MCOB Mortgages: Conduct of Business

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MCOB 1

Application and purpose

MCOB 1.1

Application and purpose

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Application

MCOB 1.1.1

handbook-guidance
MCOB applies as described in this chapter.
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Purpose

MCOB 1.1.2

handbook-guidance
The purpose of this chapter is to set out to whom, for what activities, and within what territorial limits the rules, evidential provisions and guidance in MCOB apply. This chapter also provides guidance on the application of other parts of the Handbook to a firm that carries on regulated mortgage activities.

MCOB 1.2

General application: who? what?

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MCOB 1.2.1

handbook-rule

MCOB applies to every firm that:

  1. (1) carries on regulated mortgage activities (subject to MCOB 1.2.3 R); or
  2. (2) communicates or approves a qualifying credit promotion.

Firm types and the regulated mortgage activities

MCOB 1.2.2

handbook-guidance
The application of most of MCOB is expressed by reference to four types of firm: mortgage lenders, mortgage administrators, mortgage arrangers and mortgage advisers. This includes those firms that provide business loans to customers under a regulated mortgage contracts (see MCOB 1.2.3 R to MCOB 1.2.9 G). A single firm may fall into more than one of these types. Guidance on these firm types, the regulated mortgage activities which they carry on, a description of what those activities cover and what is excluded is set out in MCOB 1 Annex 1. PERG 4 contains detailed guidance on those activities. AUTH App 4

Business loans: application of MCOB

MCOB 1.2.3

handbook-rule

In relation to a regulated mortgage contract for a business purpose

  1. (1) MCOB applies if the customer is not a large business customer; and
  2. (2) if MCOB applies, a firm must either:
    1. (a) comply with MCOB in full (disregarding the tailored provisions for regulated mortgage contracts for a business purpose in the remainder of MCOB); or
    2. (b) comply with MCOB taking account of those tailored provisions, including MCOB 1.2.7 R.
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MCOB 1.2.4

handbook-guidance
MCOB 1 Annex 2 contains a table summarising the provisions of MCOB that apply to regulated mortgage contracts that are for a business purpose. For detail of the tailored provisions applying, see the section on 'business loans' set out in each relevant chapter.

MCOB 1.2.5

handbook-guidance
  1. (1) In order for a loan to fall within the definition of a regulated mortgage contract, at least 40% of the total of the land to be given as security must be used as or in connection with a dwelling. Therefore, the variation in approach provided for in MCOB 1.2.3 R(2) can only apply where the loan being used for a business purpose is secured against a property at least 40 per cent of which is used as a dwelling. It cannot apply to a loan secured on property that is used solely for a business purpose.
  2. (2) Whether a regulated mortgage contract is for a business purpose will be a matter of fact to be determined by a firm depending on the individual circumstances of each case. In the FSA's opinion, a regulated mortgage contract secured, for example, on the borrower's own home, but used to finance the purchase of a single buy-to-let property will not be for a business purpose.
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MCOB 1.2.6

handbook-guidance
In determining whether a customer is a large business customer for the purposes of MCOB 1.2.3 R(1), a firm will need to have regard to the figure given for the customer's annual turnover in the customer's annual report and accounts or business plan. In addition, a firm may rely on information provided by the customer about the annual turnover, unless, taking a common-sense view of this information, it has reason to doubt it.
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Business loans: additional requirements if tailored route is used

MCOB 1.2.7

handbook-rule

In relation to a regulated mortgage contract for a business purpose, if a firm has opted for the tailored route in MCOB 1.2.3 R(2), it must adopt the following modifications to the provisions in MCOB:

  1. (1) (except in relation to sections 6 and 8 of any initial disclosure document provided in accordance with MCOB 4.4.1 R(1)(c)(i) or sections 5 and 8 of any initial disclosure document provided in accordance with MCOB 4.4.1 R(1)(c)(ii)) substitute an alternative description of the facility provided under the regulated mortgage contract for 'mortgage' where that term is used in any disclosure;
  2. (2) substitute the term 'illustration' for 'key facts illustration' when opting to use the tailored business loans rules in MCOB 4.9, MCOB 5.7, MCOB 6.7 or MCOB 7.7; and
  3. (3) limit disclosure to facilities provided under the regulated mortgage contract.

