21) CONDUCT OF BUSINESS REQUIREMENTS II Flashcards
Explain the situations in which MCOB rules apply to mortgage transactions
A regulated mortg subject to MCOB is a contract that satisfies the following condns
_ lender provides credit to an indi or trustees (the borrower)
_ Borrower’s obligation to repay is to be secured on land in the EEA
_ at least 40% of land is used/intended to be used, as/in connection with a dwelling.
This covers home improvement loans, debt consolidations and equity release schemes such as lifetime mortg and home reversion schemes
What is the diff betn first charge and second charge
First charge: If borrower defaults on the loan, and lender has to take possession and sell the property, the holder of the first-charge loan has the right to be repaid from the sale proceeds ahead of all other chargeholders.
Second charge: If borrower defaults on the loan, and lender has to take possession and sell the property, the holder of second-charge is only paid after the holder of the first-charge has been repaid in full.
How is ‘buy to let’ different from ‘consumer buy to let’?
Buy to let or business buy to let acti is carried out by professional landlords who, typically, have a portfolio of BTL properties run as a busi to generate profit.
A consumer BTL is defined as one where the mortg has not been entered into wholly or predominantly for the purpose of a busi carried out by the borrower. - it is more as a result of circumstances than from a particular desire to operate a BTL busi eg a person relocating for a job, inherited a prop.
Lender to establish if borrower is Consumer or busi BTL …they can also rely on cust completing a declaration to confirm if they are a busi borrower
Diff rules apply to consumer BTL and protected as they are assumed to not have the same expertise as busi BTL
What are the key elements of MCOB?
MCOB 1 - Application and purpose - scope of rules ie whom they apply and for what types of mortg
MCOB 2 - Conduct of busi stds - general
includes - use of correct terminology (early repayment charge, higher lending charge) -
comms with cust to be ‘fair, clear and not misleading’
- rules reg fees/commission, accessibility of records for inspection by FCA
MCOB2A - rules applying to Mortg Credit Directive lender
1-remuneration -tying of prod (mortg conditional w purchase of other prod)
2-foreign curr loans 3-early repayments
MCOB 3A - Finanl promos and comms w customers
distinguishes real-time promos and non real-time promos where real-time unsolicited promos not permitd
MCOB 3B - MCD gen info
MCOB 4 & 4A - advising and selling stds
shd be clear whether advice based on whole mkr, ltd no of home fin providrs or a single lender
- indep advsr need not have all prod from all providers, can source prod from a panel of lenders - panel shd be rep of the mkt
- recommended mortg must be suitable and approp for cust, records kept 3 yrs - suitability report not needed
- spl req if mortg is used to consolidate debts
On first contact w cust, info reg follo shd be provided
name and contact detailswhose mortg offeredlimitations to service details of fees *firm’s FCA regisn details *complaint procedure *compensation scheme details
What are the key elements of MCOB? - continued from first flashcard
MCOB 5 and 5A: pre-appln disclosure
details provided whn personal recomm is made and before an appln is submi to lender
* annual percentage rate of charge (APRC) - int + fees
*amt of monthly instalment
* amt by wh instalment wd inc for ear 1% ris ein int rates
Details prov by Eurn Stdised Info Sheet ESIS
MCOB 6 and 6A:
If mortg offer is made lender to provide offer docu
* say how long the offer is valid
* point out no right to withdraw after mortg completed
* include?accompanied by tariff of charges
(borrower granted at least 7 days to reflect and decide)
MCOB 7 and 7A: Disclosure at start of contract and after sale (before first mortg payment)
details of amounts, dates methods of payment
details of related prod such as insu
repayment vehi in place (for int only mortg)
what cust shd do if in arrears
In addn, annual statements to be issued,
amt owed and remaining term - type of mortg -int, fees and other payments made in the year - changes to tariff - for int only mortg to check performace of repayment vehi
What are the key elements of MCOB? - (conti from first and second flashcards)
MCOB 8 and 9: Equity release - advising and selling stds and prod disclosure
Special rules by FCA for lifetime and home reversion schemes/equity release - anyone advising must hold special qualification in this area of busi
MCOB 10: Annual percentage rate (APR) - describes how to calculate APR
MCOB 10A:Annual percentage rate charge-how to calc
MCOB 11: Responsible lending
Lenders shd put in place a written resp lending policy
-able to show customers’s ability to pay whn offering a mortg
MCOB 12: Charges
Excessive not permi - Early repayt charges must be a reasonable approximation of costs incurred by lender if borrower fully repays early. Also arrears charges must be reasonable approxi of addl admin as a result of that
MCOB 13: Arrears and repossessions:
Firms must deal fairly
-try to reach and agreement to repay acc to cisrcums
-liaise with third-party for advice
-not put unreasonable pressure on cust in arrears
-only repossess if all other measures have failed
-arrears charge to be reasonalble reflec of costs involved in dealing w arrrears
Records kept of all dealings
W.in 15 days of falling into arrears, foll info given to cust by lender
Money Advice Service info ‘Problems paying your mortg’
missed payments and total of arrears inclu charges incurred
outstanding debt
further charges that may apply till arrears are cleared
What are the two levels of service provided for mortg specified by MCOB rules?
