1
Q
A regulated mortgage, subject to MCOB is defined as a contract that satisfies what conditions?
A
- 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
- At least 40% of that land is used or intended to be used, as or in connection with a dwelling
2
Q
What is the meaning of ‘land’ pre and post 1st Jan 2021?
A
- For regulated mortgage contracts entered into before the UK left the EU ‘land’ refers to;
- Land in the UK
- If the contract was entered into on or after 21 March 2016, land in the UK or within the European Economic Area (EAA) at the time the contract was entered into.
For regulated mortgage contracts entered into from 1 January 2021 ‘land’ refers to;
- Land in the UK only
3
Q
What requirements are in the rules of consumer buy to let (CBTL) process?
A
- Pre-contract disclosure
- Assessing creditworthiness
- Arrears management
4
Q
MCOB applies to what?
A
- First-charge loans secured on residential property
- Second-charge loans secured on residential property
5
Q
What is ‘consumer buy to let’?
A
A transaction where the mortgage has not been entered into wholly or predominantly for the purpose of a business carried out by the borrower.
6
Q
What is MCOB 1?
A
Application and purpose
Explains the scope of the rules, ie to whom they apply and for what types of mortgage
7
Q
What is MCOB 2 and its key elements?
A
Conduct of business standards: General
Key elements include
- The use of correct terminology (‘early repayment charge’ and ‘higher lending charge’)
- The requirement for communications with customers to be ‘clear, fair and not misleading’
- Rules about the payment of fees/commission and the accessibility of records for inspection by the FCA
8
Q
What is MCOB 2A and its key elements?
A
Mortgage credit directive
Key elements include
- Remuneration
- The tying of products (making a mortgage conditional on the purchase of other products)
- Foreign currency loans
- Early repayments
9
Q
What is MCOB 3A and its key elements?
A
Financial promotions and communications with customers
Key elements include
- Unsolicited real-time promotions are not permitted
- Non real-time promotions must include the name and contact details of the firm. They must be fair, clear and not misleading. If comparisons are used, they must be with products that meet the same needs. They must state that “your home may be repossessed if you do not keep up repayments on your mortgage” . Records of non real time promotions must be retained for one year after their last use.
10
Q
What is MCOB 3B?
A
MCD general information
11
Q
What is MCOB 4 & 4A and its key elements?
A
Advising and selling standards
Key elements include
- Independent advisers are not required to be able to access all products from all providers: they can source products from a panel of lenders as long as the panel is representative of the market
- Any mortgage recommended must be suitable for the customer and appropriate to their needs and circumstances; records to demonstrate this must be kept for three years. However there is no requirement to issue a suitability report to the client.
- Special requirements apply if the mortgage will be used to consolidate existing debts
On first making contact with a customer, certain information must be disclosed prominently and clearly to the customer. The customer must be provided with the following information;
- Name and contact details
- Whose mortgages are offered
- Details of any limitations in service
- Details of any fee payable for the mortgage advice
- The firms FCA registration details
- How to complain
- Details of the compensation scheme
12
Q
What is MCOB 5 & 5A and its key elements?
A
Pre-application disclosure
Key elements include
- The annual percentage rate of charge (APRC), which shows the interest rate with any fees added
- The amount of the monthly instalment
- The amount by which the instalment would increase for each 1% rise in interest rates
The required information must be provided via a European Standardised Information Sheet (ESIS)
13
Q
What is MCOB 6 & 6A and its key elements?
A
Disclosure at the offer stage
Key elements are
- State how long the offer will remain valid
- Point out that there will be no right of withdrawal after the mortgage has been completed
- Include or be accompanied by a tariff of charges
The borrower must be granted a period of reflection of at least 7 days to consider whether to accept the offer or not
14
Q
What is MCOB 7 & 7A and its key elements?
A
Disclosure at start of contract and after sale
Before the first mortgage payment is made, the lender must confirm
- Details of the amounts, dates and methods of payment
- Details of any related products such as insurance
- (for interest-only mortgages) the responsibility of the borrower to ensure that a repayment vehicle is in place
- What the customer should do if they fall into arrears
Annual statements must be issued showing
- The amount owed and the remaining term
- What type of mortgage it is
- For interest-only mortgages, a reminder to check the performance of the repayment vehicle
- Interest, fees or other payments made since the last statement
- Any changes to the charges tariff since the last statement
15
Q
What is MCOB 8 & 9?
A
Equity release - advising and selling standards, and product disclosure
16
Q
What is MCOB 10?
A
Annual percentage rate
17
Q
What is MCOB 10A?
