Advising and selling standards

Part

MCOB Mortgages and Home Finance: Conduct of Business sourcebook

Chapter

Advising and selling standards

Printed on: 06/11/2024

Rulebook at: 31/10/2007

MCOB 4

Advising and selling standards

MCOB 4.1

Application

01/12/2004

Who?

MCOB 4.1.1

This chapter applies to a firm in a category listed in column (1) of the table in MCOB 4.1.2 R in accordance with column (2) of that table.

31/10/2004

MCOB 4.1.2

This table belongs to MCOB 4.1.1 R

(1) Category of firm

(2) Applicable section

mortgage lender

MCOB 4.1 to MCOB 4.4, and MCOB 4.8 to MCOB 4.9

mortgage adviser

whole chapter except MCOB 4.10

mortgage arranger

whole chapter except MCOB 4.7 and MCOB 4.10

home purchase provider

MCOB 4.1, MCOB 4.2 and MCOB 4.10 (except MCOB 4.10.5 G to MCOB 4.10.7 G).
MCOB 4.3, MCOB 4.4 and MCOB 4.8 in accordance with MCOB 4.10

home purchase adviser

MCOB 4.1, MCOB 4.2, MCOB 4.5, MCOB 4.6 and MCOB 4.10. MCOB 4.3, MCOB 4.4, MCOB 4.7 and MCOB 4.8 in accordance with MCOB 4.10

home purchase arranger

As for a home purchase adviser except MCOB 4.10.5 G to MCOB 4.10.7 G and MCOB 4.7 do not apply

reversion provider
reversion adviser
reversion arranger

see MCOB 8for the application of this chapter

06/04/2007

What?

MCOB 4.1.3

This chapter applies if a firm in the course of carrying on a home finance activity:

(1) makes, or anticipates making, a personal recommendation about; or
(2) gives, or anticipates giving, personalised information relating to;

the customer:

(3) entering into a home finance transaction; or
(4) varying the terms of a home finance transaction entered into by the customer.

06/04/2007

MCOB 4.1.4

(1) MCOB 4.4 (Initial disclosure requirements) applies only in relation to varying the terms of a regulated mortgage contract entered into by the customer in any of the following ways:

(a) adding or removing a party;
(b) taking out a further advance; or
(c) switching all or part of the regulated mortgage contract from one interest rate to another.

(2) Otherwise, this chapter, MCOB 4, applies in relation to any form of variation of a regulated mortgage contract.

31/10/2004

MCOB 4.1.5

In relation to an equity release transaction, this chapter is modified by MCOB 8 (Equity release: advising and selling standards).

06/04/2007

MCOB 4.1.6

MCOB 4.1.5 R means that this chapter, MCOB 4, deals with standard regulated mortgage contracts and home purchase plans only and therefore firms should note that the scope of service rules in this chapter do not apply in respect of equity release transactions.

06/04/2007

MCOB 4.1.7

If a firm is an authorised professional firm, when the firm conducts non-mainstream regulated activities with a customer, the only initial disclosure requirements that apply are those relating to the Financial Ombudsman Service and the FSCS (see MCOB 1.2.10 R (3)).

06/04/2007

MCOB 4.1.8

The FSA would not view the removal of a party to the regulated mortgage contract following the death of that party (and where no other variation is proposed) as a variation for the purposes of MCOB 4.1.4 R(1).

31/10/2004

MCOB 4.2

Purpose

01/12/2004

MCOB 4.2.1

(1) This chapter amplifies Principle 6 (Customers' interests), Principle 7 (Communications with clients) and Principle 9 (Customers: relationships of trust).
(2) The purpose of this chapter is to ensure that:

(a) customers are adequately informed about the nature of the service which they may receive from a firm in relation to home finance transactions. In particular firms need to make clear to customers the scope of home finance transactions available from them; and
(b) where advice is given, it is suitable for the customer. The steps firms need to take to ensure that the customer receives suitable advice will vary depending on the demands and needs of the customer and the type of home finance transaction.

(3) This chapter also implements certain requirements of the Distance Marketing Directive in relation to distance mortgage mediation contracts and distance home purchase mediation contracts.

06/04/2007

MCOB 4.3

Scope of service provided

01/12/2004

Providing services within and beyond scope

MCOB 4.3.1

(1) Subject to (2), a firm must take reasonable steps to ensure that the scope of the service given to a customer, and the home finance transactions offered, is based on a selection from one of the following:

(a) the whole market; or
(b) a limited number of home finance providers; or
(c) a single home finance provider.

(2) A firm may change the scope of the service it gives to a particular customer by widening the scope, for example, from that in (1)(c) to that in (b) or (a) but it must take reasonable steps to ensure that before doing so:

(a) the customer is made aware of the proposed change by a communication in a durable medium; and
(b) the customer's attention is drawn to any change in the fees that the customer must pay to the firm for the firm's services.

06/04/2007

MCOB 4.3.2

A firm must take reasonable steps to ensure that the extent of the scope of the service which it holds itself out as offering to a customer reflects the extent of that scope in practice.

31/10/2004

MCOB 4.3.3

SYSC 3.2.6 R and SYSC 6.1.1 R (Compliance) requires a firm (including a common platform firm) to 'establish, implement and maintain effective systems and controls for compliance with applicable requirements and standards under the regulatory system'. In meeting this requirement in relation to MCOB 4.3.2 R, a firm which states that it provides a service based on a limited number of mortgage lenders (see MCOB 4.3.1 R (1)(b)) should have adequate systems and controls in place to monitor whether business is actually placed with those mortgage lenders.

01/01/2007

Whole of market

MCOB 4.3.4

(1) A firm which holds itself out as giving information or advice to customers on regulated mortgage contracts from the whole market must not give any such information or advice unless:

(a) it has considered a sufficiently large number of regulated mortgage contracts which are generally available from the market; and
(b) the consideration in (a) is based on criteria which reflect adequate knowledge of the regulated mortgage contracts generally available from the market as a whole.

