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FSA/PN108/2006
30 October 2006

The Financial Services Authority (FSA) today publishes final rules for the regulation of Home Reversion plans (HRs) and Islamic law-compliant Home Purchase Plans (HPPs), which will come within its scope next year.

The FSA's rules, which following consultation earlier this year, are designed to ensure that people who wish to take out either of these products (both based on sale and lease arrangements), enjoy consumer protection comparable to that already in place for equivalent products - lifetime mortgages in the case of HRs and conventional mortgages for HPPs.

The new regimes will come into force on 6 April next year following Parliamentary approval of the necessary secondary legislation last week – and the FSA can start to accept authorisation applications for these new ‘home finance’ activities from 6 November this year.

Dan Waters, FSA Director of Retail Policy, said:

"Regulation of these sale and lease arrangements introduces important new protections for consumers in the housing market. It will help older consumers looking to release equity from their homes by extending protection over both sectors of the equity release market. It will also ensure fairer treatment for consumers wanting to buy their homes in way that is compliant with Islamic law, building on the work that we have already done in the field of Islamic financial services to improve consumer access to these products.

"Regulation is only five months away and firms need to make sure that they are fully prepared. We start accepting applications from November 6 and firms are advised to apply early to ensure that they are ready in good time for the start of the new regimes next April."

The key benefits for consumers are:

• firms offering these products must be fit and proper and appropriately resourced with staff competent to undertake this business;
• consumers will 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 will get good quality advice and be sold suitable products which take account of their circumstances and needs; and
• if things go wrong, consumers are able to obtain redress, if appropriate.

The rules published today include the final fees rules for HR and HPP firms, on which the FSA consulted separately in the summer. The final reporting requirements will be published next month.

Notes for editors

1. The FSA consulted on its regulatory proposals earlier this year in CP06/8 'Regulation of Home Reversion and Home Purchase Plans'. PS06/12 'Regulation of Home Reversion and Home Purchase Plans' published today contains feedback on this consultation and the final rules. Both these documents are available on the FSA website.
2. 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. With an HR, the homeowner releases the value of their property by giving the HR provider all or a share of their interest in their home.
3. 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 as it falls within the definition of a regulated mortgage contract.
4. The Financial Services and Markets Act 2000 (FSMA) was amended in December last year to enable these sale and lease products involving land transactions to be regulated. The Treasury then consulted earlier this year on the necessary changes to the Regulated Activities Order (RAO) and other relevant secondary legislation to bring HRs and HPPs into the FSA's regulatory scope. The Treasury published its feedback statement on 13 September and the amendments to the secondary legislation received Parliamentary approval on 24 October 2006.
5. The activities relating to HRs and HPPs that the FSA will regulate are set out in the Treasury’s feedback Statement. Firms wishing to undertake these activities on or after 6 April 2007 will need to be either authorised or exempt (eg by being an appointed representative). Firms that are already authorised for other activities will need to apply for a variation of their existing permission.
6. To help firms prepare for authorisation, the FSA has already published details of the authorisation process on its web-site. An interim authorisation regime provides a backstop for HR and HPP firms whose applications have not been processed before the start of regulation, provided they meet the relevant criteria.
7. The FSA regulates the financial services industry and has four objectives under FSMA: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
8. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.