A
Annual percentage rate of charge
18
Q
What is MCOB 11 and 11A?
A
Responsible lending
19
Q
What is MCOB 12?
A
Charges
20
Q
What is MCOB 13 and its key elements?
A
Arrears and repossessions
Firms must deal fairly with customers who have mortgage arrears or mortgage shortfall debt, this includes;
- 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 all other reasonable measures have failed
- Only applying arrears charges that are a reasonable reflection of the costs of the work involved in dealing with the arrears
Customers in arrears must be given the following information within 15 working days of the lender becoming aware of arrears
- The moneyhelper information sheet ‘problems paying your mortgage’
- The missed payments and the total of arrears including any charges incurred
- The outstanding debt
- Any further charges that may be incurred unless arrears are cleared
21
Q
What 2 levels of service can be provided as per MCOB rules?
A
- Advice
- Execution only
22
Q
In respect to mortgages, who are considered vulnerable customers?
A
- those buying a property using the statutory right-to-buy
- Those entering a sale-and-rent-back agreement
- Equity-release applicants
Any individual who falls into the above categories MUST in the first instance be given advice. Should they then wish to proceed on an execution-only basis, then they can do so.
23
Q
What must a mortgage advisor take reasonable care for?
A
- Establish (from the prospective borrower) all information that is likely to be relevant
- Ensure that the advice they give is suitable given the customers circumstances and needs
24
Q
What are the 3 stages of determining suitability of a mortgage?
A
- Assess whether a mortgage is, in itself, a suitable product for the client
- Assess what type of mortgage is suitable
- Select best mortgage and provider to meet clients needs and circumstances
25
If it is established a mortgage is suitable, then the next stage is to recommend a suitable mortgage contract. What questions must be considered?
- Which mortgage type is most suitable
- Which interest rate option is most suitable
- Over how long a term should the mortgage run
- What are the costs involved? Are they affordable?
26
What is 'committed expenditure'?
Repayments on credit agreements or other contractual arrangements
27
What is 'basic essential expenditure'?
Expenditure on food and other housekeeping costs, utilities, telephone, council tax, buildings insurance, ground rent and service charges and essential travel to work and school
28
What is ICOBS 1 and its key elements?
Application
The activities regulated by these rules include
- Insurance distribution activities
- Effecting and carrying out contracts of insurance
- Managing and underwriting capacity of a Lloyds syndicate as a managing agent of Lloyds
- Communicating or approving a financial promotion
29
What is ICOBS 2 and its key elements?
General matters
Covers categorisation of clients
- Policyholders (anyone who, upon the occurrence of the contingency insured against, is entitled to make a claim)
- Customers (anyone who makes arrangements preparatory to concluding a contract of insurance, ie a prospective policyholder)
Customers are further categorised as
- Consumers (natural persons for purposed outside his or her profession)
- Commercial customers (anyone who is not a consumer)
ICOBS 2 also covers
- Communications (which must be fair and not misleading)
- Inducements (managing conflicts of interest fairly, and not soliciting or accepting inducements that would conflict with a firms duties to its customers)
- Record-keeping
- 'Exclusion of liability' (a firm must not seek to exclude or restrict liability unless it is reasonable to do so)
30
What is ICOBS 3 and its key elements?
Distance communications
Covers rules that ensure compliance with the EU distance marketing directive, which includes the following
- A firm must provide a consumer with distance marketing information before the conclusion of a distance consumer contract
- The identity of the firm and purpose of the call must be made explicitly clear at the beginning of any telephone communications
- Contractual obligations must be communicated to a consumer during the pre-contractual phase, and these obligations must comply with the law presumed to apply to a distant contract
- T&C's must be communicated to a consumer in writing before the conclusion of a distance contract
- The consumer is entitled to receive a copy of the contractual terms and conditions in hard copy on request.
ICOBS 3 also covers e-commerce activities and states a firm must make the following information easily, directly and permanently accessible
- Name and address
- Details of the firm (including email address) that allow it to be contacted in a direct and effective manner
- Status disclosure statement and confirmation that it is on the FCA financial services register, including the FCA register number
Other rules include any
- Prices advertised must be clear and unambiguous, and the firm must indicate whether the price includes relevant taxes
- Unsolicited commercial communication sent by email must be clearly identifiable as such as soon as its received
31
What is ICOBS 4 and its key elements?
Information about the firm, its services and remuneration
States that a firm must provide a customer with at least the following
information before the conclusion of an initial contract of insurance and, if necessary, on its amendment or renewal:
- Its identity, address and whether it is an insurance intermediary or an
insurance undertaking
- whether it provides a personal recommendation about the insurance
products offered;
- the procedures for making complaints to the firm and the FOS or, if the FOS does not apply, information about the out‑of‑court complaint and redress procedures available for the settlement of disputes.