(2) A firm in (1) must satisfy the obligation in MCOB 4.7.2 R by taking reasonable steps to ensure that a personal recommendation given to a customer is:

(a) in accordance with the consideration in (1); and
(b) the regulated mortgage contract which on the basis of that consideration is the most suitable to meet the customer's needs.

31/10/2004

MCOB 4.3.4A

In applying this chapter, there is:

(1) one market for regulated mortgage contracts that are not lifetime mortgages; and
(2) another market for home purchase plans.

06/04/2007

MCOB 4.3.5

If a firm holds itself out as giving information or advice to customers on regulated mortgage contracts generally available from the whole market, the firm may choose to offer its customers only a selection of those regulated mortgage contracts. The firm's selection of regulated mortgage contracts for this purpose will need to be sufficiently large to enable the firm to satisfy the suitability requirement in MCOB 4.3.4 R (Whole of market).

31/10/2004

MCOB 4.3.6

(1) When offering only a selection of regulated mortgage contracts as described in MCOB 4.3.5 G, a firm should ensure that its analysis of the market and of the available regulated mortgage contracts is kept adequately up to date. For example, a firm would need to update its selection of regulated mortgage contracts if it became aware that a regulated mortgage contract had become generally available offering an improved product feature, or a better interest rate, when compared with the regulated mortgage contracts currently in the firm's selection.
(2) One way in which a firm may wish to satisfy MCOB 4.3.4 R is by using a panel of mortgage lenders, which includes representative firms from the whole market. However, if a firm wishes to offer a whole of market service through the use of a panel, it must still assess the individual regulated mortgage contracts that are being offered by mortgage lenders in making its selection.

31/10/2004

Independence

MCOB 4.3.7

(1) When providing information or giving advice to a customer on home finance transactions, a firm must not hold itself out as acting independently unless it intends to:

(a) provide that service wholly or predominantly based on the whole market in the relevant type of home finance transaction; and
(b) enable the customer to pay a fee for the provision of that service.

(2) A firm which in accordance with (1) holds itself out as independent must ensure that the information or advice subsequently given to the customer concerned is information or advice on home finance transactions from the whole market in the relevant type of home finance transaction.

06/04/2007

MCOB 4.3.8

(1) MCOB 4.3.7 R stipulates what a firm must do if it is to hold itself out to any particular customer as acting independently. A firm which wishes to hold itself out generally as acting independently should ensure that doing so (for example through a trading name or advertising) is consistent with the kind of service which customers receive in relation to the relevant home finance transactions.
(2) A firm that sells both investments and home finance products can offer from the whole market (or the whole market for a type of home finance transaction) and therefore be 'independent' for one but offer only a limited range for the other. If this is the case, the firm should explain the different nature of the services in a way that meets the requirement for clear, fair and not misleading communications in MCOB 2.2.6 (Clear, fair and not misleading communications).

06/04/2007

MCOB 4.3.9

MCOB 4.3.7 R (1)(b) means that a firm wishing to hold itself out as independent will need to give a customer a purely fee-based option for paying its fees. However, the firm may in addition provide the customer with other payment options, such as a combination of fees and commission.

31/10/2004

Appointed representatives

MCOB 4.3.10

A firm may restrict the home finance transactions it authorises a particular appointed representative to sell. If it does so, the appointed representative must reflect this restricted scope in any initial disclosure document or combined initial disclosure document provided to the customer.

06/04/2007

MCOB 4.4

Initial disclosure requirements

01/12/2004

Disclosure where initial contact is not made by telephone

MCOB 4.4.1

(1) A firm must ensure that, on first making contact with a customer when it anticipates giving personalised information or advice on a regulated mortgage contract, it:

(a) establishes with the customer whether it will provide advice or information;
(b) establishes with the customer how much he will pay or, alternatively, the basis on which the firm will be remunerated, where appropriate; and
(c) provides the customer with either:

(i) an initial disclosure document; or
(ii) if the firm has reasonable grounds to be satisfied that the services which it is likely to provide to the customer will relate to a combination of different types of home finance transaction, or will relate to home finance transactions and one or more of non-investment insurance contracts or packaged products, a combined initial disclosure document;

in a durable medium.
(2) The requirement in (1)(c) does not apply where;

(a) an initial disclosure document has already been provided by the firm and that document is still likely to be accurate and appropriate for the customer; or
(b) an initial disclosure document has already been provided by the firm which first made contact with the customer in respect of the particular regulated mortgage contract, and the firm subsequently making contact with the customer:

(i) does not anticipate altering or replacing the service described in that document; or
(ii) is not making contact with a view to concluding a distance mortgage mediation contract; or

(3) A firm may choose not to include the initial disclosure information required by sections 6, 7 and 8 of the initial disclosure document, and sections 5, 7 and 8 of the combined initial disclosure document, if it provides the customer with the information required by those sections in some other durable medium before the customer makes an application for a regulated mortgage contract.
(4) A firm must not use a combined initial disclosure document in relation to a combination of:

(a) regulated mortgage contracts or home purchase plans; and
(b) equity release transactions.

06/04/2007

MCOB 4.4.2

MCOB 4.4.1 R (2)(b) means, for example, that a mortgage lender will provide the initial disclosure document in a direct sale but not where the sale involves a mortgage intermediary. If a number of different firms are involved in relation to the transaction, having regard to MCOB 2.5.4 R (2), those firms should take reasonable steps to establish that the customer has been provided with an initial disclosure document as required by MCOB 4.4.1 R.

