FCA Issues Strategy for Mortgage Lender Portfolio, Update on Sberbank
The Financial Conduct Authority (FCA) announced that Sberbank CIB (UK) entered special administration following the sanctions imposed by the UK and other countries on its parent, Sberbank. This has led to the firm becoming operationally unable to make payments, despite the firm having sufficient assets to cover its liabilities. FCA also published a letter that outlines the strategy for firms in its Retail Mortgage Lender (RML) portfolio (characterized by firms that take deposits and offer regulated mortgage contracts).
The letter sets out views on the key risks of harm for retail mortgage lenders' mortgage customers over the next two years; expectations about what retail mortgage lenders should consider when mitigating the key risks for these customers; an update on the work related to mortgage prisoners, the environmental, social, and governance (ESG) strategy, and Brexit; and the regulatory strategy of FCA. The following are the key highlights:
- Supporting mortgage customers in financial difficulty—FCA’s Tailored Support Guidance will enable firms to deliver short- and long-term support to customers affected by the pandemic, treat them fairly, and help them get back to a more stable financial position.
- Managing maturing interest-only (IO) mortgages—FCA expects retail mortgage lenders to have robust governance arrangements in place and employ a communication strategy that gives customers enough time to act where there is doubt about their ability to repay their IO mortgage.
- Responsible lending—FCA expects these lenders to conduct affordability assessments and take a prudent and proportionate approach to assessing customers’ income beyond retirement.
- Libor transition—FCA expects firms with LIBOR-linked contracts should continue their transition efforts to provide customers a fair replacement rate.
- Treating customers in vulnerable circumstances fairly—FCA expects these lenders to embed the fair treatment of customers in vulnerable circumstances in their business models, culture, policies, and processes.
- Improving diversity and inclusion—FCA expects such lenders to understand the needs of their customers and be able to respond to them when designing products and services, providing flexible customer service and communicating with them.
- Helping mortgage prisoners—FCA encourages such lenders to consider if they can amend their lending criteria to lend to mortgage prisoners who are close to their risk appetite.
- Environmental, Social and Governance (ESG) strategy—FCA expect them to play their part in helping the economy adapt to a more sustainable long-term future—for example, providing green mortgages.
- Temporary Transitional Powers (TPP)—FCA used TTP to give firms time to adapt to the new regime. With the end of the TTP fast approaching, FCA expect firms to be fully compliant with onshored regulatory obligations by March 31, 2022.
- FCA regulatory strategy—FCA has set out the purpose and approach to supervising firms and individuals.
Firms within the RML portfolio and their boards are asked by FCA to carefully consider the degree to which their business presents the key risks of harm and review their strategies for mitigating them. Firms and their boards should be prepared to demonstrate how they are taking reasonable steps to address the risks and the FCA expects them to promptly remediate newly identified issues.
Keywords: Europe, UK, Banking, Mortgage Lending, RMLS, ESG, Interest-Only Mortgages, LIBOR Transition, Mortgage Prisoners, Temporary Transitional Power, Regulatory Capital, Credit Risk, Lending, Benchmark Reforms, Consumer Credit, FCA
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