*advice
*execution-only
There is no info-only service offered
Execution-only in ltd range of situa ie involg busi borrowers, high-net-worth indi and mortg professionals. Evidence of cust falling into these categories to be retained. Joint mortg whr one party is mortg pro, non-pro is given advice. If exe-only opted, lender to make cust aware of conseq
Mortg adviser must
-establish all info from borrower that is likely to be relevant
- ensure advice is suitable acc to cust circums and needs
Who does FCA view as being ‘vulnerable customers’ reg finanl arrangement with property?
- those buying property using statutory right-to-buy
- those entering a sale-and-rent-back agreement
- equity-release applicants
FCA requires those in these arrangements must first be given advice, after wh if they wish to proceeed on exe-only basis, they may do so.
How is mortgage suitability determined
1 - assess if whether a mortg in itself is suited
2 - then assess what type of mortg is suitable
3 - select best mortg and mortg provider to suit needs and circums
If estd that a mortg is suitable consider what type,(repayment, int only), interest option (fixed, variable, capped), how long the term shd be, costs involved and affordable
No need for suitability report altho many lenders prepare one
How is mortg affordability assessed and income verified?
Income verified by indep source (no self certification)
Lende takes into acct inc and expen (both basic essential expen and committed expen). Lender shd ensure proposed mortg affordable now and in future by means of stress test
If int-only mortg, lender to make sure clear and credible source of capi repayment is in place, otherwise repayment mortg to be considered
What are the Insurance Conduct of Business rules?
ICOBS rules applicable to intermediaries who sell, administer or advise on gen insu - 8 sections
ICOBS 1 - Application
Rules covering firms dealing w retail and commercial cust for sale of non-investt insu prod. Acti regulate incl
- insu distribution acti
- effecting and carrying out contracts of insu
- managing the underwriting capa of a Lloyds syndicate as a managing agent at Lloyds
- communicating or approving a finanl promo
ICOBS 2 - General matters - client categorization
- policyholders (one who can claim against a contingency insured against)
- customers (prospective policyholder - who is making preparatory arrangements to concluding acontract)
Customers further categorized as
consumers (natural persons)
commercial customers (anyone who is not a consumer)ICOBS2 also covers
communication (shd be fair, clear and not misleading)
inducements (be fair and not accept inducements that would conflict firm’s duties to its cust)
record keeping
exclusion of liability (firm must not seek to exclude or restrict liabi unless it is reasonable to do so)
ICOBS 3: Distance communications
- Firm to prov a consu w dist mkting info before conclu of a dist consu contract
- At beg of anytele commu, identity of firm and purpose of call made clear
- Contractual obligations to be made clear to consu in pre-contractual phase, and these obli must comply with the law presumed to apply to a dist contract
- T&C must be be communicated in writing before conclusion of dist contract
- consu entitled to hard copy of contractual T&C on request
ICOBS also covers e-commerce acti - firm must make follo info easily, directly and permanently accessible
-name & address
-details of firm (inclu email) for direct contact
status disclosure statement, confirmation of its being on FCA register, including its FCA reg no.
Other rules - prices advertised clear, unambiguous and what it includes eg tax
unsolicited commercial comms sent by email clearly identifiable as soon as it is recd
ICOBS 4: Info about firm, its services and remuneration
Firm must provide info before conclusion of ini contract of insu, and if nec, on its amendment and renewal
- firm’s iden, address, - whether insu intermediary or insu undertaking
- whether providing personal recommendation
-complaint procedures to firm or FOS, or if FOS does not apply,info abt out-ofcourt complaint info and redress procedures for dispute settlement
Insu intermediary must also provide
- it is included in FCA register and means for verifying it
-if it has direct/indirect holding rep 10%or more voting rights or capi in a given insu undertaking (that is not a pure reinsurer)
-whether given insu undertaking or its parent undertaking has direct or indirect holding rep 10% or more of voting rights or capi in firm
-whether firm is representing a cust or is acting on behalf of the insurer.