MCOB 1.2.8

handbook-guidance
  1. (1) Firms are reminded of the requirement in MCOB 2.2.6 R that any communication should be clear, fair and not misleading when substituting an alternative for the term 'mortgage' in accordance with MCOB 1.2.7 R(1).
  2. (2) Possible alternatives to the term 'mortgage' include, for example, 'secured business overdraft', 'secured loan' or 'secured business credit'.
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MCOB 1.2.9

handbook-guidance
The disclosure rules in MCOB place particular emphasis on the description of borrowing. Where the regulated mortgage contract is for a business purpose, a firm should reflect this emphasis in any disclosure by first describing any borrowing before addressing the other facilities provided under the regulated mortgage contract.
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Authorised professional firms

MCOB 1.2.10

handbook-rule

MCOB does not apply to an authorised professional firm with respect to its non-mainstream regulated activities except for:

  1. (1) MCOB 2.2 (Communications);
  2. (2) MCOB 3 (Financial promotion); and
  3. (3) MCOB 4.4 (Initial disclosure requirements) but only as regards providing the information contained in section 7 (What to do if you have a complaint) and section 8 (Are we covered by the Financial Services Compensation Scheme?) of MCOB 4 Annex 1 or MCOB 4 Annex 2, and MCOB 8 Annex 1 or MCOB 8 Annex 2

MCOB 1.2.11

handbook-guidance

Authorised professional firms should be aware of the following:

  1. (1) PROF 5 (Non-mainstream regulated activities); and
  2. (2) MCOB 3.1.9 R (Authorised professional firms) and the exception in article 55 of the Financial Promotion Order (Communications by members of the professions) which applies in relation to qualifying credit promotions of authorised professional firms under MCOB 3.2.5 R(3) (Exemptions).

Pre-contractual arrangements by a mortgage lender

MCOB 1.2.12

handbook-rule

In MCOB the activities of a mortgage lender which would be arranging but for article 28A of the Regulated Activities Order (Arranging contracts to which the arranger is a party), are to be treated as arranging and therefore also as regulated mortgage activities.

MCOB 1.2.13

handbook-guidance

The effect of article 28A of the Regulated Activities Order would normally mean that arrangements made by a party to a regulated mortgage contract would not fall within the regulated mortgage activity of arranging. So in a direct sale, a mortgage lender would not be carrying on the regulated activity of arranging but, where the transaction proceeds to completion, would instead be involved in the regulated activity of entering into a regulated mortgage contract. However, the provisions in MCOB on arranging regulated mortgage contracts are applied to pre-contractual arrangements by a mortgage lender.

Summary of the application of the chapters of MCOB

MCOB 1.2.14

handbook-guidance
A table summarising the application of the various chapters of MCOB to firms that carry on regulated mortgage activities is set out in MCOB 1 Annex 3. For the detailed application of each chapter, see the application rule at the start of that chapter.
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MCOB 1.3

General application: where?

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Location of the customer

MCOB 1.3.1

handbook-rule

Except as set out in this section, MCOB applies if the customer of a firm carrying on regulated mortgage activities is resident in:

  1. (1) the United Kingdom; or
  2. (2) another EEA State, but in this case only if the activity is carried on from an establishment maintained by the firm (or its appointed representative) in the United Kingdom;
at the time that the regulated mortgage activity is carried on.

Financial Promotion

MCOB 1.3.2

handbook-rule
The territorial scope of MCOB 3 (Financial promotion) is set out in MCOB 3.3 (Application: where?) rather than in this section.
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Electronic commerce activities and communications

MCOB 1.3.3

handbook-rule
The territorial scope of this sourcebook is modified by ECO in relation to electronic commerce activities and electronic commerce communications.

