8. Regulation And The Buying Process Flashcards
Who can make financial promotions? (2)
- FCA approved firms/individuals
- Appointed reps of FCA approved firms
What types of financial promotion are exempt from FCA rules?
Ones which only contian general info about the firm, not advertising a particular mortgage or service
What 3 things must all financial promotions be?
- Clear
- Fair
- Not misleading
Do the rules apply to real time promotions or non real time promotions?
Both
What are real time promotions?
Anything through interactive dialogue, eg face to face, phone calls
What are non real time promotions?
Anything not through interactive dialogue, eg, adverts, email, letters, SMS
How long must records be kept of non-real time promotions?
12 months from their last use
What must be included in non real time promotions? (6)
- Company details
(name, contact details) - Risk of Repossession statement
- APRC
(if the promotion contains info on prices) - Interest rate
(specifying if variable or fixed) - Total amount payable
- Representative Example
What constitutes as a representative example?
If 51% or more of those responding to the promotion would be charged APRC quoted or lower
Are competitor comparisons allowed in financial promotions?
Yes if they are like-for-like
No allowed to discredit/disparage competitor or take unfair advantage of their reputation
When are real time promotions NOT permitted?
Sundays and 9pm-9am any other day.
Also when firms know you don’t want to due to personal reasons or religious observations
Are unsolicited phone calls permitted?
No, must have previously agreed to be contacted
What must you do during real time promotions? (3)
- Identify yourself and firm
- check that the person want to continue
- if they don’t want to continue, terminate the conversation
Which part of MCOB can info on marketing be found?
MCOB 3 - Financial promotions
Which part of MCOB can rules on initial disclosure be found?
MCOB 4 & 4A - Advising and Selling Standards
When must the Initial Disclosure Document be provided to the customer? Who provides it? What type of information does it provide?
After the fact find. Provided by either the broker or lender. Gives info on firm and it’s status.
What are the relevant markets (2) and how does this affect the initial disclosure document?
- Regulated mortgages
- Non-reg/commercial
Firms must describe their services in each type of market they operate in. Firms which operate within both must give info on both
What must be included in the initial disclosure document? (3)
- Limitations on the range of products offered
- Renumeration
- Alternative finance options, for custs looking to increase borrowing on a property which already has regulated mtg
Initial disclosure documents have to be provided in a durable medium. What does this mean?
In a format which can be stored away for future reference, where info cannot be changed, e.g. Paper/PDF
When providing information on the limitations of their range of products, the firm needs to specify whether they offer:
1. Unlimited range
2. Limited Range
3. Single Lender
What do these mean?
- firm selects from range of products that REPRESENT WHOLE OF MARKET, e.g. all of regulated mortgages. Cannot be unlimited if just lending for bridging loans etc.
- Selected from a LIMITED RANGE, e.g. PANEL
- Products from SINGLE LENDER
What must firms not offering unlimited lending do?
List all the names of lenders who’s products it offers & clearly explain limitations of this
What does the IDD need to disclose regarding renumeration? (3)
- fees the firm charges
- when the fees are due
- are proc fees being received, how much? (if amount not disclosed here, has to be disclosed in ESIS)
What are the three alternative finance options that should be disclosed in the IDD for those who already have a mortgage and are looking to remortgage?
- FA
- Second charge lending
- Unsecured borrowing
What alternative finance option should be included in the IDD for those interesting in retirement I/O mortgages?
Lifetime mortgages
What section of MCOB is related to providing advice?
MCOB 4 - Advising and selling standards
When must a firm provide ADVICE rather than information?
When the sales process involves interactive dialogue, conversation rather than advert
What format must adequate explanations be given in?
Oral or written
What information must be included in the adequate explanations? (5)
- Information included in the ESIS
- Key characteristics of the product
- Effect the product could have on cust if they were to default
- Scope of the service
- Fees and renumeration
How long to records need to be kept on any advice given? What information needs to be kept? (3)
Must keep for 3 years from the date advice is given
- info used to make the decision
- reasons for suitability
- Any decisions to roll up fees into loan
What circumstances is execution only permitted? (4)
- There is no interactive dialogue during the sale
- Customer is either:
- high net worth
- a professional with 1 year’s experience
- looking for a lone solely for business purposes - Firm’s contribution is limited to giving facts about the application processes and providing an ESIS, whilst specifying that it as NOT ASSESSED SUITABILITY
- customer rejects advice
How long must records of execution only confirmation and any rejected advice be kept?
