mortgage regulation WEEK 11 Flashcards
UK Regulatory structure
As created by the Financial Services Act 2012.FPC concerned with macro-prudential regulations.PRA (part of the BoE but operates independently form it), is concerned with firms soundness and with helping secure good cover for insurance policyholders.The Bank of England Financial Services Act (2016) established the PRC as a PRA governing body. It works along side the MPC and FPC.
FCA EXISTS
Exists to enrsure that the markets work well, so that customers “get a fair deal” (FCA 2024)
FCA OBJECTIVES
protect consumers
protect financial markets
promote competition
Principles for Business
- INTEGRITY 2. SKILL,CARE,DILIGENCE, 3. MANAGEMENT AND CONTROL 4. FINANCIAL PRUDENCE. 5. MARKET CONDUCT. 6. CUSTOMERS INTEREST. 7. COMMUNICATION WITH CLIENTS. 8. CONFLICTS OF INTEREST. 9. CUSTOMERS: RELATIONSHIP OF TRUST. 10. CLIENTS ASSETS. 11. RELATIONSHIP WITH REGULATORS. 12. CONSUMER DUTY.
FCA OUTCOMES
Fair value:consumers receive fair prices and quality
Suitability and treatment:consumers are sold suitable products and services and receive good treatment
Confidence:consumers have strong confidence and levels of participation in markets, in particular through (1) minimised harm when firms fail and (2) minimised financial crime
Access:diverse consumer needs are met through (1) high operational resilience and (2) low exclusion
FCA Regulated activity
MORTGAGE LENDING AND ADVICE
- ACCEPTING DEPOSITS
- EFFECTING INSURANCE AND PENSION CONTRACTS
-ADVISING ON, ARRANGING, MANAGING OR ADMINISTRATING INVESTMENTS.
- RUNNING COLLECTIVE INVESTMENT SCHEMES SUCH AS UNIT TRUSTS, INVESTMENT TRUSTS AND OPEN ENDED INVESTMENT COMPANIES.
Regulated mortgages
intended to be used, as or in connection with a dwelling. For a mortgage to be a regulated mortgage contract, the following apply:
the contract is one where a lender provides credit to an individual or trustees (the ‘borrower’);
the contract provides for the obligation of the borrower to repay to be secured by a mortgage on land, where “land” for this purpose means:
in relation to a contract entered into in the UK or in the European Economic Area (EEA), the latter for contracts entered intobefore 31st December 2020
at least 40% of that land is used, or is intended to be used for dwelling.
Non-regulated mortgage contracts:
A loan to a business
A loan for the purchase of a commercial property
A second charge loan provided by a credit union
A second charge bridging loan
MCOB CHAPTER 3: Financial Promotion and Communications
Chapter 3: Financial Promotion and Communications
Governs the advertising and marketing of mortgage products, ensuring thatpromotions are clear, fair, and not misleading to consumers.
MCOB CHAPTER 4: ADVISING AND SELLING STANDARDS
Promotes fair and responsible practices in mortgage advice and sales,prioritising the best interests of customers and ensuring that they receive suitableproducts tailored to their individual needs and circumstances
Mortgage sales requirements
A mortgage sale must be advised, unless the mortgage is taken out on an execution-only basis. This is only allowed in the following circumstances:
The process is non-interactive (online or by post only), andit is impractical to give advice
The customer is a high net worth individual, a mortgage professional or the loan is solely for business purposes
The customer rejects advice given and wants to make their own choice
Disclosure
These requirements are designed to ensure that customers receive clear and comprehensive information about mortgage products before, during and after they submit an application. Thisensures customers understand the features, risks, and costs associated with different options.
CHAPTER 11: RESPONSIBLE LENDING
Focuses on the principles of responsible lending, requiring firms to assess affordability, suitability, and risk before granting mortgages to customers.
CHAPTER 12: CHARGES
Discusses how charges, fees and all mortgage related costs are communicated. The expectations are for costs to be communicated clearly and comprehensively. This includes arrangement fees, valuation fees, legal fees, and any other upfront or ongoing expenses.
Charges need to be communicated in a way that is standardised, so as to allow customers to compare products between different providers.
Firms must ensure that charges are fair, reasonable, and proportionate to the services provided, and they must not impose hidden or excessive fees that could potentially exploit consumers.
CHAPTER 13: ARREARS, PAYMENTS, SHORTFALLS AND REPOSSESSIONS
This section of the MCOB addresses the treatment of borrowers who fall into arrears or experience difficulty making mortgage payments. Firms are required to establish clear procedures for managing arrears (this includes communication with customers) and providing assistance to borrowers facing financial difficulties (these include forbearance agreements, repayment plans etc.)
In cases where repossession is unavoidable, firms must adhere to legal requirements and regulatory standards, following due process and providing borrowers with adequate notice and support throughout the repossession process to minimize the impact on their financial well-being.