Distance contracts entered into from an establishment in another EEA State

MCOB 1.3.4

handbook-rule
  1. (1) The rules in (2) do not apply to a firm with respect to an activity exclusively concerning a distance contract if the following conditions are satisfied:
    1. (a) the firm carries on the activity from an establishment maintained by the firm in an EEA State other than the United Kingdom; and
    2. (b) either the EEA State:
      1. (i) has implemented the DMD; or
      2. (ii) has obligations in its domestic law corresponding to those provided for by the DMD;
    3. and, in either case, with the result that the obligations provided for by the DMD (or corresponding obligations) are applied by that State when the firm carries on that activity; and
    4. (c) the firm is a national of an EEA State or a company or firm mentioned in article 48 of the Treaty.
  2. (2) The rules which do not apply are:
    1. (a) MCOB 4.4 (Initial disclosure requirements);
    2. (b) MCOB 4.5 (Additional disclosure for distance mortgage mediation contracts with retail customers);
    3. (c) MCOB 4.6 (Cancellation of distance mortgage mediation contracts);
    4. (d) MCOB 5 (Pre-application disclosure);
    5. (e) MCOB 6 (Disclosure at offer stage);
    6. (f) MCOB 7.6.7 R to MCOB 7.6.17 R (Further advances);
    7. (g) MCOB 8.3 (Application of rules in MCOB 4) to the extent that it applies MCOB 4.4 to MCOB 4.6;
    8. (h) MCOB 8.4 (Initial disclosure requirements: home reversion schemes);
    9. (i) MCOB 9.3 (Pre-application disclosure);
    10. (j) MCOB 9.4 (Content of illustrations); and
    11. (k) MCOB 9.5 (Disclosure at offer stage for lifetime mortgages).

Distance contracts with retail customers

MCOB 1.3.5

handbook-guidance

Parts of MCOB relate to distance contracts (or distance mortgage mediation contracts) with retail customers. These expressions are derived from the Distance Marketing Directive, and the following paragraphs provide some guidance to firms on their meaning:

  1. (1) Retail customer
  2. The Distance Marketing Directive applies for distance contracts with 'any natural person who is acting for purposes which are outside his trade, business or profession', for which the term 'retail customer' has been adopted. Examples of individuals who would be regarded as retail customers include:
    1. (a) personal representatives, including executors, unless they are acting in a professional capacity, for example a solicitor acting as executor; or
    2. (b) private individuals acting in personal or other family circumstances, for example, a trustee of a family trust.
  3. (2) Distance contract
  4. To be a distance contract, a contract must be concluded under an 'organised distance sales or service-provision scheme' run by the contractual provider of the service who, for the purpose of the contract, makes exclusive use (directly or through an intermediary) of one or more means of distance communication up to and including the time at which the contract is concluded. So:
    1. (a) the firm must have put in place facilities designed to enable a customer to deal with it exclusively at a distance, such as facilities for a customer to deal with it purely by post, telephone, fax or the Internet. If a firm normally operates face-to-face and has no facilities in place enabling a customer to deal with it customarily by distance means, the DMD will not apply. A one-off transaction effected exclusively by distance means to meet a particular contingency or emergency will not be a distance contract; and
    2. (b) there must have been no simultaneous physical presence of the firm and the other party to the contract throughout the offer, negotiation and conclusion of the contract. So, for example, contracts offered, negotiated and concluded over the Internet, through a telemarketing operation, or by post will normally be distance contracts.

Use of intermediaries

MCOB 1.3.6

handbook-guidance
The mere fact that an intermediary (acting for the supplier or for the retail customer) is involved, does not make the sale of a financial product or service a distance contract. There will not be a distance contract if there has been simultaneous physical presence of the intermediary and the retail customer at some stage in the offer, negotiation and conclusion of the contract.

