements are often taken up by vulnerable homeowners facing repossession; secondly, that these homeowners may be entering sale and rent-back agreements mistakenly believing that these agreements offer secure tenure in the medium to long term; and, thirdly, that with increasing numbers of homeowners experiencing financial difficulty as a result of the global financial downturn, the scale of the problem is likely to increase. I will come to the specifics of the order shortly, but it may be useful, given the context that those entering into sale and rent-back agreements are often homeowners facing repossession, if I first take a moment to set out the framework of support that the Government have put in place for homeowners during these difficult times. Statutory regulation of mortgages and credit provides homeowners with important protection and appropriate means of redress. In 2004 the Government extended the scope of FSA regulation to cover first-charge residential mortgages. The FSA’s regime requires lenders to treat their customers fairly and to treat repossession as a last resort. Regulation of other credit business is covered by consumer credit legislation administered by the Office of Fair Trading. The regime has been strengthened by the recent implementation of the Consumer Credit Act 2006. Regulation of mortgages and credit is supported by the new mortgage pre-action protocol introduced in November last year. This set out clear guidance on what action the courts expect lenders to take before bringing a claim to the courts to help ensure that lenders have tried to discuss and agree alternative courses of action with the borrower. The Government launched the homeowner mortgage support scheme on 21 April. This new scheme, together with changes to support for mortgage interest and the Government’s mortgage rescue scheme announced in the 2009 Budget, will help homeowners who experience a temporary income shock or lose employment, or are otherwise vulnerable, to remain in their homes. The Government have also taken action to help ensure that every household struggling with debts has access to free and impartial debt advice. Against this backdrop of support for homeowners, the Government are proposing specific protections for those who may be considering a sale and rent-back agreement, which is the basis of this order. The action follows consideration of the sale and rent-back market by the Office of Fair Trading. In response to stakeholder concerns, in the Budget 2008 the Government asked the OFT to investigate the market and consider appropriate options to strengthen consumer protection. On 14 May last year the OFT announced that it would conduct a formal market study, working to a tight timetable in the light of concerns about this market. The OFT published its report on 15 October. Its market study found that the potential for severe consumer detriment in connection with sale and rent-back agreements is unlikely to be addressed through the existing framework of consumer protection, other Government initiatives to help homeowners in difficulty under way at the time of reporting, or by industry self-regulation of the sale and rent-back market. The report recommended that the sale and rent-back market should be regulated by the FSA. At the 2008 Pre-Budget Report, the Government confirmed their intention to consult on this, including extending the scope of FSA regulation. We published the consultation on 6 February. It sought views on three options: maintaining the existing framework, self regulation and FSA regulation. The consultation also invited views on the proposal for the FSA to put in place its regulatory regime via a two-stage approach. This would involve an interim regulatory regime which would take effect as soon as the statutory changes came into force and a full regulatory regime at a later date, following a full consultation and cost-benefit analysis by the FSA. Alongside the consultation, the FSA published a consultation on an interim regulatory regime so that it would be ready to introduce consumer protection swiftly, if asked. Both consultations closed on 1 May, and the Government published a summary of responses to their consultation on the second of this month. Alongside this, the Government laid before Parliament the order that we are looking at today. Following consultation, the Government consider that extending the scope of FSA regulation to include sale and rent-back agreements is the most appropriate way of ensuring consumer protections in the sale and rent-back market. We consider that a two-stage approach to introducing regulation, including the use of an interim regime, represents an appropriate and proportionate way of balancing quick action to protect consumers with the rights of firms already conducting business in the market. The order we are debating introduces regulation of sale and rent-back agreements by this two-stage process. Interim regulation will commence on 1 July this year. At the end of the summer, the FSA will consult on rules for its full regime, which will come into force in June next year. Under the interim regime, firms will need to meet FSA threshold conditions, including the requirement to have adequate resources and to be run by fit and proper people. Firms will also have to comply with the principles for businesses and meet a number of systems and controls and conduct of business rules. That is the second stage of the process. The first stage is for almost immediate implementation, provided that the Committee considers the order to be acceptable. I beg to move.