31/10/2004

MCOB 4.4.3

(1) In many cases, MCOB 4.4.1 R (1) means that the initial disclosure document will be provided at the time of the first contact between the firm and the customer. However, there may be circumstances, for example in relation to a loan for a business purpose, where the possibility of the customer entering into, or varying the terms of, a regulated mortgage contract is only identified after preliminary discussions. Disclosure, in the context of MCOB 4, is only required once this possibility is identified.
(2) In the FSA's opinion, the requirements at MCOB 4.4.1 R and MCOB 4.4.7 R would not apply when a customer contacts a firm simply to arrange to receive personalised information or advice on a regulated mortgage contract at a later time, such as when a customer books an appointment. In such cases, initial disclosure should be made when the firm first makes contact with the customer with a view to actually giving the information or advice. However, firms should note the additional disclosure requirements in MCOB 4.5 (Additional disclosure for distance mortgage mediation contracts with retail customers), and, the need to ensure that the required information (to be provided with the initial disclosure document) is provided in good time (see MCOB 4.5.3 G (1)).

31/10/2004

MCOB 4.4.4

If a firm has provided a customer with an appropriate initial disclosure document but subsequently discovers that the customer wants different services from those originally anticipated and described in the document, the firm will need to establish the details of the new service to be provided to the customer and provide the customer with a new initial disclosure document in accordance with MCOB 4.4.1 R or MCOB 4.4.7 R.

31/10/2004

Uncertainty whether a mortgage is regulated

MCOB 4.4.5

(1) If at the point that initial disclosure must be made in accordance with MCOB 4.4.1 R or MCOB 4.4.7 R a firm is uncertain whether the contract will be a regulated mortgage contract, the firm must:

(a) provide the initial disclosure document; or
(b) seek to obtain from the customer information that will enable the firm to ascertain whether the contract will be a regulated mortgage contract.

(2) Where (1)(b) applies, the initial disclosure document must be provided unless, on the basis of the information provided by the customer, the firm has reasonable evidence that the contract is not a regulated mortgage contract.

31/10/2004

Information to be provided to customers on request

MCOB 4.4.6

(1) If a firm's scope of service is based on MCOB 4.3.1 R (1)(b) it must maintain, and keep up to date, in a durable medium and in a form which is appropriate for distribution to the customer, a list of the mortgage lenders whose regulated mortgage contracts it offers. This list must also confirm whether or not the firm provides services in relation to all of the regulated mortgage contracts generally available from each mortgage lender.
(2) The customer must be provided with a copy of the information described in (1) on request.
(3) A firm must take reasonable steps to ensure that its appointed representatives provide a copy of the record in (1) to a customer on request.

31/10/2004

Disclosure where initial contact is by telephone

MCOB 4.4.7

(1) If the initial contact of a kind in MCOB 4.4.1 R(1) is by telephone, then unless MCOB 4.4.1 R(2)(a) applies, the following information must be given before proceeding further:

(a) the name of the firm and (if the call is initiated by or on behalf of the firm) the commercial purpose of the call;
(b) the scope of the service provided by the firm (within the meaning of MCOB 4.3.1 R);
(c) if the scope of the service is based on MCOB 4.3.1 R(1)(b), that the customer can request a copy of the list of mortgage lenders whose regulated mortgage contracts it offers and confirmation of whether the firm provides services in relation to all of the regulated mortgage contracts generally available from each mortgage lender;
(d) whether or not the firm will provide the customer with advice on those regulated mortgage contracts within its scope; and
(e) that the information given under (a) to (d) will be confirmed in writing.

(2) Provided that the telephone call in (1) has not led the firm to conclude that the customer is ineligible for any of its regulated mortgage contracts, and that the customer has provided his contact details, the firm must send the customer a copy of an initial disclosure document or combined initial disclosure document and any other information required to be provided, in a durable medium within five business days of the telephone call (see also MCOB 4.5.2 R (2)(b) for the equivalent requirement in relation to distance mortgage mediation contracts).
(3) If the customer accepts the offer in (1)(c) of a list of the mortgage lenders whose regulated mortgage contracts the firm offers, that list must also be sent with the information required in (2).

06/04/2007

MCOB 4.4.8

Firms are reminded of the requirements in MCOB 3.8 (Form and content of real time qualifying credit promotions) in relation to telephone calls that may fall within the definition of a financial promotion and should also note the additional requirements that apply in relation to distance mortgage mediation contracts with retail customers in MCOB 4.5 (Additional disclosure for distance mortgage mediation contracts with retail customers).

31/10/2004

MCOB 4.5

Additional disclosure for distance mortgage mediation contracts and distance home purchase mediation contracts with retail customers

06/04/2007

MCOB 4.5.1

(1) There are certain additional disclosure requirements laid down by the Distance Marketing Directive that will have to be provided by a mortgage intermediary and a home purchase intermediary to a retail customer prior to the conclusion of a distance mortgage mediation contract or a distance home purchase mediation contract. The purpose of this section, MCOB 4.5, is to set out those additional requirements. MCOB 4.6 sets out the cancellation rights that apply in relation to such contracts.
(2) The FSA expects the requirements in MCOB 4.5 and MCOB 4.6 to be relevant only in a small minority of cases. Mediation at a distance (see MCOB 1.3.5 G and MCOB 1.3.6 G) is unlikely in the home finance market. MCOB 4.5 and MCOB 4.6 will only be relevant if a mortgage intermediary or a home purchase intermediary enters into a distance contract in respect of its mortgage mediation activities or home purchase mediation activities quite independent of any contractual arrangement with a retail customer relating to a particular regulated mortgage contract or home purchase plan. An example of a distance mortgage mediation contract would be a distance contract under which a mortgage intermediary agreed to review and provide advice on a retail customer's mortgage needs from time to time.

