1. Regulatory Framework - Section B - MCOB

Question 1

Who do the MCOB rules apply to?

Answer 1

Mortgage lenders, advisers, arrangers and administrators

Question 2

The 3 ways in which firms and individuals operate determines how the MCOB rules apply to them, what are they?

Answer 2

Direct authorisation by the FCA- The firm is responsible

Appointed representatives - Responsibility lies with the principal (the firm)

Introducer - The firm passes on leads to an authorised person who pays for them

Question 3

What 3 things can the intermediary deal with?

Answer 3

The whole market

A limited number of lenders as an AR of them all

A single lender as an AR of them only

Question 4

What 3 criteria apply in order for a mortgage to be considered a regulated mortgage contract?

Answer 4

The lender provides credit to the borrower

The obligation to repay is secured by a mortgage on land of which at least 40% is used or intended to be used

The mortgage is not a home purchase plan, limited second charge loan, buy to let etc.

Question 5

Which 2 contracts are NOT regulated mortgage contracts?

Answer 5

A loan to a company

A loan for the purchase of commercial property

Question 6

All mortgage sales must be advised, except on an execution only basis - when is this permitted? (3 answers)

Answer 6

A non interactive process (post/online)

The customer is a high net worth individual, a mortgage professional or the loan is solely for business purpose

The customer rejects advice given and wishes to proceed with a product of their own choice

Question 7

What is an early repayment charge and which mortgages to they tend to apply to?

Answer 7

The charge applied for repaying a loan early either in full or in part. Tend to apply to fixed term mortgages.

Question 8

What is the Higher lending charge?

Answer 8

A charge made when the Loan to Value exceeds a certain threshold, typically 75%

Question 9

What is a lifetime mortgage?

Answer 9

For older customers typically aged 55 and above. The repayment is not sought until the customer dies or goes into long term care. (Previously known as equity release or roll up mortgages)

Question 10

What is a home reversion plan?

Answer 10

Where an older homeowner sells part or all of their property to a finance provider and becomes a tenant either for life, until the property is sold or permanently vacated. This is only offered by a few specialist providers.

Question 11

Which 4 methods of promotion do the MCOB rules apply to?

Answer 11

Advertisements, Telephone calls, Personal visits, Presentations to groups.

Question 12

Which 2 methods of promotion do the MCOB rules NOT apply to?

Answer 12

Letters and illustrations to just one customer.
Simple promotions containing only the name and details of the firm.

Question 13

What are real time credit promotions?

Answer 13

Personal visits, telephone conversations and other interactive dialogue.

Question 14

What are non real time promotions?

Answer 14

Those not involving conversation or interactive dialogue such as websites, leaflets etc.

Question 15

How long should records be kept for after the last communication with the customer?

Answer 15

1 year

Question 16

When do advising and selling standards apply to lenders, advisers and arrangers? (2 answers)

Answer 16

When they make or expect to make a personal recommendation, or provide personalised information about entering into or varying a regulated mortgage contract.

Question 17

What is pre application disclosure?

Answer 17

Key information given to the customer as soon as it becomes clear that they are considering entering into a mortgage.

Question 18

On what grounds can a firm conclude that a contract is suitable for the customer? (3 Answers)

Answer 18

It must be affordable

Appropriate for their needs

The most suitable the firm has available.

Question 19

What is considered ‘key information’ that must be communicated to the customer? (5 Answers)

Answer 19

Firm’s name contact details and reg number

The level of service to be provided

The advice that will be given

The role of the FCA as regulator

The firm’s membership of the Financial Ombudsman Service and the Financial Services Compensation Scheme (FSCS)

Question 20

In relation to affordability, what 2 things must the firm explain to the customer?

Answer 20

That it is based on current interest rates which may increase and;

The customers current circumstances, which may change.

Question 21

What 4 things must a firm take into account upon arriving at a recommendation for a customer?

Answer 21

Income and expenditure - and whether this is likely to change.

Any extra costs connected to the end of any discount period

The permanency of income

The customer’s committed expenditure.

Question 22

If the purpose of the contract is to consolidate debt, what 3 things must also be taken into account?

Answer 22

Costs associated with increasing the repayment method

Whether it is appropriate to secure a previously unsecured debt

Whether the customer is known to have payment difficulties and it would be better for them to negotiate an agreement with creditors.

Question 23

Before submitting the application, customers must be given a European Standardised Information Sheet (ESIS) which must contain what 3 things?

Answer 23

Key features of the contract

The price to be paid including fees

Any linked or tied products such as insurance

Question 24

Once an application is accepted, what 2 documents must be sent to the customer on a durable medium?

Answer 24

An offer document

A suitably updated offer ESIS or mortgage illustration to compare with the original

Question 25

What 6 things must the offer document contain?

Answer 25

The period for which the offer is valid

Where the contract has features such as additional unsecured borrowing facilities that would increase the debt

When interest rate changes take effect

Consequences of not entering into the contract (fees already incurred)

That one the contract is concluded there is no right of withdrawal

That although no right of withdrawal exists, the customer can repay the loan in accordance with the terms of the contract.

Question 26

Equity release products generally fall into which two generic catagories?

Answer 26

Lifetime Mortgages

Home reversion plans

Question 27

What is APR and what 4 things must be taken into account when calculating it?

Answer 27

Annual percentage rate - A means to help prospective customers compare similar lending products taking into account setting up costs as well as the actual interest charged.

It must take into account the rate of interest charge and the interval applied

Other setting up charges payable

Premiums for any insurance required by the firm as a condition of the loan

Question 28

What is APRC and what 2 things does it take into account?

Answer 28

Annual percentage rate of charge - The amount of interest applied to a mortgage on an annual basis. This takes into account all addition expenses and discounts along with how much time is left on the mortgage term to give the customer a full average cost of borrowing per year.

Question 29

Where can you find the formula to calculate APRC?

Answer 29

The Mortgage Credit Directive

Question 30

Excessive charges are not permitted, while no definition of ‘excessive’ is given, what 3 things do the MCOB rules state regarding this?

Answer 30

Early repayment charges must be disclosed and reflect the cost to the firm.

Arrears charges must not be more than a reasonable estimate of the costs to the firm.

Charges in general must not be excessive in comparison to charges for similar products or services on the market.

Question 31

How long does a firm have to issue the regulatory Fact Sheet on arrears after becoming aware of any arrears?

Answer 31

15 working days

Question 32

As well as the arrears fact sheet they must also have a written policy and procedures, what 6 things does this include?

Answer 32

Reasonable efforts to reach a repayment agreement

Liaising with any 3rd party advice the customer may be receiving

A reasonable approach to the time taken for repayment

Granting a request for a change in payment date or method unless there is good reason to refuse this

(If there is good reason to refuse) Consider allowing the customer to remain in the property if genuine attempts are being made to sell it

Only taking possession of the property if all else fails.