MCOB 1.4

Application of the Handbook in relation to mortgages

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MCOB 1.4.1

handbook-guidance
A table summarising the application of the Handbook to firms carrying on regulated mortgage activities is set out in MCOB 1 Annex 4. For the detailed application of each module, see the application provision at the start of the module, and each chapter or section.
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MCOB 1.5

Application to appointed representatives

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MCOB 1.5.1

handbook-guidance
  1. (1) Although MCOB does not apply directly to a firm's appointed representatives, a firm will always be responsible for the acts and omissions of its appointed representatives in carrying on business for which the firm has accepted responsibility (section 39(3) of the Act). In determining whether a firm has complied with any provision of MCOB, anything done or omitted by a firm's appointed representative (when acting as such) will be treated as having been done or omitted by the firm (section 39(4) of the Act).
  2. (2) Firms should refer to SUP 12 (Appointed representatives), which sets out requirements which apply to firms using appointed representatives.
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MCOB 1.6

Application in relation to the Consumer Credit Act 1974

MCOB 1.6.1

handbook-guidance
MCOB applies to regulated mortgage contracts entered into on or after 31 October 2004. Variations made on or after that date to contracts entered into before that date are not subject to FSA regulation but may be subject to the Consumer Credit Act 1974. AUTH App 4.4.13 G contains guidance on the variation of contracts entered into before 31 October 2004.

MCOB 1.6.2

handbook-guidance
Principle 2 requires a firm to conduct its business with due skill, care and diligence. The purpose of MCOB 1.6.3 R is to reinforce this. The FSA would expect firms to take appropriate steps to determine whether any mortgage it proposes to enter into is subject to FSA regulation.
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MCOB 1.6.3

handbook-rule
Before a firm enters into a mortgage, it must take all reasonable steps to establish whether that mortgage will be a regulated mortgage contract and therefore subject to MCOB.
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MCOB 1.6.4

handbook-rule

If, notwithstanding the steps taken by a firm to comply with MCOB 1.6.3 R, it transpires that a mortgage which the firm has treated as unregulated is in fact a regulated mortgage contract, the firm must as soon as practicable after the correct status of the mortgage has been established:

  1. (1) contact the customer and provide him with the following information in a durable medium:
    1. (a) a statement that the mortgage contract is a regulated mortgage contract subject to FSA regulation, stating in particular the position with regard to redress and compensation; and
    2. (b) (where relevant) a statement that the Consumer Credit Act 1974 will not apply to the mortgage contract and that any Consumer Credit Act rights or requirements set out in previous communications will not apply;
  2. (2) apply to the regulated mortgage contract all relevant MCOB requirements, such as those on disclosure (in MCOB 7) or on the treatment of customers in arrears (in MCOB 13).
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MCOB 1.6.5

handbook-guidance
  1. (1) MCOB 1.6.4 R(2) means, for example, that if a firm discovered immediately after completion that a loan was a regulated mortgage contract, the firm would be required to comply with MCOB 7.4 (Disclosure at the start of the contract).
  2. (2) Although MCOB 1.6.4 R recognises that firms may become aware that a mortgage is a regulated mortgage contract at a late stage, the FSA expects this to be an extremely rare occurrence. It could arise, for example, if a firm has acted on the understanding, verified as far as was practicable, that in respect of a particular mortgage contract less than 40% of the land would be used in connection with a dwelling. If it was discovered later that more than 40% of the land was used in connection with the dwelling (and provided that all the other legal requirements were met) the mortgage will be a regulated mortgage contract to which MCOB applies.
  3. (3) MCOB 1.6.3 R and MCOB 1.6.4 R do not override the application of MCOB to any regulated mortgage contract. MCOB applies notwithstanding a firm's genuine belief that a mortgage is unregulated. In deciding whether to take disciplinary action as a result of a breach of MCOB, the FSA will take into account whether the action by the firm was reckless or deliberate (see ENF 11.4.1 G(1)(a)).

MCOB 1 Annex 1

Summary of firm types and of the regulated mortgage activities

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handbook-guidance

MCOB 1 Annex 2

Summary of the tailored provisions in MCOB that apply to regulated mortgage contracts that are for a business purpose and are not with large business customers

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handbook-guidance
This annex belongs to MCOB 1.2.4G
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MCOB 1 Annex 3

Summary of the application of the chapters of MCOB

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handbook-guidance
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MCOB 1 Annex 4

Summary of the application of the Handbook to firms carrying on regulated mortgage activities and firms that communicate or approve qualifying credit promotions

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handbook-guidance
Table: This table belongs to MCOB 1.4.1G

Export chapter as

MCOB 2

Conduct of business standards: general

MCOB 2.1

Application

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Who?

