Topic 21 Conduct Of Business Requirements Part 2 Flashcards
The FCA’S rules on Mortgage Advice are found where?
Mortgage & Home Finance: Conduct of Business (MCOB)
The implication of the EU Mortgage Credit Directive (MCD) meant what for Mortgage & Home Finance: Conduct of Business (MCOB)
It’s scope was extended to second charge properties in 2016
What is the below in relation to Mortgage & Home Finance: Conduct of Business (MCOB)
- Lender provides credit to an individual or trustees (borrower)
- Contract provides obligation of the borrow to repay to be secured on land
- At least 40% of the land used is connected with a dwelling
What a regulated mortgage subject to MCOB must do
What new category of regulation did the EU’s Mortgage Credit Directive (MCD) introduce?
Consumer Buy to Let (CBTL)
Consumer Buy to Let (CBTL) are subject to the rules of Mortgage & Home Finance: Conduct of Business (MCOB) or Mortgage Credit Directive (MCD)?
Mortgage Credit Directive (MCD)
What are the rules the government has in regards to Consumer Buy to Let (CBTL)
- Pre-Contract Disclosure
- Assessing Credit Worthiness
- Arrears Management
What is a Consumer Buy to Let (CBTL)?
A mortgage that has been entered into but it’s purpose is not for business purposes
Why are CBTL’s regulated & BTL not?
CBTL’S Mortgagor’s are deemed to have less expertise a BTL mortgagor
What MCOB provision is this?
Explains the scope of the rules to whom they apply & for what type of mortgage
MCOB 1: Application & Purpose
What MCOB provision is this?
- Correct use of terminology
- Requirement for communications with customers to be “clear, fair & not misleading”
- Rules about payments of fees/commission & accessibility of records for inspection by the FCA
MCOB 2: Conduct of Business Standards: General
What MCOB provision is this?
- Remuneration
- Tying of products (making a mortgage conditional on the purchase of other products)
- Foreign Currency Loans
- Early Repayments
MCOB 2A: Mortgage Credit Directive
What MCOB provision is this?
Distinguishes between real time & non real time promotions
- Unsolicited real time promotions are not permitted
- Real time promotions must include name & contact details of the firm. Clear & not misleading
- Must state your home will be repossessed if you do not keep up repayments of your mortgage
- Records of non-real time promotions must be retained for 1 year after last use
MCOB 3A: Financial Promotions & communications with customers
What MCOB provision is this?
Specifies requirements relating to information that must be provided to customers for customers who make mortgage advances regulated under the Mortgage Credit Directive
MCOB 3B: (Mortgage Credit Directive) MCD General Information
What MCOB provision is this?
- Independent advisor are not required to access all products from all providers but it must be representative of the market
- Mortgage recommendations must be suitable for the client
- Special requirements if the mortgage is to repay a debt
MCOB 4 & 4: Advertising & Selling Standards
What are these in relation to MCOB 4 & 4: Advertising & Selling Standards
- Name & contact details
- Who’s mortgages are offered
- Details of limitations in the service
- Details of any fees payable for mortgage advice
- Firm’s FCA registration details
- How to complain
- Details of the compensation scheme
What is on a Initial Disclosure Document (IDD)
What MCOB provision is this?
Information that must be provided before a recommendation is made and before an application is submitted to a lender
- Annual Percentage Rate of charge (APRC) which shows interest rate with fees added
- The amount of monthly installments
- Amount by which instalments would increase for each 1% of interest rates
MCOB 5 & 5A: Pre Application Disclosure
How must information for MCOB 5 & 5A: Pre application Disclosure be presented?
Via a European Standardised Information Sheet (ESIS)
What MCOB provision is this?
Lender must provide a detailed offer document. Offer is binding on lender can be made conditional on confirmation of certain details
- State how long the offer is valid
- Point out no right of withdrawal after the mortgage has drawdown & completed
- Include tariff of charges
MCOB 6 & 6A: Disclosure at the offer stage
At the disclosure at the offer stage how long is the period of reflection
At least 7 days
What MCOB provision is this?
