Proposed changes by the Financial Conduct Authority in lenders’ data reporting requirements “represent a sea change in the scale and nature of what firms are required to do,” according to the Council of Mortgage Lenders’ (CML) response to the FCA.
Lenders already report 31 separate items of data to the FCA on each of up to 250,000 new sales each quarter. The CML believes the FCA proposals represent a “massive increase” on this to 130 items, reported for the entire regulated loan book of around 7 million loans.
The CML response says: “With the reporting burden increased to this degree, we believe it is vital that the FCA sets out clearly how it will use this greatly-increased amount of data effectively, so that firms better understand the justification”.
Given the size and scope of the proposals, the CML is urging the FCA to engage with technical experts from the industry before issuing final reporting rules. The CML says this would enable it to work with the regulator to ensure that the data fulfils the FCA’s objectives effectively, “without imposing a disproportionate burden on firms and ultimately – as costs have to be absorbed – on consumers”.
The CML’s response makes three key points:
- The wording in the consultation paper, together with the level of proposed detail on affordability data, has led many in the industry to believe that the FCA intends to use the information to replicate firms’ underwriting processes on a loan-by-loan basis. The CML believe the data is clearly not suitable for this purpose and doing so would inevitably lead to inconsistent – and often erroneous – judgements on underwriting quality. It asks the FCA to confirm it does not intend to use the data in this way, and at the same time, outline how it will use this level of detailed data effectively. This will reassure lenders that the FCA will only collect data which it will be able to use effectively.
- The FCA’s cost-benefit analysis of its proposals is flawed. Even on the basis of the very partial information firms provided to it, costs look to be significantly greater than FCA estimated in the consultation paper. And these proposals come at a time when the industry is already fully engaged with implementing the mortgage market review, with significant resources diverted to this purpose. So the FCA needs to ensure that what it requires of firms is fully fit for purpose, and that the timelines it requires are deliverable.
- The CML urges the FCA to engage fully with us and with individual firms in a technical forum (which we have offered to facilitate) to iron out the numerous technical questions and to establish clear definitions before issuing its final reporting rules. The CML believes that data reporting raises issues that are far more complex than the FCA had originally considered. In the CML’s view, there is a real need to get this right from the outset, so that FCA and firms have the data that allows effective and consistent regulation.