MCOB 2.1.1

handbook-rule
This chapter applies to a firm in a category listed in column (1) of the table in MCOB 2.1.2 R in accordance with column (2) of that table.
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MCOB 2.1.2

handbook-rule

This table belongs to MCOB 2.1.1 R

What?

MCOB 2.1.3

handbook-rule

This chapter applies in relation to:

  1. (1) regulated mortgage activities;
  2. (2) those activities in MCOB 12 and MCOB 13 that are carried on after a regulated mortgage contract has come to an end following the sale of a repossessed property; and
  3. (3) the communication or approval of a qualifying credit promotion.

MCOB 2.2

Communications

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Purpose

MCOB 2.2.1

handbook-guidance
The purpose of MCOB 2.2 is to restate, in slightly amended form, and as a separate rule, the part of Principle 7 (Communications with clients) that relates to communication of information. This enables a customer, who is a private person, to bring an action for damages under section 150 (Contravention of rules) of the Act to recover loss resulting from a firm that carries on the activities referred to in MCOB 2.1.3 R communicating information, in the course of those activities, in a way that is not clear or fair, or that is misleading. MCOB 2.2 also clarifies the expectations of the FSA where any rule requires the provision of information and there are two or more customers.
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General

MCOB 2.2.2

handbook-guidance
In many circumstances there will be two or more customers under any regulated mortgage contract, or two or more prospective customers looking to enter into the same regulated mortgage contract. In such circumstances, where a rule in MCOB requires the provision of information to such customers and the customers have different addresses, a firm sending out this information should send it to each address. If the customers share the same address it will be sufficient to send a single copy of the information addressed to each of the customers.

Prescribed terms

MCOB 2.2.3

handbook-rule

In any communication to a customer, a firm must:

  1. (1) describe any early repayment charge as an 'early repayment charge' and not use any other expression to describe such charges;
  2. (2) describe any higher lending charge as a 'higher lending charge' and not use any other expression to describe such charges; and
  3. (3) describe any regulated lifetime mortgage contract as a 'lifetime mortgage' and not use any other expression to describe such a mortgage.

'Key facts' logo

MCOB 2.2.4

handbook-rule
In MCOB, a firm must only use the 'key facts' logo where it is required by a rule.
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Related investment advice

MCOB 2.2.5

handbook-guidance
Firms are reminded that they should follow the relevant rules in COB 5 and COB 6 relating to advice and disclosure on investments if they are advising the customer on an investment such as an annuity linked to a regulated lifetime mortgage contract or an ISA used as a repayment vehicle.

Clear, fair and not misleading communications

MCOB 2.2.6

handbook-rule
  1. (1) When a firm communicates information to a customer, it must take reasonable steps to communicate in a way that is clear, fair and not misleading.
  2. (2) Paragraph (1) does not apply to a firm when it communicates a qualifying credit promotion in circumstances in which MCOB 3 (Financial promotion) applies to the firm.

MCOB 2.2.7

handbook-guidance
When considering how to comply with the requirements of MCOB 2.2.6 R, a firm should have regard to the customer's knowledge of the regulated mortgage contract to which the information relates.

MCOB 2.2.8

handbook-guidance
MCOB 2.2.6 R covers all communications with customers, for example any oral or written statements, telephone calls and any correspondence which is not a qualifying credit promotion to which MCOB 3 (Financial promotion) applies. In respect of qualifying credit promotions firms should note the separate requirements of MCOB 3.

MCOB 2.2.9

handbook-guidance
Prominence of relevant information can play a key role in ensuring that a communication is clear, fair and not misleading. Where this is the case, the firm should consider prominence in the context of the communication as a whole. Use can be made of the positioning of text, background and text colour and type size to ensure that specified information meets the requirements of MCOB.
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MCOB 2.3

Inducements

Purpose

MCOB 2.3.1

handbook-guidance
Principles 1 and 6 require a firm to conduct its business with integrity, to pay due regard to the interests of its customers and to treat them fairly. The purpose of MCOB 2.3 is to ensure that a firm does not conduct business under arrangements that might give rise to a conflict with its duty to customers or to unfair treatment of them.