Before the first payment is made the lender must confirm
- Details amounts, dates & methods of payment
- Details of any related products such as insurance
- (Interest only) borrow’s responsibility to ensure a repayment vehicle is in place
- what a customer should do if they fall into arrears
MCOB 7 & 7A: Disclosure at the start of contract & after sale
What should the annual statements show according to MCOB 7 & 7A: Disclosure at the start of contract & after sale?
- Amount owed & remaining term
- What type of mortgage it is
- (Interest Only) check the performance of the repayment vehicle
- Interest, fees or other payments since the last statement
- Any changes to tariffs since last statement
If a customer was to change interest rate or a lenders variable rate changed what must the lender do?
Contact the customer to inform them of changes
What MCOB provision is this?
FCA’s training & competence rules anyone giving advice on equity release must hold a specialist qualification
MCOB 8 & 9 Equity Release - advising & selling standards and products disclosure
What MCOB provision is this?
Annual Percentage Rate (APR)
MCOB 10
What MCOB provision is this?
Annual Percentage Rate of charge
MCOB 10A
What MCOB provision is this?
Lender must have a responsible lending policy & must have taken into consideration customers ability to repay the mortgage
MCOB 11 & 11A Responsible Lending
What MCOB provision is this?
- Excessive charges are not permitted. ERC’s must be approximation of costs incurred by the lenders.
- Arrears charges must be an approximation of additional administration as a result of borrower being in arrears
MCOB 12: Charges
What MCOB provision is this?
- Trying to reach an agreement on how to repay the arrears, taking into account the borrowers circumstances
- Liaising with third party sources of advice
- Not putting unreasonable pressure on customers in arrears
- Repossessing a property only when other reasonable measures have failed
- Only applying arrears charges that are a reflection of the costs of the work involved in dealing with the arrears
MCOB 13: Arrears & Repossessions
Customers in arrears must be given the following information within how many days of the lender being aware of the arrears?
- Money Helper information sheet “Problems with paying for your mortgage”
- Missed payments & total of arrears including any charges incurred
- Outstanding debt
- Any further charges that may be occurred until arrears are cleared
15 working days
What are the 2 levels of service that can be provided to mortgage customers according to MCOB?
- Advice
- Execution Only
What are the only situations that Execution Only can be used in the respect of a mortgage according to MCOB?
- Business borrowing
- High net worth individuals
- Mortgage professionals
The FCA defines a vulnerable customer on the basis of the financial arrangements they are considering they are?
- People buy a property using statutory right to buy
- Those entering a sale & rent back arrangement
- Equity Release applicants
When it is determined whether a mortgage is suitable what questions should the adviser ask?
- Which mortgage type is most suitable?
- what interest rate is suitable?
- Over how long a term should the mortgage run?
- What costs are involved & are they affordable?
What ICOB provision is this?
Covers rules for firms that deal with retail & commercial customers for sales of non-investment insurance products
- Insurance distribution activities
- Effecting & carrying out contracts of insurance
- Managing the underwriting capacity of a Lloyds syndicate as a management agent at Lloyds
- Communicating of a financial promotion
ICOBs 1: Application
What ICOB provision is this?
Categorisation of clients
- Policyholders (anyone entitled to make a claim)
- Customers (Prospective policyholders)
ICOBS 2: General Matters
According to ICOBS 2: General Matters how are customers further categorised?
- Consumers
- Commercial Customers
True or False
ICOBS 2: General Matters also covers the below
- Communications (Must be clear & fair)
- Inducements ( managing conflicts of interest fairly
- Record Keeping
- “Exclusion of liability” (firm must not seek to exclude or restrict liability)
True
What ICOB provision is this?
- A firm must provide a customer with distance marketing information before the conclusion of a distance consumer contract
- Identity of the firm & purpose of the call must be clear at the beginning of any telephone communications
- Contractual obligations must be committed to a customer during the pre-contractual phase
- Term & Conditions must be committed in writing before the conclusion of a distance contract
- The consumer is entitled to receive a copy T’s & C’s in hard copy on request
- Prices advertised must be clear & unambiguous
- Unsolicited commercial communications sent by email must be clearly identifiable
ICOBS 3: Distance Communications
ICOBS 3 also covers the below but what do they relate to?
- Name & address
- Details of the firm
- Status disclosure statement (confirmation it is on the FCA’S register
E-commerce activities
What ICOB provision is this?