06/04/2007

MCOB 4.5.3

(1) The information in MCOB 4 Annex 3 will be provided in 'good time' for the purposes of MCOB 4.5.2 R (1), if provided in sufficient time to enable the customer to consider properly the services on offer.
(2) An example of the circumstances in which MCOB 4.5.2 R (4) or (5) may apply is given in MCOB 4.4.4 G. If the initial disclosure document and accompanying information (including that in MCOB 4 Annex 3) was previously provided to a customer and continues to be appropriate, there is no need to provide the information again. If additional information is required, this may be provided by a supplementary document. However, if a service of a different nature is proposed, the firm is expected to provide a fresh initial disclosure document and, in respect of distance mortgage mediation contracts and distance home purchase mediation contracts with retail customers, this will need to be accompanied by the information in MCOB 4 Annex 3.

06/04/2007

MCOB 4.6

Cancellation of distance mortgage mediation contracts and distance home purchase mediation contracts

06/04/2007

MCOB 4.6.1

A retail customer has no right to cancel a home finance transaction concluded with a firm but may have a right to cancel a distance contract concluded with a mortgage intermediary or a home purchase intermediary for the provision of his services. Whether a mortgage intermediary or a home purchase intermediary concludes a distance mortgage mediation contract or a distance home purchase mediation contract with a retail customer will depend on the circumstances. For example, an intermediary may not, in advising on or arranging a regulated mortgage contractor home purchase plan, act contractually on behalf of, or for, the customer. In such circumstances, no distance mediation contract will arise for the firm's services, and therefore no right to cancel. If there is a contract between the customer and the firm, however, and therefore there is a right to cancel, the firm is required by MCOB 4.5.2 R(1) to provide the information in MCOB 4 Annex 3(5).

06/04/2007

MCOB 4.6.2

The information provided in accordance with MCOB 4 Annex 3(5) should be sufficiently clear, prominent and informative to enable the retail customer to understand the right to cancel.

31/10/2004

MCOB 4.6.3

Where the notice of the right to cancel forms part of another document, or is one of a number of documents sent to the retail customer at the same time, a firm should ensure that the presence of the notice of the right to cancel is drawn to the retail customer's attention.

31/10/2004

Cancellation period

MCOB 4.6.4

(1) A retail customer has a right to cancel a distance mortgage mediation contract or a distance home purchase mediation contract in accordance with this section.
(2) The right to cancel must be exercised within 14 days beginning on the later of:

(a) the day of the conclusion of the contract; or
(b) the day on which the retail customer receives the contractual terms and conditions and other information required by MCOB 4.4 and MCOB 4.5.

06/04/2007

Exercising the right to cancel

MCOB 4.6.5

A retail customer who has a right to cancel a distance mortgage mediation contract or a distance home purchase mediation contract may, without giving any reason, cancel the contract by serving notice on the firm, before the expiry of the cancellation period in MCOB 4.6.4 R either:

(1) by serving on, or otherwise sending by post, notice to the firm's last known address, addressed to the firm, its appointed representative or on any agent of the firm with authority to accept notice on the firm's behalf; or
(2) in accordance with any other practical instructions for exercising that right provided to the retail customer in accordance with MCOB 4 Annex 3(5).

06/04/2007

MCOB 4.6.6

Where the notice of cancellation is in a durable medium and is served in accordance with MCOB 4.6.5 R, it must be treated as being served on the firm on the date it is despatched by the retail customer.

31/10/2004

MCOB 4.6.7

In the event of any dispute, unless there is clear written evidence to the contrary, the firm should treat the date cited by the retail customer as being the date when notice was given, posted or otherwise sent.

31/10/2004

Effects of cancellation

MCOB 4.6.8

By exercising a right to cancel under MCOB 4.6.4 R the retail customer withdraws from the contract and the entire contract is terminated.

31/10/2004

MCOB 4.6.9

Regulation 11 (Automatic cancellation of an attached distance contract) of the Distance Marketing Regulations, has the effect that when notice of cancellation is given in relation to a contract, that notice also operates to cancel any attached contract, which is also a distance financial services contract. An example of such an attached contract might be a distance non-investment insurance contract.

31/10/2004

MCOB 4.6.10

When a retail customer exercises a right to cancel under MCOB 4.6.4 R:

(1) the firm must:

(a) pay to the retail customer without delay, and no later than 30 days after the date on which the firm received notice of cancellation from him, any sums which he has paid to or for the benefit of the firm in connection with the contract (including sums paid by the retail customer to agents of the firm) except for the amount referred to in (b);
(b) subject to (c), the firm is permitted to require the retail customer to pay for the services it has actually provided in connection with the contract; the amount payable, however, must be in accordance with the sums which the retail customer agreed to pay and must not:

(i) exceed an amount which is in proportion to the extent of the service already provided to the retail customer by the firm; and
(ii) be such that it could be construed as a penalty;

(i) where performance of the contract has commenced before expiry of the cancellation period, this was requested by the retail customer; and
(ii) the firm can demonstrate that the retail customer was provided with details of the amount which he may be required to pay if exercising his right to cancel in accordance with MCOB 4 Annex 3(5).

(2) The firm is entitled to receive without delay, and no later than 30 days after the date on which the retail customer posted or otherwise sent notice of cancellation to the firm any property that became the retail customer's under the contract and any sums payable to the firm under (1)(b).

31/10/2004

Record keeping

MCOB 4.6.11

Where notice of cancellation has been served on a firm (or its appointed representative or agent), the firm must make and retain a record (which includes a copy of any receipt of notice issued to the retail customer and the retail customer's original notice instructions) for three years from the date when the firm first became aware that notice of cancellation had been served.

31/10/2004

MCOB 4.7

Advised sales

01/12/2004

Suitability

MCOB 4.7.1

Principle 9 requires a firm to take reasonable care to ensure the suitability of its advice. In accordance with that principle, a firm should take reasonable steps to obtain from a customer all information likely to be relevant for the purposes of MCOB 4.7.