Prohibition of inducements

MCOB 2.3.2

handbook-rule

A firm must take reasonable steps to ensure that it, and any person acting on its behalf, does not:

  1. (1) offer, give, solicit or accept an inducement; or
  2. (2) direct or refer any actual or potential business in relation to a regulated mortgage contract to another person on its own initiative or on the instructions of an associate;
  3. if it is likely to conflict to a material extent with any duty that the firm owes to its customers in connection with a regulated mortgage contract or any duty which such a recipient firm owes to its customers in connection with a regulated mortgage contract.

MCOB 2.3.3

handbook-guidance
An inducement is a benefit offered with a view to bringing about a particular course of action.
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MCOB 2.3.4

handbook-guidance
The purpose of MCOB 2.3.2 R(2) is to prevent the requirement in MCOB 2.3.2 R(1) being circumvented by an inducement being given or received by an unregulated associate. There may be circumstances, however, where a firm is able to demonstrate that it could not reasonably have knowledge of an associate giving or receiving an inducement. It should not, however, direct business to another person on the instruction of an associate if this is likely to conflict with the interests of its customers.
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MCOB 2.3.5

handbook-guidance

MCOB 2.3.2 R does not prevent a firm:

  1. (1) assisting a mortgage intermediary so that the quality of the mortgage intermediary's service to customers is enhanced; or
  2. (2) giving or receiving indirect benefits (such as gifts, hospitality and promotional competition prizes);
providing in either case this is not likely to give rise to a conflict with the duties that the recipient owes to the customer. In particular, such benefits should not be of a kind or value that is likely to impair the ability of a firm to act in compliance with any rule in MCOB, for example the suitability requirements in MCOB 4.7 (Advised sales).

MCOB 2.3.6

handbook-rule
  1. (1) A firm must not operate a system of giving or offering inducements to a mortgage intermediary or any other third party whereby the value of the inducement increases if the mortgage intermediary or third party, such as a packager, exceeds a target set for the amount of business referred (for example, a volume override).
  2. (2) A firm must not solicit or accept an inducement whereby the value of the inducement increases if the firm exceeds a target set for the amount of business referred.

Quantification of inducements

MCOB 2.3.7

handbook-rule
  1. (1) A mortgage lender must quantify, in cash terms, any material inducement it offers to a mortgage intermediary or a third party.
  2. (2) In quantifying the value of the material inducement, the firm must include any subsequent payments (such as a trail fee) made where the customer continues with the same regulated mortgage contract.

MCOB 2.3.8

handbook-guidance
  1. (1) Quantification of any material inducement offered by the mortgage lender supports the disclosure requirements elsewhere in MCOB. Further guidance on the disclosure of any inducement in cash terms is provided in MCOB 5.6.118 G.
  2. (2) A payment made to a third party unconnected with the mortgage intermediary, where that payment only reflects the cost of outsourcing work relating to the processing of mortgage applications, would not be considered an inducement in the context of MCOB 2.3.7 R.

MCOB 2.4

High pressure sales

Purpose

MCOB 2.4.1

handbook-guidance

The purpose of MCOB 2.4 is to remind firms of the relevance of the high level standards in PRIN, especially with regard to the use of sales methods that may lead a customer to feel pressurised to enter into, or vary, a regulated mortgage contract.

Fair treatment

MCOB 2.4.2

handbook-guidance
Principle 6 (Customers' interests) requires that a firm must pay due regard to the interests of its customers and treat them fairly. This means, for example, that a firm should avoid selling practices that commit customers (or lead customers to believe that they are committed) to any regulated mortgage contract before they have been able to consider the illustration and offer document. One such practice might be to present a new customer with an illustration, offer document and mortgage deed at one time and to require the mortgage deed to be signed on the same occasion (when there is no urgent need to do so).

Information

MCOB 2.4.3

handbook-guidance
Principle 7 (Communications with clients) requires that a firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading. This means, for example, that a firm should avoid giving any customer a false impression about the availability of a regulated mortgage contract, such as describing it as a 'special offer' not available after a certain date unless this is really the case.