3 years from start of contract
Define a high net worth customer (2)
- Minimum annual net income of £300,000
- Minimum net assets of £3 million
Define a professional customer (3)
- Worked in home finance for at least 1 year
- knowledge of the product/service
- capable of understanding the risk involved
To proceed with execution only for high net worth and professional customers, what must firms evidence? (3)
- That advice has been rejected and execution only has been chosen
- cust has identified the product they wish to purchase
- cust has provided a written statement stating that they understand the consequences of losing the protection of the rules on suitability
Who cannot under any circumstances proceed on an execution only basis? (4)
- Right to buy
- debt consolidation
- shared equity arrangements (you own some of property, third party owns rest)
- vulnerable customers
What should an adviser do if they find no product suitable?
Not make a recommendation. Must never just choose best fit
What should an adviser do if they find more than 1 product suitable?
Usually pick the cheapest. If they pick one other than cheapest, need to explain why
In what format should recommendations to customers be made?
In a durable medium, eg. letter or pdf
What is meant by responsible lending?
Lender must take the borrower’s ability to repay into account, e.g. affordability
Where in MCOBS can you find information on responsible lending?
MCOBS 11 - Responsible lending
How long should records be kept on responsible lending? What must be included in these records? (4)
THE TERM OF THE MORTGAGE
1. Affordability Assessment (all mortgages)
Interest only:
2. reason for choosing
3. repayment strategy
4. mid term review
How do lenders get their information on income and expenditure?
Must be verified by an independent source, cannot be self-certified
When should the ESIS be provided?
After advice has been given, before application
What does ESIS stand for?
European Standard Information Sheet
What information is contained within the ESIS?
Similar to what I can remember from offer letters in work. Key additional points are:
- Period of validity (how long esis is valid for)
- Lender and intermediary details
- Specify currency, if foreign, warning on exchange rate
- Flexibility/portability
- reflection period
- tax & state benefit implications (retirement i/o)
- complaints procedure
- consequences for not complying
- fca contact details
When must an ESIS be provided? (3)
- ASAP after factfind, before application
- If customer requests the info
- if advice given over telephone - 5 WORKING DAYS
Does an ESIS need to be provided for execution only?
Yes, should still be given to indicate which product has been chosen
Who is responsible for checking the ESIS is accurate?
Direct cases - lender
Broker cases - Broker
If a change to the mortgage is proposed after an ESIS has been provided, does a new ESIS need to be given?
Yes, if the application has not yet been submitted
If application has already been submitted, no - changes will be reflected in the offer document instead
How long must records be kept in relation to ESIS or KFI?
1 Year from application
When should a customer be provided with a KFI?
KFI is instead of ESIS. It is needed for non-MCD mortgages (those initially taken out before march 2016). If someone with a mortgage like this wants to vary their terms or get an FA, they will need a KFI.
HOWEVER, lenders can choose to use ESIS for all MCD and non-MCD mortgages, KFI not essential
What are the main difference between the info provided in an ESIS and KFI? (3)
- No reflection period
- No MCD ‘binding offer’ requirement
- APR instead of APRC
Which section of MCOBS might you find information on the mortgage offer?
MCOBS 6 - Disclosure at offer stage
Are mortgage offers always binding?
MCD REG - Yes, subject to conditions.
Non-MCD regulated Varying terms of existing mortgage - no
How long is the offer reflection period? Is the offer binding during this time?
7 days, but can waive their rights to this.
Binding on lender but not borrower
Which features of a mortgage offer document can be included either in the offer itself or in separate accompanying documents? (3)
- Tariff of charges
- Charges for accounts linked to the mortgage
- If the mortgage comes with a credit card, statement explaining rights are different to traditional credit card
What must an offer contain for non-mcd reg customers wanting to vary an existing mortgage? (2)
- KFI
- Statement saying you are not bound unless you sign the form and funds are released
Where in MCOBS can you find information relating to the disclose made at the start of a contract?
MCOB 7
When is the latest a disclosure at the start of contract should be made?
Before the first repayment is made
What information is provided in the disclosure at start of contract? (7)
- Amount & dates of initial and subsequent payments
- Payment method
- If MTG is linked to investment/insurance, info on premiums
- Confirm C/R or I/O
- Check repayment vehicle is in place - I/O
- Procedures if experiencing payment difficulties
7.Are overpayments/underpayments allowed?
Where can you find MCOB information relating to:
1. charges
2. ERC
- MCOB 12
- MCOB 5, 7 & 9
What restrictions are in place regarding what ERC can be charged? (2)
lenders can choose, so long as:
1. it is a reasonable estimate of the costs incurred
2. it is capable of being shown as a cash amount
What must any illustration include in relation to ERC?
- When it would apply
- Basis of the calculation
- Maximum ERC Payable