31/10/2004

MCOB 4.7.2

A firm must take reasonable steps to ensure that it does not make a personal recommendation to a customer to enter into a regulated mortgage contract, or to vary an existing regulated mortgage contract, unless the regulated mortgage contract is, or after the variation will be, suitable for that customer (see MCOB 4.3.4 R (2), MCOB 4.3.5 G and MCOB 4.3.6 G).

31/10/2004

MCOB 4.7.3

In MCOB 4.7, a reference to a recommendation to enter into a regulated mortgage contract is to be read as including a reference to a recommendation to vary an existing regulated mortgage contract if the context so requires.

31/10/2004

MCOB 4.7.4

For the purposes of MCOB 4.7.2 R:

(1) a regulated mortgage contract will be suitable if, having regard to the facts disclosed by the customer and other relevant facts about the customer of which the firm is or should reasonably be aware, the firm has reasonable grounds to conclude that:

(a) the customer can afford to enter into the regulated mortgage contract;
(b) the regulated mortgage contract is appropriate to the needs and circumstances of the customer; and
(c) the regulated mortgage contract is the most suitable of those that the firm has available to it within the scope of the service provided to the customer;

(2) no recommendation must be made if there is no regulated mortgage contract from within the scope of the service provided to the customer which is appropriate to his needs and circumstances; and
(3) if a firm is dealing with an existing customer in arrears and has concluded that there is no suitable regulated mortgage contract for the purposes of MCOB 4.7.2 R, the firm must nonetheless have regard to MCOB 13.3.2 E(1)(a), (e) and (f) (see also MCOB 13.3.4 G (1)(a) and (b)

31/10/2004

MCOB 4.7.5

In relation to MCOB 4.7.4 R(1)(a), a firm must explain to the customer that the assessment of whether he can afford to enter into a regulated mortgage contract is based on:

(1) current interest rates, which might rise in the future; and
(2) the customer's current circumstances, which might change in the future.

31/10/2004

MCOB 4.7.6

In relation to MCOB 4.7.4 R(1)(a) and (b), where a firm makes a personal recommendation to a customer to enter into a regulated mortgage contract where a main purpose is to consolidate existing debts it must also take account of the following, where relevant, in assessing whether the regulated mortgage contract is suitable for the customer:

(1) the costs associated with increasing the period over which a debt is to be repaid;
(2) whether it is appropriate for the customer to secure a previously unsecured loan; and
(3) where the customer is known to have payment difficulties, whether it would be more appropriate for the customer to negotiate an arrangement with his creditors than to take out a regulated mortgage contract.

31/10/2004

MCOB 4.7.7

(1) In assessing whether a customer can afford to enter into a particular regulated mortgage contract, a firm should give due regard to the following:

(a) information that the customer provides about his income and expenditure, and any other resources that he has available;
(b) any likely change to the customer's income, expenditure or resources; and
(c) the costs that the customer will be required to meet once any discount period in relation to the regulated mortgage contract comes to an end (on the assumption that interest rates remain unchanged).

(2) Contravention of MCOB 4.7.7 E(1) may be relied upon as tending to show contravention of MCOB 4.7.4 R(1)(a).

31/10/2004

MCOB 4.7.8

A firm may generally rely on any information provided by the customer for the purposes of MCOB 4.7.4 R(1)(a) unless, taking a common-sense view of this information, it has reason to doubt it.

31/10/2004

MCOB 4.7.9

MCOB 4.7.4 R(3) explains that different considerations apply when making a personal recommendation to a customer in arrears. For example, the circumstances of the customer may mean that, viewed as a new transaction, a customer could not be recommended to enter into a regulated mortgage contract. In such cases, a firm will still be able to make a personal recommendation to that customer where this recommendation is, in the circumstances, a more suitable one than the customer's existing regulated mortgage contract.

31/10/2004

MCOB 4.7.10

In complying with MCOB 4.7.4 R a firm is not required to consider whether it would be preferable for the customer to:

(1) purchase a property by using his own resources, rather than by borrowing under a regulated mortgage contract;
(2) rent a property, rather than purchase one; or
(3) delay entering into a regulated mortgage contract until a later date (on the grounds that property prices would have fallen in the intervening period, or that the interest rate in relation to the regulated mortgage contract would be lower, or both).

31/10/2004

MCOB 4.7.11

(1) In assessing whether the regulated mortgage contract is appropriate to the needs and circumstances of the customer for the purposes of MCOB 4.7.4 R(1)(b), a firm should give due regard to the following:

(a) whether the customer's requirements meet the eligibility criteria for the regulated mortgage contract (for example, the amount that the customer wishes to borrow, or the loan-to-value ratio);
(b) whether the customer should have an interest-only mortgage, a repayment mortgage, or a combination of the two;
(c) whether the customer has a preference for a particular term;
(d) whether the customer has a preference or need for stability in the amount of required payments, especially having regard to the impact on the customer of significant interest rate changes in the future;
(e) whether the customer has a preference or need for payments to be reduced at the outset (for example, a loan with an initial discount rate period);
(f) whether the customer intends to make early repayments; and
(g) whether the customer has a preference or need for any other features of a regulated mortgage contract (for example, payment holidays).

(2) Compliance with (1) may be relied upon as tending to show compliance with MCOB 4.7.4 R(1)(b).

31/10/2004

MCOB 4.7.12

(1) MCOB 4.7.11 E(1)(b) does not require a firm to provide advice on investments. Whether such advice should be given will depend upon the individual needs and circumstances of the customer. Where considered relevant, MCOB 4 does not restrict the ability of an adviser to refer the customer to another source of investment advice (for example, where the adviser is not qualified to provide advice on investments).
(2) Where the scope of the advice provided is based on a selection of regulated mortgage contracts from a single or limited number of lenders, the assessment of suitability should not be limited to the types of regulated mortgage contracts which the firm offers. A firm cannot recommend the 'least worst' regulated mortgage contract where the firm does not have access to products appropriate to the customer's needs and circumstances. This means, for example, that a firm dealing solely in the sub-prime market should not recommend one of these regulated mortgage contracts if approached for advice by a customer with an unblemished credit record.