An insurance intermediary must also provide the customer with the following information:
- the fact that it is included in the FCA Register and the means for verifying this;
- whether it has a direct or indirect holding representing 10 per cent or more of the voting rights or capital in a given insurance undertaking (that is not a pure reinsurer);
- whether a given insurance undertaking (that is not a pure reinsurer) or its parent undertaking has a direct or indirect holding representing 10 per cent or more of the voting rights or capital in the firm; and
- whether it is representing the customer or is acting for and on behalf of the insurer
Where an insurance intermediary proposes or advises on a contract of
insurance then before the conclusion of the initial contract, the intermediary must provide information on whether the firm:
- gives a personal recommendation on the basis of a fair and personal
analysis; or
- is under a contractual obligation to conduct insurance distribution
exclusively with one or more insurance undertakings; or
- neither of the above apply.
In which case it must provide its customer with the name of those insurance undertakings with which the insurance intermediary may, and does, conduct business.
Where a firm has given the above information, before the conclusion of an initial contract of insurance with a consumer, a firm must also state whether it is giving:
- a personal recommendation, but not on the basis of a fair and 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; or
- just information.
32
What is ICOBS 5 and its key elements?
Identifying clients needs and advising
- a firm should take reasonable steps to ensure that a customer only buys a policy from which they are eligible to claim benefits;
- if a firm finds that parts of the cover do not apply, they should inform the customer so that they can make an informed choice;
- a firm should explain the duty not to misrepresent information, what
this includes, and the consequences of deliberate, reckless or careless
misrepresentation;
- prior to the conclusion of a contract a firm must specify, on the basis of information obtained from the customer, their needs;
- a statement of demands and needs must be communicated in writing to the customer in a clear and accurate manner, comprehensible to the customer;
- the firm must take reasonable steps to ensure the suitability of its advice to any customer who is entitled to rely upon its judgement, taking account of level of cover and cost, relevant exclusions, excesses, limitations and conditions – it must inform the customer of any demands and needs not
met.
33
What is ICOBS 6 and its key elements?
Product information
An insurer is responsible for producing, and an insurance intermediary for providing to a customer, the product information required by ICOBS 6.
ICOBS 6 states that a firm must take reasonable steps to ensure a customer is given appropriate information about a policy so that they can make an informed choice about the arrangements proposed.
The information given will vary according to matters such as:
- knowledge, experience and ability of a typical customer for the policy;
- policy terms, benefits, exclusions, limitations, conditions and duration;
- the policy’s complexity;
- whether the policy is purchased in connection with other products and services;
- distance communication information requirements; and
- whether the same information has been provided to the customer previously.
When dealing with a consumer, a firm must provide an Insurance Product Information Document (IPID) in a durable medium. The IPID is drawn up by the manufacturer of the policy.
A firm should provide evidence of cover promptly after the inception of a policy.
Information disclosed ‘pre‑contract’ includes the arrangements for handling complaints and the right to cancel.
Before a pure protection contract is concluded, a firm must provide the
customer with information, including:
the name of the insurance undertaking and its legal form;
address of its head office;
the definition of each benefit and option;
contract term;
the means of terminating the contract;
means of payment and duration of premiums;
tax arrangement for benefits under the policy;
cancellation information;
arrangements for handling complaints.
34
What is ICOBS 7 and its key elements?
Cancelation
States that a consumer has the right to cancel without penalty, and without giving a reason, within:
30 days for a contract of insurance which is, or has elements of, pure
protection (eg critical illness) or payment protection;
14 days for any other contract of insurance or distance contract (such as home insurance).
The right to cancel does not apply to the following:
travel policies of less than one month;
policies the performance of which has been fully completed;
pure protection policies of six months or less, which are not distance
contracts;
pure protection policies effected by trustees of an occupational pension scheme, or employers (or partners) for the benefit of employees (or partners);
general insurance (which is not a distance contract or payment protection contract) sold by an intermediary who is an unauthorised person; and
a connected contract which is not a distance contract.
35
What is ICOBS 8 and its key elements?
Claims Handling
If claims are handled by an intermediary, the insurance company must ensure that the rules are complied with, ensuring no conflict of interest. Claims must be handled promptly and fairly, and the firm must provide reasonable guidance to help the policyholder make a claim. The firm must not unreasonably reject a claim.
Rejection of a claim is considered unreasonable if it is for:
non‑disclosure of a material fact which the policyholder could not
reasonably have expected to have disclosed;
non‑negligent misrepresentation of a material fact;
breach of a condition of the contract unless the circumstances of the claim are connected to the breach.
