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Mr. Jack: I want briefly to thank my hon. Friend the Member for South-West Hertfordshire for raising some of the points that I raised through questions. I would like to pursue the overseas element with the Minister. I am sorry if I did not understand what he said, but there is a strange piece of wording in paragraph 11, which is headed
“Exclusion of certain other arrangements consisting of an introduction to an authorised person etc.”
Proposed new sub-paragraph 1C(a)(iii)refers to
“an overseas person who carries on activities specified by any of articles 25E, 53D and 63J(1)”.
For the avoidance of doubt, will the Minister tell me what is excluded? I am anxious that people under duress might seek any port in a storm. If people in places outwith the FSA’s regulatory remit are offering such products and they are accessible online, as many financial products are, others might, sadly, fall foul of some of the things that this sensible regulatory regime seeks to deal with, simply because they are desperate. Finding it difficult to deal in the regulated area, they might find comfort somewhere else. For the avoidance of doubt, I would like that point to be cleared up.
Another interesting point made in the explanatory memorandum involves advice. I am looking at the range of values of the properties that have been subject to such arrangements to date and the reason why we need a regulatory regime. Not everybody is sophisticated in the ways that financial products operate. There is a little debate about what might happen if some claims were reduced on advice. People might be better advised by the clearer information and particulars required under the order, but on the other hand, others might still need help, particularly in understanding whether the deal offered is fair.
I should be grateful if the Minister would clarify another point. Notwithstanding the need for a proper cooling-off period—14 days is normally allowed for standard financial products, such as insurance, during which the purchase can be rescinded—we are dealing with a complicated product, and somebody might seek the advice of a valuer and ask, “Have they made me a fair offer?” To ask a practical question, can work like that be done within the normal cooling-off period? If a cooling-off period does not exist, it ought to, and perhaps it ought to be lengthened sufficiently to enable people to get the proper degree of advice.
There is another question that I could not answer during my brief reading of the explanatory notes. What happens if, after having agreed something, somebody discovers that they have not been treated fairly? Will the new regulatory regime provide any route to redress?
9.25 am
Ian Pearson: With the leave of the Committee, I will try to respond to all the issues raised. First, let me address the question of why we are having an interim regime. We believe it is important to introduce a level of consumer protection as quickly as possible, given that a number of stakeholders have clearly demonstrated to us that there has been abuse of the sale and rent-back market. It would not be possible to put a full regime in quickly, as there is a requirement to consult. We believe the consultation done on the interim regime is sufficient and we think it important that consumers get protection as early as possible.
The hon. Member for South-West Hertfordshire asked a number of questions. Let me try to cover them roughly in the order he raised them. He asked about the size of the market and what the market will look like in future. The best estimate of the number of firms or organisations in the market at the moment probably is the 1,000 that is quoted in the FSA’s figures. We do not know enough about this market. It has not been regulated. There is not the strong evidence base there. As for the future market, it is important to recognise that there probably are pressures in both directions at the moment. There are more households in distress, which might potentially lead to further applications for sale and rent-back agreements. However, the effect of lower house prices makes sale and rent-back less attractive to consumers. Clearly, not all those who apply for interim permission will meet the standards required by FSA regulations. There are a lot of very small providers at the moment. If these firms do not meet the conditions, they would not be able to enter into new sale and rent-back agreements. We believe it is important to have a properly regulated market with participants who are fit and proper. We think there are benefits overall in having a properly regulated market that provides a level of consumer protection.
Mr. Gauke: I note the Minister’s points about its being difficult to assess how many firms there are. A question I should perhaps have asked earlier is, what steps are the Government and the FSA taking to notify some of these smaller firms? They might possibly not be aware of this extension of regulation and therefore may not be applying to the FSA and so not aware that they will be breaching this order.
Ian Pearson: Certainly, the FSA will want to communicate that regulation is being introduced from 1 July with an interim regime. My understanding is that there will be a three-month time window for applications under the interim regime. It is true that the short term may see some firms leaving the market because they will not apply for permission, or they do not think that they will qualify, or they do not want to pay the compliance costs involved. In the longer term, however, we think there is likely to be a more competitive market, as firms benefit from the fact that the market has a better reputation.
The hon. Gentleman also asked about the benefits and what we planned to do. I have to give the standard response that all legislation is kept under review and we would generally want to review the effectiveness of legislation within three years. The hon. Gentleman also asked why the FSA was taking responsibility for this regulation. We believe the FSA is the most appropriate body because it has a similar role in relation to regulated mortgage contracts, home reversion plans and home purchase plans. It already regulates other forms of home finance and therefore we believe it is the most appropriate body.