06/04/2007

MCOB 4.7.13

(1) A firm should, out of all the regulated mortgage contracts identified as being appropriate for that customer, recommend the one that is the least expensive for that customer taking into account those pricing elements identified by the customer as being most important to him.
(2) Compliance with (1) may be relied upon as tending to show compliance with MCOB 4.7.4 R(1)(c).

31/10/2004

MCOB 4.7.14

(1) With regard to MCOB 4.7.13 E(1) different customers are likely to identify different pricing elements as being of most importance. For example, it may be the overall cost, the cost over the first five years, or the absence of early repayment charges that a customer considers most important.
(2) MCOB 4.7.13 E(1) does not prevent a firm from making a recommendation on other grounds. For example, it would be open to a firm to have regard to the speed or quality of service of different mortgage lenders, the policies of mortgage lenders on further lending or capital repayments, the underwriting stance of mortgage lenders or the customer's wish for a regulated mortgage contract that is compliant with Islamic law. The obligation to satisfy MCOB 4.7.4 R(1)(c) remains the same in such cases.
(3) If circumstances arise in which a firm has reasonable grounds to conclude that there are several regulated mortgage contracts that would satisfy the suitability requirement in MCOB 4.7.4 R, the firm will act in conformity with that rule if it recommends only one of those regulated mortgage contracts.
(4) If for any reason a customer rejects a recommendation made by a firm (for example, on the grounds that the mortgage lender selected is unknown to him), the firm can make a further recommendation (in accordance with the requirements of MCOB 4.7) where there remains a regulated mortgage contract that is appropriate to the needs and circumstances of the customer.

06/04/2007

Rejected recommendations

MCOB 4.7.15

(1) If a customer has:

(a) rejected all of the personal recommendations made by a firm and requested information instead on a regulated mortgage contract that the firm does not consider suitable (and therefore could not recommend to the customer in accordance with MCOB 4.7.2 R); and
(b) been issued with a new initial disclosure document in accordance with MCOB 4.4.1 R or MCOB 4.4.7 R;

the firm may be able to provide information on that regulated mortgage contract in the light of the information on which the personal recommendations in (1) were made.
(2) If the firm needs to ask further questions regarding the needs and circumstances of the customer to be able to provide information on that regulated mortgage contract, the firm must obtain that information by asking scripted questions (in accordance with MCOB 4.8.1 R).

31/10/2004

MCOB 4.7.16

A firm may consider it prudent to record any cases where, after all personal recommendations it has made to a customer have been rejected, it changes the nature of the service it provides (as in MCOB 4.7.15 R) and provides the customer with information about a regulated mortgage contract.

31/10/2004

Record keeping

MCOB 4.7.17

(1) A firm must make and retain a record:

(a) of the customer information, including that relating to the customer's needs and circumstances, that it has obtained for the purposes of MCOB 4.7; and
(b) that explains why the firm has concluded that any personal recommendation given in accordance with MCOB 4.7.2 R satisfies the suitability requirements in MCOB 4.7.4 R(1). This explanation must include, where this is the case, the reasons why a personal recommendation has been made on a basis other than that described in MCOB 4.7.13 E(1).

(2) The record in (1) must be retained for a minimum of three years from the date on which the personal recommendation was made.

31/10/2004

MCOB 4.8

Non-advised sales

01/12/2004

MCOB 4.8.1

(1) If a firm arranges a regulated mortgage contract or a variation to an existing regulated mortgage contract without giving a personal recommendation, it must ensure that all the questions it asks the customer about the customer's needs and circumstances are scripted in advance.
(2) In the remainder of MCOB 4.8, a reference to a firm providing information to a customer in relation to a regulated mortgage contract is to be read as including a reference to providing information in relation to varying the terms of an existing regulated mortgage contract if the context so requires.

31/10/2004

MCOB 4.8.2

(1) MCOB 2.2.6 (Clear, fair and not misleading communications) applies to information provided to a customer in a non-advised sale, that is a sale of a regulated mortgage contract by a firm where the firm has not made a personal recommendation to the customer to enter into that particular regulated mortgage contract. In providing information on only a selection of the regulated mortgage contracts that it deals with, a firm will need to ensure that the selection is fair and unbiased. Where the non-advised sales process leads to the identification of only one regulated mortgage contract, a firm should have regard to the guidance on scripted questions in PERG 4.6.21 G to 4.6.25 G.
(2) In the course of a non-advised sale a firm may decide that a customer is considering a regulated mortgage contract that is inappropriate for that particular customer. Firms should note that, in such circumstances, although they are not providing advice to the customer, they are still conducting a regulated activity and are subject to the high-level standards, including PRIN. Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. A firm selling what it considered to be an inappropriate product, would be in breach of Principle 6 as it would be conducting a regulated activity without regard to the customer's interests. In the FSA's opinion, the appropriate course in such cases would be for the firm to tell the customer to seek advice.

01/10/2005

MCOB 4.8.3

Where MCOB 4.8.1 R applies, the firm must ensure that staff using the scripted questions are:

(1) trained in the use of the script;
(2) trained in the difference between what constitutes a personal recommendation and what does not; and
(3) instructed not to give a personal recommendation unless they meet the TC requirements for advising on regulated mortgage contracts.

31/10/2004

MCOB 4.8.4

A firm must take reasonable steps to supervise staff who do not meet the TC requirements for advising on regulated mortgage contracts so that:

(1) they do not give personal recommendations; and
(2) when using scripted questions to comply with MCOB 4.8.1 R, they adhere to the script in all material respects.