36
What are the 6 chapters of BCOBS?
1. Application
2. Communications with banking customers and financial promotions
2A. Restriction on marketing or providing an optional product for which a fee is payable
3. Distance communications and e‑commerce
4. Information to be communicated to banking customers and statements of account
5. Post‑sale requirements
6. Cancellation
7. Information about current account services
37
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.
The PSRs’ conduct of business provisions only apply to payment services made in euros or sterling, so primarily to sterling and euro‑denominated accounts.
38
What firms are covered by payment services regulations (PSR)?
- Banks
- Building societies
- E-money issuers
- Money remitters
- Non-bank credit card issuers
- Non-bank merchant acquirers
39
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.
40
What is a non-bank merchant acquirer?
A financial institution other than a bank that processes credit or debit
card payments.
41
What is the aim of 'Payments services directive (PSD2)?
It aims to increase competition in the payments industry, brings into scope new types of payment services, enhance customer protection and security, and extend the reach of the Directive.
42
What are the four main themes of change in regards of PSD2?
market efficiency and integration
consumer protection
competition
choice; and security.
43
In what ways does PSD2 increase consumer rights?
Payments sent or received where one of the payment service providers (PSPs) is located outside the EEA are covered, as are payments in non‑EEA currencies.
The amount a payer can be obliged to pay in an unauthorised payment scenario has reduced from €150 to €50, except in cases of fraud or gross negligence by the payer.
PSD2 bans surcharging for the use of payment instruments covered by the Interchange Fee Regulation and payment services covered by the SEPA Regulation.
PSPs must put in place dispute resolution procedures and are required to respond to payment complaints within 15 business days of receipt. In exceptional circumstances, a holding reply can be provided, explaining the reasons for the delay, with the final response being received within 35 business days.
44
What is the payment systems regulator (PSR)?
The Payment Systems Regulator (PSR) is a subsidiary of the Financial Conduct Authority (FCA). It oversees all domestic payment systems that are brought into the regulator’s scope by HM Treasury.
45
What authority does the payments systems regulator (PSR) have?
over requirements regarding system rules; and
to give directions to participants in designated payment systems.
It has further specific powers to:
require access to designated payment systems for a payment services provider;
vary agreements relating to designated payment systems (including fees and charges); and
require owners of payment systems to dispose of their interests in them, subject to the satisfaction of certain preconditions and subject to HM Treasury approval.
46
What is ' The standards of lending practice'?
The Lending Standards Board (LSB) publishes standards to which firms that are registered with the LSB must adhere.
47
What are the six main areas for personal customers as set out by the lending standards board?
financial promotions and communications;
product sale;
account management and servicing;
money management;
financial difficulty;
customer vulnerability.
48
What products are covered by the standards of lending practice?
Unsecured loans
Credit cards and chargebacks
Current account overdrafts
49
What five different categories of advice are there?
basic advice;
generic advice;
focused advice;
simplified advice;
robo advice.
50
What is 'basic advice'?
Basic advice is a limited form of advice that applies to stakeholder products. It is focused on one or more specific client needs; it does not involve an analysis of the client’s circumstances that are not directly relevant to those needs. It involves the use of a set of scripted questions to establish whether a stakeholder product within the firm’s range is suitable for the customer.
51
When can a stakeholder product be recommended?
reasonable steps have been taken to assess the client’s answers to the scripted questions and any other facts disclosed by the client during the basic sales process;
there are reasonable grounds for believing that the stakeholder product is suitable for the client; and
the firm reasonably believes the client understands the basis upon which the advice has been provided.
52
When is basic advice appropriate?
Basic advice is appropriate for clients who:
have their priority needs met (ie they do not need to reduce
existing debt, have adequate access to liquid cash, and have
their core protection needs met);
have some disposable income or capital that they wish to
invest;
do not want a holistic assessment of their financial situation,
just advice on a specific investment need.
53
What is 'generic advice?
* Advice or information that does not relate to a particular product or investment and does not meet the characteristics of regulated advice
* For example, ‘for most people it is sensible to have adequate financial protection in place’
54
What is 'focused advice'?
* Where, at the request of the customer, advice and recommendations relate to specific needs or investments
* Also referred to as limited advice
55
What is 'simplified advice'?
* Advice that is limited, by the firm providing it, to one or more of a customer’s needs
* Does not involve analysis of the customer’s circumstances that are not directly relevant to those needs
* This type of advice may be provided face to face, over the phone or online
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Decks in class (25)
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