The FCA has published a Dear CEO letter asking the CEOs of firms that enter into regulated second charge mortgage contracts to review their firm’s mortgage lending processes and confirm to the regulator, by 1 May 2018, that the firm is lending responsibly and that its processes, systems and controls ensure this.

The Dear CEO letter explains that to help the FCA understand how second charge lenders have interpreted and implemented its mortgage regime, the regulator reviewed how they have adapted to the responsible lending requirements contained in chapter 11 and chapter 11A of the Mortgages and Home Finance: Conduct of Business sourcebook and, where relevant, how firms are complying with the Senior Management Arrangements, Systems and Controls module of the FCA Handbook.

During this review the FCA identified significant concerns and found a number of poor practices that led it to conclude that second charge lenders might not always be lending responsibly, leading to potential customer harm. The Dear CEO letter describes failings in the following areas: overall affordability assessment, income assessment, expenditure assessment, oversight arrangements and financial crime.

When undertaking the review requested in the Dear CEO letter firms are asked to consider the findings from the FCA’s thematic review of responsible lending undertaken in 2016, which can be found in Thematic Review 16/4: Embedding the Mortgage Market Review: Responsible Lending Review (our blog is here).

View FCA Dear CEO letter- second charge lenders and responsible lending, 1 March 2018