- It’s Identity, address & whether it is an insurance intermediary or undertaking
- Whether it provides a personal recommendation about insurance products offered
- Details for making complaints or redress procedures
ICOBS 4: Information about the firm, it’s services & remuneration
The below is what in relation to ICOBS 4: Information about the firm, it’s services & remuneration
- That it is included in the FCA’S register & ways of identifying this
- Whether it has a direct or indirect holding of at least 10% or capital or voting rights in an insurance undertaking
- Whether a given insurance undertaking has direct or indirect holding of 10% or more of the voting rights of capital in the firm
- Whether it is representing the customer or acting for on behalf of the insurer
Information an insurance intermediary must provide to a customer
The below is what in relation to ICOBS 4: Information about the firm, it’s services & remuneration
- Give a personal recommendation on the basis of a fair & personal analysis
- Is under a contractual obligation to conduct insurance distribution exclusively with one or more insurance undertakings
- Neither of the above
Information that must be provided if an insurance intermediary proposes an insurance contract before the end of the initial contract
When an insurance company proposes or advises a contract of insurance. It does not have to provide the customer with a list of the companies it conducts insurance business with?
True or False
False
It must provide this to the customer
The below is what in relation to ICOBS 4: Information about the firm, it’s services & remuneration
- A person recommendation but not on the basis of fair & personal analysis
- Other advice on the basis of a fair analysis of the market
- Other advice not on the basis of a fair analysis of the market
- Just information
If an insurance intermediary has given information before the end of an initial contract it must state that is giving the above
An insurance intermediary does not have to disclose any commission it receives if a commercial customer request it?
True or False
False
It does have to
What ICOB provision is this?
- Firm must take responsible steps to ensure a customer buys a policy from which they can claim benefits
- If a firm finds part of the cover does not apply they should inform the customer so that they can make an informed decision
- Firm should explain the duty not to misrepresent information
- Prior to the conclusion of a contract a firm must specify on the basis of the information obtained from the customer their needs
- Statement of demands must be communicated to the customer clearly
- Firm must take responsible steps to ensure the suitability of it’s advice
ICOBS 5: Identify Client needs & advising
What ICOB provision is this?
States a firm must take responsible steps to ensure that ensure a customer is given appropriate information about a policy so they can make an informed decision
- Knowledge, expertise & ability of a typical customer for the policy
- Policy terms, benefits, exclusions, limitations, conditions & duration
- Policy’s complexity
- Whether the policy is purchased in connection with other products & services
- Distance Communication information
- Whether the same information has been provided to customers previously
ICOBS 6: Product Information & 6A: Product Specific Rules
What is an Insurance Product Information Document (IPID)?
Document that needs to be provided by a firm to a customer
All the below are what in relation to a pure protection contact?
- Name of the Insurance undertaking & it’s legal form
- Address off it’s head office
- Definition of each benefit & option
- Contract term
- Means of terminating the contract
- Means of payment & duration of premiums
- Tax arrangements for benefits under the policy
- Cancelling information
- Arrangements for handling complaints
Information a firm must provide to a customer before a contact is concluded
What is Guaranteed Asset Protection (GAP)?
Insurance covering a policy holder in the even of total loss to a vehicle
Guaranteed Asset Protection (GAP) is covered under which ICOB rule?
ICOB 6A: Product-specific rules
In relation to ICOBS 7: Cancellation. The below below is what?
- Travel policies of less than 1 month
- Policies the performance of which is fully completed
- Pure protection policies of 6 months or less (not distance contracts)
- pure protection policies effected by the trustees of an occupational pension scheme or employers for the benefit of employees
- General Insurance (not distance contracts or payment protection contract) sold by an intermediary
- Connected contract which is not a distance contract
Right to cancel insurance does not apply
Within how many days must an insurance company return premiums when they receive a cancellation notice?
30 Days
In relation to ICOBS 8: Claims Handling what is the below?
- Non-disclosure of a material fact
- Non-negligent misrepresentation of a material fact
- Breach of a condition of contract unless circumstances of claim are connected to the breach
What a claim would be rejected for if it was considered unreasonable
Banking: Conduct of Business compliments what in the European Economic Area?
