The FSA today admits its disclosure rules for mortgage advisers are inadequate, but suggests the industry is at least partly to blame for allowing it to introduce one of the mortgage arena's biggest evils - self-certification.
Retail markets managing director Jon Pain says the current initial disclosure document (IDD) and key facts illustration (KFI) are insufficient, adding it underestimated the irrationality of consumers when it developed them.
However, in a speech at the FSA mortgage conference, Pain also says the regulator consulted on not allowing self-certification for employed customers but "the industry disagreed and we relented".
"We allowed this to happen and with hindsight this may have been a mistake," he says.
Pain says the regulator will ask, in a September discussion paper, whether it should change its rules to require income verification for all mortgages.
His speech, which followed an earlier talk by FSA chairman Lord Adair Turner, outlined for the first time some of the likely proposals the regulator will include in its September paper, which will attempt to remedy problems in the mortgage arena.
He says the IDD and KFI documents were introduced when the FSA developed its mortgage regime. But he adds the regulator "assumed" personalised disclosure would help customers shop around and assess affordability and risk.
"This was probably over optimistic," he says. "All of this was based upon the view that consumers will be rational market participants - that when given clear and relevant information they would use these documents as tools to help with their purchasing decision," he says.
"However, as we heard earlier today, we have strong evidence the mortgage market is not always marked by rational behaviour - least of all when comes to purchasing a mortgage, given the powerful underlying reasons behind the decision."
An ambitious objective
'Something completely new'
'Illusion of control'
Reasons to be cheerful
Total investment reaches £9m