In terms of the costs to the FSA—another question that the hon. Gentleman raised—I can confirm that the net cost is £10,000. That is net after taking into account the fees that will be charged. With regard to staffing, that is essentially a matter for the FSA. They have brought in extra staff to deal with the authorisations process and will bring in further supervisory staff as necessary, funded by levies.
The hon. Gentleman also asked a question about the appointed representatives. Taking into account discussions during the consultation, we consider that an appointed representative regime is not appropriate for the sale and rent-back market at present. Firms will need time to develop the necessary systems to monitor activities of appointed representatives. The priority for firms in the short term will be to comply with the FSA’s new regime.
The hon. Gentleman also raised the issue of pricing and whether there would be guidance on what is a fair price. Again, it would be up to the FSA to consult if desired. In particular, he mentioned 85 per cent. of the market value of the house. I do not think that is something the FSA would necessarily want to apply dogmatically. Under the regime, there will be a responsibility for those who are regulated to treat their customers fairly, as “Treating Customers Fairly” rules apply across all bodies regulated by the FSA. That provides an important level of consumer protection and will come in with the interim regime.
Dr. Pugh: I would like to pick up on the point made briefly about somebody out there who is completely unaware that the statutory instrument is going through and just carries on in a raw financial market. Is the effect of this statutory instrument that if a conveyance takes place—disregarding these regulations, either interim or otherwise—it will then lack legal force? If so, there would be an obligation on landlords and their lawyers to get the paperwork right.
Ian Pearson: I am sure there is always an obligation for people involved in transactions to get their paperwork right. We are trying to regulate a market where we have seen some clear examples of consumer detriment. Individuals have lost out. From consumer organisations such as Which? we have had confirmation that they see problems continuing at the moment.
Dr. Pugh: My point was that at the end of the day, the sale arrangement is a conveyance. It takes place, is a legal process and so on. The sale can take place, disregarding entirely the statutory instrument and all the regulations that have to be abided by. In those circumstances, I am pondering whether it remains a valid conveyance. That in itself would force the landlords to obey the statutory instrument in great detail.
Ian Pearson: As the hon. Gentleman will be aware, there are two transactions involved. One is the conveyance of the property and the other is the rental, or as it is sometimes called, the lease agreement. Is he suggesting that if this is not regarded as a fair transaction then the conveyance would not be regarded as being properly conducted?
Dr. Pugh indicated assent.
Ian Pearson: My understanding is that this is exactly what we wanted to regulate in the first place, to make sure that those who are purchasing the property are treating their customers fairly and are abiding by the regulation from the Financial Services Authority.
Mr. Jack: For the avoidance of doubt, the question raised by the hon. Member for Southport is an interesting one. I think what he was driving at was this: if people do not follow the rules, does that invalidate the conveyance? Is that the ultimate protection that a person involved in an unfair transaction has?
Ian Pearson: There will certainly be means of redress through the Financial Ombudsman Service. That is being introduced into the interim regime and will be part of the full regime as well, giving powers to the consumer in those circumstances.
I shall also now reply to the right hon. Gentleman’s questions. Other hon. Members have also raised the issue of a cooling-off period. My understanding is that that would be likely to be addressed by the Financial Services Authority in its rules. It clearly is not part of this statutory instrument, but I will ensure that the point is covered. The right hon. Gentleman also asked a detailed question about overseas persons. The advice that I have been given on that, as I have indicated to him previously, is that regulated activities taking place in the UK are covered. The exemption for overseas persons applies when the provider and agreements are overseas. An overseas firm doing a sale and rent-back here will be covered by the regulation, but if the transaction takes place overseas it will not be covered. I do not believe that that provides a significant loophole.
The right hon. Gentleman also talked about online transactions. I have no strong evidence that there are significant numbers of online transactions that relate to this particular product. Selling one’s home and then wishing to rent it back is not the sort of transaction that one does with just a click of the mouse over the internet. Therefore, I do not believe that online selling is a significant problem here. As I have suggested previously, we do not have the full information about the scale of the market at the moment.
I think that I have answered the questions that hon. Members have raised. If there are other questions, I am always happy to receive representations. We believe that the statutory instrument provides important consumer protection and should be passed. It will help individuals who have in the past suffered clear detriment as a result of a market that should have been regulated but has grown rapidly. The market needs to be regulated and that is why we are taking the actions that we are today.
Question put and agreed to.
That the Committee has considered the Financial Services and Markets Act 2000 (Regulated Activities)(Amendment) Order 2009 (S.I. 2009, No. 1342).
9.38 am
Committee rose.
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