Payment Service Regulations
What BCOBS provision is this?
Applies to firms that accept deposits from banking customers in the UK and activities connected with accepting deposits
BCOBS 1: Application
What BCOBS provision is this?
Firms need to pay due regard to information needs of customers while communicating financial promotions to them
BCOBS 2: Communications with banking customers & financial promotions
What BCOBS provision is this?
Details rules applying to marketing or providing an additional product (linked to current or savings account) for which a fee is payable
BCOBS 2A: Restrictions on marketing or providing an additional product for which a fee is payable
What BCOBS provision is this?
Applies to firms that carry out distance marketing activities from UK establishment with or for a customer in the UK
BCOBS 3: Distance Communication &; e-commerce
What BCOBS provision is this?
Firm must provide or make available to banking customers appropriate information about a retail banking service & any deposits made to that retail service
BCOBS 4: Information to be communicated to banking customers & statements of account
What BCOBS provision is this?
Retail banking service must provide a prompt, efficient & fair service. Also provide communications or financial promotions from time to time. Also involves customers wishing to move and dormant accounts
BCOBS 5: Post-sale requirements
What BCOBS provision is this?
Sets out a customers rights to cancel in various circumstances and when there are no rights to cancel
BCOBS 6: Cancellation
What BCOBS provision is this?
Firm is required to publish information about provision of personal current accounts & Business accounts
BCOBS 7: Information about current account services
What BCOBS provision is this?
Firm must provide a cost calculator tool or overdraft eligibility tool to provide alerts to personal current account holder about account usage
BCOBS 8: Tools for personal account customers
What regulations cover most payments services?
Payment Service Regulations (PSR’s)
What is a payment account?
Account on which access to funds is not restricted
What currencies are covered by Payment Service Regulations (PSRs)?
Euro and Sterling
The below firm are all what?
- Banks
- Building Societies
- e-money issuers
- Money Remitters
- Non-bank card issuers
- Non bank merchant acquirers
Payment Service Regulations (PSRs) applies to them
The Payment Service Regulations (PSRs) introduced a new class of regulated firms called?
Payment Institutions (PIs)
What do Payment Institutions (PIs) do?
- Process payment by card, credit transfer or direct debit
- Issue or acquire payment instructions & remit money
Payment Institutions (PIs) are regulated by who?
Prudential Regulation (PRU)
What is a Money Remitter?
Payment service provider that accepts funds for payment without the payee or the payer holding an account with them
What are Non-Bank Merchant Acquirers?
Financial institution other than a bank that processes credit or debit card payments
The following aims are the objective of who?
- Increased competition in the payments industry
- Brings into scope new types of payment service
- Enhance customer protection
- Extend the reach of the directive
Payment Service Directive (PSD2)
What are the new groups of the Payment Service Directive (PSD2)
- Market efficiency & integration
- Consumer protection
- Competition & choice
- Security
The below is what in relation to Payment Service Regulation (PSR2)?
- Payments sent or received where one of the Payment Service Provider (PSP) is located outside the EEA as are payments in non-EEE currencies
- Amount a payer is obliged to pay has reduced from 150 to 50 euros
- PSD 2 bans surcharging for payment instructions covered by intercharge fee regulation & payment services covered by SEPA
- PSP must respond to complaints within 15 working days of receipt
Increased customer rights
The below are what in relation to Payment Service Regulation (PSP 2)?
- Account Information Service Provider (AISP) is defined as “ online service to provide consolidated information on one or more payment accounts held by the payment service user
- Payment Initiation Service Provider (PISP) enable customers to carry out Person to person (P2P) via online banking portals
- PSD2 introduces Account Servicing Payment Service Provider (AS PSP) to distinguish where the customers payment account is held
The types of Third-party provider roles
Payment System Regulator is a subsidiary of who?
The FCA
The Payment Service Regulator (PSR) has the authority to do what?
- Over requirements regarding system rules
- Give directions to participants in designated payment systems
These are what in relation to Payment Service Regulation (PSR)?
- Require access to designated payment systems for a payment service provider
- Vary agreements relating to designated payment systems (fees & charges)
- Requires owners of payment systems to dispose of their interests in them
Other rules the Payments Systems Regulator (PSR) has