31/10/2004

MCOB 4.8.5

(1) Scripted questions should be clear, fair and not misleading.
(2) A firm should ensure that the number of supervisory staff should be adequate for the size of the sales team, and supervisors should have the technical knowledge, assessment skills and coaching skills to act as a supervisor.

31/10/2004

MCOB 4.8.6

A firm which, after using scripted questions to help a customer select a regulated mortgage contract, makes a personal recommendation about a regulated mortgage contract to that customer will need to follow the rules governing the provision of advice in MCOB 4 (including, but not limited to, the suitability requirements in MCOB 4.7).

31/10/2004

Record keeping

MCOB 4.8.7

(1) A firm must make, and keep up to date, a record of the scripted questions required by MCOB 4.8.1 R. The record must be made on the date on which the scripted questions are first used.
(2) The record in (1) must be retained for one year from the date on which it was superseded by a more up-to-date record.

31/10/2004

MCOB 4.9

Business loans

01/12/2004

MCOB 4.9.1

For the purposes of the rules in MCOB 4 there is one market in regulated mortgage contracts for a business purpose. Within this market, a firm should describe its scope of service in accordance with MCOB 4.3.1 R.

31/10/2004

MCOB 4.9.1A

Firms are reminded that in accordance with MCOB 1.2.3 R, they should either comply in full with MCOB or comply with all tailored provisions in MCOB that relate to business loans. Therefore, a firm may only follow the tailored provisions in MCOB 4.9if it also follows all other tailored provisions in MCOB.

31/10/2004

MCOB 4.9.2

Where a personal recommendation is provided in connection with a regulated mortgage contract for a business purpose it is recognised that there may be additional considerations beyond those described in MCOB 4.7.11 E as part of the assessment of whether the regulated mortgage contract is appropriate to the needs and circumstances of the customer.

31/10/2004

Initial disclosure document

MCOB 4.9.3

As explained in MCOB 4.4.3 G(1) the requirement to provide an initial disclosure document is only triggered where the firm has identified the possibility that it will be giving personalised information or advice to a customer on a regulated mortgage contract for a business purpose.

31/10/2004

MCOB 4.9.4

(1) Firms are reminded that MCOB 1.2.7 R enables them to substitute an alternative for 'mortgage' in the initial disclosure document (except in relation to sections 6 and 8 of any initial disclosure document or sections 5 and 8 of any combined initial disclosure document.
(2) MCOB 1.2.7 R also means that a firm must amend any initial disclosure document so that the final sentence of prescribed text in section 4 states: 'You will receive an illustration which will tell you about any fees relating to a particular [term used by the firm to describe the borrowing, for example "mortgage"]'.
(3) Where the initial disclosure document makes reference to the permitted business of a firm (for example, sections 6 and 8 of the initial disclosure document may refer to a firm advising on or arranging regulated mortgage contracts) a firm can add text explaining the relevance of these descriptions. One approach may be to add an additional sentence such as: 'Secured overdrafts are referred to here as "mortgages" because they involve a charge being taken over your property'.

06/04/2007

Non-advised sales

MCOB 4.9.5

MCOB 4.8.1 R does not apply in relation to a regulated mortgage contract for a business purpose.

31/10/2004

MCOB 4.10

Home purchase plans

06/04/2007

Scope of service provided

MCOB 4.10.1

A firm must comply with the scope of service requirements at MCOB 4.3.1 R and MCOB 4.3.2 R (Providing services within and beyond scope), MCOB 4.3.4A R (Whole of market) and MCOB 4.3.10 R (Appointed representatives).

06/04/2007

Initial disclosure requirements

MCOB 4.10.2

(1) A firm must, on first making contact with a customer when it anticipates giving personalised information or advice on entering into a new home purchase plan, ensure that the customer is, or has been, provided with an appropriate initial disclosure document or combined initial disclosure document in a durable medium.
(2) If the initial contact in (1) is by telephone, a firm must:

(a) (if the call is with a view to concluding a distance home purchase mediation contract) give the following information before proceeding further:

(i) the name of the firm and (if initiated by the firm) the commercial purpose of the call;
(ii) the scope of the service provided by the firm; and
(iii) whether or not the firm will provide the customer with advice on those home purchase plans within its scope; and

(b) ensure that the customer is, or has been, provided with such a document in a durable medium as soon as is practicable.

06/04/2007

MCOB 4.10.3

In accordance with Principle 7, where a firm is likely to provide services in relation to both regulated mortgage contracts and home purchase plans, it should provide a combined initial disclosure document rather than two separate initial disclosure documents.

06/04/2007

MCOB 4.10.4

The guidance on initial disclosure requirements at MCOB 4.4.2 G to MCOB 4.4.4 G may be relevant.

Additional requirements for distance home purchase mediation contracts with retail customers

Note: The rules regarding additional disclosure requirements for, and cancellation of, distance home purchase mediation contracts are set out in MCOB 4.5 and MCOB 4.6 respectively.

06/04/2007

Advised sales: suitability

MCOB 4.10.5

In accordance with Principle 9, a firm should take reasonable steps to obtain from a customer all information likely to be relevant to ensuring the suitability of its advice.

06/04/2007

MCOB 4.10.6

A firm, before making a personal recommendation on a home purchase plan, must take reasonable steps to ensure that it is:

(1) affordable;
(2) appropriate to the customer's needs and circumstances; and
(3) the most suitable of those home purchase plans that the firm has available to it within the scope of the service provided to the customer.

06/04/2007

MCOB 4.10.7

The guidance on suitability at MCOB 4.7.8 G to MCOB 4.7.10 G and MCOB 4.7.16 G may be relevant.

