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Lord Borrie: My Lords, the noble Baroness, Lady Oppenheim-Barnes, will be glad to know that I wish to repeat something I said at Second Reading; namely, that the provisions for regulation should apply to those who give advice. At that time I disclosed that I was a non-executive director of the Woolwich plc, which is a provider of financial services. At the annual general meeting I ceased to be a non-executive director. However, I have the same view today as at Second Reading. The remarks of the noble Lord, Lord Jenkin, chimed with my point of view. Providers of mortgages are keen, as is the Woolwich plc, that brokers should be subject to regulation in the way that providers of financial services are.

Brokers may be or can be--it varies from case to case--exceedingly important in the choice of and decisions on investment made by the customer. As others have said, a mortgage is often the most important investment that a consumer may make in the course of his or her lifetime. I should like the Government to convince me that somehow or other such advisers should not be subject to regulation.

Lord Lipsey: My Lords, I should not like it to be thought that the controversy is between those in favour of and those against the regulation of mortgages. In answer to the point raised by the noble Lord, Lord Boardman, the Bill allows full regulation of mortgage products to be brought in by order.

The question is a practical one. Can the FSA so early in its life, with such a huge workload to digest, take on the task of regulating the vast number of mortgage brokers? I think that I have seen the figure of 20,000. Is that a sensible priority at stage one? Whatever position noble Lords take, they should not think that it is the end of the matter. It would be better to make provision at the right time--it may be later--and to get it right.

Lord McIntosh of Haringey: My Lords, we debated these matters in Committee. As I said in Committee, the Treasury consulted last year on whether mortgage advice should be regulated. The Treasury consultation document on mortgages, Regulation of Mortgages--a discussion document by HM Treasury, was published on 20th July, 1999; and the feedback document, Evidence of consumer damage reported during Treasury Mortgage Consultation, was published in January of this year. Both documents are published on the Treasury website.

The Treasury received little evidence of consumers receiving bad or biased advice and when that was mentioned it was in the context of selling commission-based products such as endowment policies, which are already regulated under the Bill. Indeed, they have

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been regulated as "investment activity" since the Financial Services Act 1986. The Bill provides that that will continue. Therefore, the problem that has arisen is already covered by the regulatory system and as matters stand it will continue to be so. Making advice on mortgages which does not also involve advice on products such as endowment policies a regulated activity will not add to the protections which are already available.

The Government have recently taken steps to remedy one other area in which problems arise. The area was highlighted in consultation as causing particular consumer detriment; namely, the provision of poor quality or misleading information which has resulted in consumers buying an inappropriate mortgage product or being subject to hidden charges.

One interesting feature of the consultation exercise was that about half the replies the Treasury received came from borrowers who had simply not appreciated what their mortgage loans really entailed. There was clear evidence that people were willing to look after their own interests in taking out and servicing their loans if they could be empowered to do so by the available information about the loan itself.

As a result of the consultation, the Economic Secretary to the Treasury announced on 10th April important new standards which relate to standard variable and fixed rate or capped mortgages, including some discounted and cashback loans. As noble Lords who have been following the legislation in ISAs will remember, the CAT standards refer to charges, access and terms. They will help to make mortgages more straightforward, clear, fair and easy to understand. CAT standards set minimum standards, most importantly in relation to the advertising of mortgage products. That is a crucial improvement in terms of product transparency, ensuring that the consumer has access to all the information required to make an informed decision as to which mortgage product to apply for.

These measures add to those already announced to benefit borrowers, such as the proposal in the Bill that the Financial Services Authority should have a regulatory objective aimed at improving public awareness and understanding of financial products. I understand that in line with this proposed objective the FSA is currently developing information tables to assist consumers in their comparison of the different products on the market. Once again, where the issues have emerged action has been taken.

The objective of the Bill is to provide a sensible regulatory framework which focuses on areas where regulation is required. Blanket regulation of mortgage advice may look attractive, but is it sensible or proportionate? As I said, action has already been taken in those areas where problems are thought to arise. In addition--and I note that my noble friend Lady Turner is not here--if the amendment is successful, the implementation of the new regime could be substantially delayed, which I do not believe is the intention.

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Lord Jenkin of Roding: My Lords, I am afraid that I missed the Economic Secretary's announcement, which is probably my fault. The Minister said that endowment mortgages were covered by regulation because they involved life insurance. Often, the biggest single issue facing a mortgagor is whether there should be an interest-only mortgage or an endowment mortgage. Perhaps the Minister could clarify whether the announcement made on 10th April ensures that those who are advising on that critical question will be subject to the regulation of the authority.

4 p.m.

Lord McIntosh of Haringey: My Lords, the announcement which the Economic Secretary made related to the introduction of the charges, access and terms regime (CAT) to mortgage products where they had not previously existed. Noble Lords who have been familiar with individual savings accounts since they were announced some two years ago will recall that the CAT standards have ensured that there is available a range of ISAs which have a kite mark in terms of the charges made on the amount paid in, ensuring adequate access and comprehensible and fair terms. That will be introduced in relation to mortgages.

If that is put alongside the now acknowledged fact that any endowment policy is investment and is regulated as such, it is clear that the two difficulties which have been identified in consultation are dealt with by the Government's proposals.

I turn to the effect of the amendment. Our previous amendments and those that we are to introduce limit the scope of the Financial Services and Markets Bill. This amendment would extend the scope of the Bill and enormously extend the responsibilities of the Financial Services Authority. It would mean--and my noble friend Lord Lipsey gave an underestimate--that the FSA would have to authorise 20,000 broker firms and 40,000 individual brokers. The FSA estimates that if the amendment were passed and the proposal carried through, it would require an additional 200 staff.

We have seen much in the press about the huge power that is being given to the FSA and the huge risks which go with that power. I do not accept what has been said in the press, but in the amendment the Conservative Party proposes an enormous extension to the power and responsibilities of the FSA.

Lord Elton: My Lords, I had brief experience as a regulator when the Financial Services Act 1986 was brought into force and I was called upon to deal with the regulation of independent financial advisers. The numbers the Minister gives do not surprise me, but they strengthen my view that on the penumbra of the large number of reputable advisers there is an enormous penumbra of highly unreputable ones. That is what we found in independent financial advisers, whose employment is similar to that which we are now discussing. The bigger the numbers become, the more the matter should be brought into regulation.

Lord McIntosh of Haringey: My Lords, the noble Lord is forgetting two things. First, we have already

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agreed that mortgage products will be regulated by the Financial Services Authority. Mortgage products must be introduced by large-scale institutions.

Lord Elton: My Lords--

Lord McIntosh or Haringey: My Lords, we are at the Report stage.

Lord Elton: My Lords, the Minister is under a misapprehension. The financial advisers to whom I am referring did not produce a product. They took a commission on advising other people to get it. That is exactly where we are here.

Lord McIntosh of Haringey: My Lords, that is exactly my point. The mortgage brokers and the individual brokers to whom I am referring have no option but to sell products which are themselves regulated under the Bill. That is the difference and the extent of their powers.

Lord Boardman: My Lords, the noble Lord gave the number of additional staff who would be required if the amendment were accepted. Could he estimate the annual number of mortgagors who would be unprotected if the amendment were rejected?


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