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FSA updates consumer protection

Amanda Jarvis

April 27, 2006

HRs are a type of equity release product, involving sale and lease arrangements. The FSA already regulates the other main type of equity release product, Lifetime Mortgages. Equity release products are generally aimed at older homeowners and are designed to enable them to benefit from the value of their homes without having to move out of them.

HPPs, also involving sale and lease arrangements, are one of the two methods of financing home purchase that are acceptable under Islamic law. The other is the Murabaha, which is already regulated under the FSA’s mortgage regime.

Dan Waters, FSA director of retail policy, said: “Regulation of these sale and lease arrangements represents an important new development for the FSA and for consumers in the UK. It allows us to deliver a level consumer protection playing field with products designed for similar purposes. It also builds on the work that we have already done in the field of Islamic financial services, to improve consumer access to these products.

We shall also be working to promote wider public understanding of both of these products as part of our consumer education objective.”

The FSA’s proposals are designed to ensure that people who wish to take out HRs and HPPs enjoy appropriate consumer protection comparable to that already in place for the equivalent products – Lifetime Mortgages and conventional mortgages.

The FSA’s proposals seek to ensure that:

* firms offering these products are fit and proper and appropriately resourced with staff competent to undertake this business;

* consumers get clear, concise and consistent information about a firm’s services and products on offer (including appropriate risk warnings) so they can make informed choices;

* consumers get good quality advice and are sold suitable products which take account of their circumstances and needs; and

* if things go wrong, consumers are able to obtain redress, if appropriate.

In developing its proposals, the FSA has taken account of the current relatively small size of the HR and HPP markets and has taken the existing mortgage regime as a starting point. In common with Lifetime Mortgages, the FSA views HRs as higher risk products than conventional mortgages and has tailored our proposals accordingly. However, it sees HPPs as presenting similar risks as conventional mortgages. Where relevant, the FSA proposes to apply the existing rules for mortgages or lifetime mortgages, as appropriate, but where the distinctive nature of the products gives rise to different risks, it is introducing tailored requirements. Wherever possible, these new provisions are pitched at a high level and are principles-based.

This new regulation builds on the FSA’s financial inclusion agenda, extending protection to older consumers and to consumers interested in financing a home purchase in a way acceptable under Islamic law.


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