Topic 21: Conduct of Business Requirements 2 Flashcards
What is a consumer buy to let mortgage?
A new mortgage on a property already owned by the applicant, where the purpose is to rent out the property but not as a business venture. Often referred to as ‘accidental landlords’, examples include someone relocating and renting out their existing property, and renting out an inherited property while deciding what to do over the longer term. An existing mortgage on a property would continue to be a regulated mortgage.
What is Simplified Advice?
The firm sets out the limited nature of the advice it will offer, which focuses on a specific area of need and does not consider other information that is not relevant to that need. Can be provided face to face, by phone or online.
What is Focused Advice?
The adviser provides advice and a recommendation on a limited area or type of product at the customer’s request – the customer determines the scope of advice to be given.
What is Generic Advice?
Providing product and generic information based on the customer’s circumstances, to help them to identify and understand the options they have in order to make an informed decision. The information must be balanced and the adviser must not express an opinion that could be seen as a recommendation.
A regulated mortgage, subject to MCOB is defined as a contract that satisfies
the following conditions:
- the lender provides credit to an individual or trustees (the borrower);
- the contract provides for the obligation of the borrower to repay to be secured on land; and
- at least 40 per cent of that land is used or intended to be used, as or in connection with a dwelling.
As the UK left the European Union on 1 January 2021, the meaning of ‘land’ has now been modified as follows:
4. For regulated mortgage contracts entered into before the UK left the EU,
‘land’ refers to:
— land in the United Kingdom; or
— if the contract was entered into on or after 21 March 2016, land in the UK or within the European Economic Area (EEA) at the time the contract
was entered into.
5. For regulated mortgage contracts entered into from 1 January 2021, ‘land’ refers to:
— land in the United Kingdom only.
What does First Charge mean?
If a lender has to take possession of a property and sell it as a result of the borrower defaulting on the loan, the holder of a first‑charge loan has the right to be repaid ahead of other chargeholders from the proceeds of the sale.
What does Second charge mean?
In the event of a property being possessed by a lender and sold as a result of default by the borrower, the holder of a second‑charge loan ranks behind the first‑charge lender for repayment; they will only have a claim on the proceeds of the sale once the first‑charge lender has been
repaid in full.
What is a vulnerable customer?
In respect of mortgages, the FCA views the following as being vulnerable customers on the basis of the financial arrangement they are considering:
- those buying a property using the statutory Right‑to‑Buy;
- those entering a sale‑and‑rent‑back agreement;
- equity release applicants.
Because of the additional risks posed by these types of
arrangement, the FCA requires that an individual falling into
any of the categories above must, in the first instance, be
given advice. Should they subsequently wish to proceed on an execution‑only basis, then they can do so.
Determining the suitability of a mortgage involves three stages?
- Assess whether a mortgage is, in itself, a suitable product for the client.
- Assess what type of mortgage is suitable, eg
repayment, interest-only,
interest scheme, additional features. - Select best mortgage and
mortgage provider to meet
client’s needs and circumstances.
What is committed expenditure?
Repayments on credit agreements or other contractual arrangements.
What is basic essential expenditure?
Expenditure on food and other housekeeping costs, utilities, telephone, council tax, buildings insurance, ground rent and service charges for
leasehold properties, and essential travel to work and school.
What are the Payment Services Regulations?
The Payment Services Regulations (PSRs) cover most payment services,
including the provision and operation of ‘payment accounts’. Payment accounts
are accounts on which payment transactions may be made and where access
to funds is not restricted (a fixed‑term deposit is an example of a restricted
account). The regulations extend from the information that is to be provided
before a payment is made to the remedial action a firm must take if a payment
goes wrong.
What is a Money Remitter?
A payment services provider that accepts funds for payment without necessarily holding an account with either the payee or payer. It enables one party to send money to another using its services to get the money to the required destination.
What is a Non-bank merchant acquirers?
A financial institution other than a bank that processes credit or debit card payments.