In addn, where indu intermediary proposes/advises on a contract of insu, before conclusion of ini contract, intermediary shd provide
-personal recomm on basis of fair and personal analysis
-is under contractual obli to conduct insu distri exclusively w one or more insu undertakings
-neither of above apply
Whr a firm has given above info, befor conclusion of ini contract of insu w consu, firm must state whetehre it is
- giving perso recommen but not on basis of a fair and personal analysis
- other advice on basis of a fair analysis of mkt
- other adv not on basis of fair analy of mkt OR
- just info
to custo info abt fees, remuneration, commn, econ benefits before conclusion of initial contract of insu, amendment or renewal. Fees where payable
Upon Commercial customer’s request - disclose commission it or any associate may receive in connection with the policy
What are the Insurance Conduct of Business Rules? (continued) (second flashcard)
ICOBS 5: Identifying client needs and advising
- firm to make sure customer only buys a policy from wh they are eligible to claim benefits
- if parts of cover do not apply, firm shd inform cust to make an informed choice
- Firm to specify needs of cust based on info obtained - before conclu of contract
- statement of demands and needs must be communicated in writing to the cust clearly and accurately and understandable to the cust
- firm shd reasonable steps to ensure suitability of advice by taking into acct level of cover and cost, exclusions, excesses, limitations and conditions - inform the cust of any demands and needs not met
ICOBS 6: Product information
Product info based on knowl, experience and ability of a typical customer for the policy
- policy terms, bene, exclu, limitations, condns, and duration
- policy’s complexity
whether policy purchased with other prod/serv
distance commu info reqts
whether same info has been provi to cust previously
- handling complaints
Before pure protection contract provide cust with
* name &address of insu undertaking in legal form
*address of head office * definition of each bene and option * contract term *how to terminate the contract * means of payment and duration of premiums
*tax arrangement for bene under policy
*cancellation info *complaint handling
What are the Insurance Conduct of Business rules?
- continued (third flashcard)
ICOBS 7: Cancellation
Consu can cancel without penalty//reason
* 30 days for contract of pure protection (critical illness) or payment protection
* 14 days for any other contract of insu or distance contract (Home insu)
Firms are free to offer more generous cancellation terms provi they are favourable to cust
The right to cancel does not apply to
_ travel policies of less than a month
_policies for wh performance has been fully completed
_pure protec policies of 6 mths or less wh are not distance contracts
_ pure protection policies effected by trustees of occupational pension scheme, employers for bene of employees or partners
_Gen Insu (not dist contract or payment protec) sold by an unauthorised person and
_ a connected contract wh is not a dist contract
On receipt of cancellation, all premiums paid shd be returned w.in 30 days and contract terminated
ICOBS 8: Claims handling
Claims must be handled fairly, promptly and firm must provide reasonable guidance to help policyholder to make claim
Rejection of claim is unreasonable if
_non disclosure of a material fact wh policyholder cd not reasonably have expected to have disclosed
_ non negligent misrepresentation of a material fact
_ breach of a condition of the contract unless circums of the claim are connected to the breach
What are Banking Conduct of Business rules?
BCOBS 1: Application
applies to firms that accept deposits from banking customers
BCOBS 2: Communications with banking customers and financial promo
Req a firm to pay due reg to info needs of banking cust
when communicating with, or making a finanl promo to them , info shd be clear, fair and not misleading
BCOBS 2A: Restriction on marketing or providing an optional prod for wh a fee is payable
Details applying to mkt.ing or providing an optional prod for wh fee is payable
BCOBS 3: Distance commu and e-commerce
Applies to firms that carry out dist mkt.ing acti from an establishment in the UK, with or for a consu in UK or EEA state. Contains provisions of Dist. Mkting Directve
BCOBS 4: Info to be communicated to banking customers and statements of account
Details a firm must provide or make avai to cust approp info abt a retail bking serv or any depo made in that retail bking serv
BCOBS 5: Post-sale requirements
Bking firm must provide fair effici and prompt bnking serv reg commu or finanl promo made by firm, from time to time. Including dealing in finanl difficulty, those wishing to move bank acc and lost and dormant acc.
BCOBS 6: Cancellation
Sets out cust’s rights to cancel in various circums and whn there are no rights to cancellation
BCOBS 7: Info abt current account services
Req a firm to publish info abt its provision of current acc and busi acc
What are the Payment Service Regulations? (PSRs)
Payment Services Regulations cover most payment services, incl the provi and opern of ‘payment accounts’ - these are acc on wh transac may be made and whr access of funds is not restricted. (Fixed-term depo is a restricted acc). Regulations extend from info that is to be provided before a payment is made to remedial action a firm must take if payment goes wrong. Can be sterling or euro payments.