06/04/2007

Non-advised sales

MCOB 4.10.8

If a firm arranges a home purchase plan or a variation to an existing home purchase plan without giving a personal recommendation, it must ensure that the questions it asks about the customer's needs and circumstances are scripted in advance.

06/04/2007

MCOB 4.10.9

The guidance on non-advised sales at MCOB 4.8.2 G and on scripted questions at MCOB 4.8.5 G and MCOB 4.8.6 G may be relevant.

06/04/2007

Risks and features statement and tariff of charges

MCOB 4.10.10

A firm must, before making a personal recommendation to a customer of, or when a customer requests or selects, a home purchase plan, ensure that the customer is, or has been, provided with an appropriate risks and features statement about that plan.

06/04/2007

MCOB 4.10.11

A risks and features statement need not be personalised to the customer's circumstances but must:

(1) include the keyfacts logo in a prominent position at the top of the statement;
(2) state that the FSA requires a firm to provide the statement;
(3) state that mortgages are available and that the customer should think carefully about the product appropriate to his needs;
(4) describe the significant features of the plan, including:

(a) how the home purchase plan works;
(b) the nature of the customer's commitment;
(c) when and how a customer's commitment is reviewed;
(d) any significant restrictions of the plan; and
(e) the charges that a customer may incur under the plan, including the reason for, and amount of, each charge, when they are payable, whether they will be reimbursed and, if so, when;

(5) describe the risks associated with the plan, including:

(a) the risks to the customer if he fails to keep up repayments and the circumstances in which this might occur; and
(b) risks to the customer of the home purchase provider failing or disposing of any of its obligations or rights (including its interest in the property) to a third party (taking into account steps that will be taken by the home purchase provider to mitigate such risks); and

(6) state the importance of obtaining independent legal advice.

06/04/2007

MCOB 4.10.12

A firm may omit details of the charges that a customer may incur under a home purchase plan from the risks and features statement if they are included in a separate tariff of charges provided to the customer at the same time.

06/04/2007

MCOB 4 Annex 1

Initial disclosure document ("IDD")

01/12/2004

This Annex belongs to MCOB 4.4.1 R (1) and MCOB 4.10.2 R.

This annex consists only of one or more forms. Forms are to be found through the following address:

Initial disclosure document - mcob4_annex1.pdf

06/04/2007

MCOB 4 Annex 2

Combined initial disclosure document ('CIDD') [deleted - see COB 4 Annex 5R COBS 6 Annex 2]

06/04/2007

MCOB 4 Annex 3

Additional information requirements in respect of distance mortgage mediation contracts and distance home purchase mediation contracts with retail customers

06/04/2007

This table belongs to MCOB 4.5.2 R

Additional information for distance contracts with retail customers

All the contractual terms and conditions on which the service will be provided including, in particular, the following information:

(1)

where the firm has a representative established in the retail customer's EEA State or other country of residence, the identity of that representative and the geographical address relevant to the retail customer's relations with him;

(2)

where the retail customer's dealings are with any professional other than the firm, the identity of that professional, the capacity in which he is acting with respect to the retail customer, and the geographical address relevant to the retail customer's relations with that professional;

(3)

in relation to the contract:
(a) any limitations of the period for which the information provided is valid;
(b) in relation to services performed permanently or recurrently, the minimum duration of the contract;

(4)

in relation to the cost of the service:
(a) notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it; and
(b) any specific additional cost to the retail customer, if any, for using a means of distance communication;

(5)

the existence or absence of a right to cancel. Where there is such a right:
(a) its duration and the conditions for exercising the right to cancel, including information on the amount which the retail customer may be required to pay (or which may not be returned to the retail customer) if the contract is terminated early or unilaterally under its terms;
(b) the consequences of not exercising the right to cancel; and
(c) practical instructions for exercising the right to cancel, including as a minimum the method in MCOB 4.6.5 R (1), details of the address to which the cancellation notice should be sent and the fact that the notice must clearly indicate, however expressed, the retail customer's intention to cancel the contract; and

(6)

details of:
(a) the EEA State or States whose laws are taken by the firm as a basis for the establishment of relations with the customer prior to the conclusion of the regulated mortgage contract or home purchase plan;
(b) any contractual clause on law applicable to the regulated mortgage contract or home purchase plan or on competent court, or both; and
(c) the language in which the contract is supplied and in which the firm will communicate during the course of the regulated mortgage contract or home purchase plan.

06/04/2007

MCOB Mortgages and Home Finance: Conduct of Business sourcebook

Advising and selling standards

Advising and selling standards

Application

Who?

This table belongs to MCOB 4.1.1 R

What?

Purpose

Scope of service provided

Providing services within and beyond scope

Whole of market

Independence

Appointed representatives

Initial disclosure requirements

Disclosure where initial contact is not made by telephone

Uncertainty whether a mortgage is regulated

Information to be provided to customers on request

Disclosure where initial contact is by telephone

Additional disclosure for distance mortgage mediation contracts and distance home purchase mediation contracts with retail customers

Cancellation of distance mortgage mediation contracts and distance home purchase mediation contracts

Cancellation period

Exercising the right to cancel

Effects of cancellation

Record keeping

Advised sales

Suitability

Rejected recommendations

Record keeping

Non-advised sales

Record keeping

Business loans

Initial disclosure document

Non-advised sales

Home purchase plans

Scope of service provided

Initial disclosure requirements

Advised sales: suitability

Non-advised sales

Risks and features statement and tariff of charges

Initial disclosure document ("IDD")

Combined initial disclosure document ('CIDD') [deleted - see COB 4 Annex 5RCOBS 6 Annex 2]

Additional information requirements in respect of distance mortgage mediation contracts and distance home purchase mediation contracts with retail customers

Combined initial disclosure document ('CIDD') [deleted - see COB 4 Annex 5R COBS 6 Annex 2]