Topic 8: Regulation and the buying process Flashcards
When a lender markets their mortgage products they are classed as financial promotions by the FCA
What MCOB contains the rules relating the financial promotions?
What products does MCOB 3A apply to?
MCOB 3A
MCOB 3A apply to financial promotions for qualifying credit (regulated mortgages) or home reversion plans
What does MCOB stand for?
Mortgage conduct of business regulation
What is the definition of financial promotions?
An invitation or inducement to
engage in an investment activity,
which includes mortgages
Financial Promotions are allowed to be carried out by anyone?
True or false
False
Financial promotions are not allowed unless they are carried out by an individual (or firm) authorised by the FCA, or the content has been approved by an individual (or firm) authorised by the FCA.
What are non-real time financial promotions?
Any promotion that does not include interactive dialogue – SMS, email, faxes, letters, adverts,
Ignoring the obvious stuff, what key things must be included in a non real time financial promotion about regulated credit (mortgages) or home reversion plans?
Risk of repossession – a statement about the risk of repossession if the borrower does not keep up mortgage payments
Annual percentage rate of charge (APRC)
An Example to illustrate all the things that are mentioned in the financial promotion
What is the Annual percentage rate of charge (APRC)?
The APRC is designed to show the true cost
of borrowing over the term and is expressed as an average annual interest rate.
It takes into account the interest charged, plus any additional fees
payable. It is better than
Are competitor comparisons allowed in financial promotions?
Competitor comparisons are only permitted on a like‑for‑like basis and must not discredit the competitor
How long must a firm retain records of non real time regulated credit (mortgages) or home reversion plans promotions that they used?
The firm must keep records of all non‑real‑time credit promotions for at least 12 months from the time they were last used
What are real time financial promotions?
Any promotion made through a telephone or face‑to‑face conversation,
or other interactive dialogue
Are unsolicited real time financial promotions allowed for mortgages?
Not really…
Unsolicited calls (‘cold calls’) are only allowed where the recipient has an established existing customer relationship
with the firm and the relationship is one where the customer
can expect to receive such calls. It could be argued that these
are not true cold calls at all.
Tell me some of the rules relating the real time financial promotions
They cannot be made at an unsocial hour unless previously agreed (Sunday, or 9pm - 9am any other day )
Contact cannot be made on an unlisted telephone number unless the customer has previously agreed
The caller must check that the customer agrees to continue with
the conversation
The caller must terminate the conversation if the customer
does not wish to proceed
When a prospective buyer seeks a mortgage, what must the firm arranging the mortgage initially provide, which details info about the firm such as how they will be remunerated, limitations in the products they offer and so on
An initial disclosure document
When a prospective buyer seeks a mortgage, the firm arranging the mortgage must provide the borrower with an initial disclosure document. What must this document include?
The range of
products offered (ie, unlimited, limited range or single lenders)
Products it will
provide information
about
How the firm will
be remunerated
Alternative
finance options if
the customer seeks
to increase the secured
borrowing on a
property, subject to
a regulated
mortgage
This information must be provided before the firm carries out any mortgage arranging or advisory activity
What MCOB outlines requirements for initial disclosure?
MCOB 4 and 4A
A firm arranging a mortgage must provide the prospective buyer with an initial disclosure document before any mortgage arranging or advisory activity can take place. One requirement about the initial disclosure document is that it includes the range of products the firm offers from the type of service it is giving. Explain this
In the initial disclosure, the firm must make it clear to the cust whether they offer an
Unlimited service (Firm selects and recommends from a range of products that represent the
whole market)
Limited range service (Firm selects and recommends from a limited range of products, typically
from a panel of lenders)
Single lender service (Firm selects and recommends only the products of a single lender)
If a firm does not offer an unlimited product range to its customers, it must
list the names of all the lenders whose products it offers
True or false
True
It must also express
any limitations in the product range simply and in clear terms, including
situations where products or information are only available through certain
channels, eg in branch or online.
A firm that only offers products from one part of the relevant market such as bridging finance, cannot describe its service as unlimited.
True or false
True
In relation of to firms remuneration, what details must in include in the initial disclosure document?
any fees the firm will charge them and when said fees are charged
whether the firm will receive commission or a procuration fee from the lender or a third party
The firm must state the amount of commission
( If this is not known at the time of disclosure, they must instead state that the actual amount will be disclosed at a later stage in the European Standardised Information Sheet
(ESIS) that must be provided before an application is made )
If a borrower is looking to raise further funds on a property already subject to a regualted mortgage what must be provided to them ?
They must be informed of alternative finance options available to them
Such as:
A further advance, a second charge,
a mortgage with another lender or unsecured borrowing
Similarly, if a customer is considering a retirement interest‑only mortgage, the firm must inform the customer, that a lifetime mortgage may
be available and more appropriate
NOTE: In all the above, the firm does not provide any advise or go in to lots of details. They just have to simply state the customers other potential options beside them
True or false:
A borrower seeking a regulated mortgage may be given qualified advice or proceed on an execution‑only basis
True
When advising on an MCD regulated mortgage, the firm must provide an adequate explanation of the product being recommended
What must this adequate explanation include?
The information included in the ESIS
The key characteristics of the product
The effect the product would have on the customer (including in the event of the customer defaulting on the repayments)
The scope of service, fees payable and remuneration, if the advice is given
by an intermediary
How long do records of advise being given need to be retained?
For a minimum of
three years from the date the advise was given
What is an execution only service?
Where the client knows what they want to do, so the firm gives no advice and the rules on assessing appropriateness do not apply
Under what circumstances in an execution only service allowed for mortgage products?
Execution only is permitted when:
1) There is no interactive dialogue between the firm and the customer during the sale
2) There is interactive dialogue BUT the customer is in one of three categories:
-High net worth
- Professional Customer
-The loan is solely for business purposes
3) There is interactive dialogue BUT the firm’s contribution is limited
4) The customer has rejected advice, identified the product they wish to purchase and has elected to proceed on an execution‑only basis
One of the ways execution only advise can be permitted is where the firm and cust has interactive dialogue BUT the firm’s contribution is limited to certain things
What are these?
Only allowed if the firm’s contribution is limited to:
— factual information about a regulated mortgage or application and
administration processes;
— the provision of an ESIS or a mortgage illustration;
— an explanation that it has not assessed suitability and that the protection
of an advised sale will be lost;
Interactive dialogue between a firm and a cust enables the firm to provide an execution only service
True or false?
False
Execution only service can only be provided under certain circumstances, mostly where there is no interactive dialogue between the cust and the firm
However it can be provided where there is interactive dialogue but only if the firm’s contribution is limited to certain things such as only stating facts about regulated mortgages or only talking about the provisions in the ESIS or the customer is 1 of 3 set categories such as being high net worth or a professional cust
What are the record keeping requirements for a firm that has provided an execution only service?
When a firm accepts an execution‑only sale it must keep a record of the sale, including the information provided, confirmation from the customer, and any
rejected advice offered, for three years from the start of the contract
NOTE: 3 years is the same for a firm that has provided advise too