MCOB 2.5

Reliance on others

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Purpose

MCOB 2.5.1

handbook-guidance
Principle 2 requires a firm to conduct its business with due skill, care and diligence. MCOB 2.5 indicates the extent to which firms that carry on regulated mortgage activities and that communicate or approve a qualifying credit promotion can meet this requirement by relying on others.

When firms can rely on others

MCOB 2.5.2

handbook-rule
A firm will be taken to be in compliance with any rule in MCOB that requires a firm to obtain information to the extent that the firm can show that it was reasonable for it to rely on information provided to it by another person.
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MCOB 2.5.3

handbook-evidential-provisions
  1. (1) In relying on MCOB 2.5.2 R, a firm should take reasonable steps to establish that the other person providing the information is:
    1. (a) not connected with the firm; and
    2. (b) competent to provide the information.
  2. (2) Compliance with (1) may be relied on as tending to establish compliance with MCOB 2.5.2 R.
  3. (3) Contravention of (1) may be relied on as tending to establish contravention of MCOB 2.5.2 R.
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MCOB 2.5.4

handbook-rule
  1. (1) Any information which a rule in MCOB requires to be sent to a customer may be sent to another person on the instruction of the customer, so long as the recipient is not connected with the firm.
  2. (2) There is no need for a firm to send information to a customer where it has taken reasonable steps to establish that this has been or will be supplied by another person.
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MCOB 2.6

Exclusion of liability

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Purpose

MCOB 2.6.1

handbook-guidance
Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. A firm may not exclude the duties it owes or the liabilities it has to a customer under the regulatory system. It may exclude other duties and liabilities only if it is reasonable for it to do so.
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Limits on the exclusion of liability

MCOB 2.6.2

handbook-rule
A firm must not, in any written or oral communication, seek to exclude or restrict, or to rely on any exclusion or restriction of, any duty or liability it may have to a customer under the regulatory system.
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MCOB 2.6.3

handbook-rule
A firm must not, in any written or oral communication to a customer, seek to exclude or restrict, or to rely on any exclusion or restriction of, any duty or liability not referred to in MCOB 2.6.2 R unless it is reasonable for it to do so.
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MCOB 2.7

Application to electronic media and distance communications

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MCOB 2.7.1

handbook-guidance
GEN 2.2.14 R (References to writing) has the effect that electronic media may be used to make communications that are required by the Handbook to be 'in writing' unless a contrary intention appears. In MCOB, the use of an electronic medium is restricted in certain circumstances to a durable medium as required by the Distance Marketing Directive.
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Additional guidance in respect of electronic communication with or for customers

MCOB 2.7.2

handbook-guidance

For any electronic communication with a customer in relation to a regulated mortgage contract, a firm should:

  1. (1) have in place appropriate arrangements, including contingency plans, to ensure the secure transmission and receipt of the communication; it should also be able to verify the authenticity and integrity of the communication together with the date and time sent and received; the arrangements should be proportionate and take into account the different levels of risk in a firm's business;
  2. (2) be able to demonstrate that the customer wishes to communicate using this medium; and
  3. (3) if entering into an agreement, make it clear to the customer that a contractual relationship is created that has legal consequences.

MCOB 2.7.3

handbook-guidance
A firm should note that GEN 2.2.14 R (References to writing) does not affect any other legal requirement that may apply in relation to the form or manner of executing a document or agreement.
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General provisions related to distance contracts

MCOB 2.7.4

handbook-rule

During the course of a distance contract with a retail customer, the making or performance of which constitutes or is part of a regulated mortgage contract:

  1. (1) the firm must, at the retail customer's request, provide a paper copy of the contractual terms and conditions of the regulated mortgage contract or of the services being provided by the firm; and
  2. (2) the firm must comply with the customer's request to change the means of distance communication used, unless this is incompatible with the regulated mortgage contract or service being provided by the firm.

MCOB 2.7.5

handbook-rule
A firm must ensure that information provided to a retail customer before the conclusion of a distance contract about his contractual obligations under that contract conform with the contractual obligations that would be imposed on him under the law applying if the contract were concluded.

Unsolicited services

MCOB 2.7.6

handbook-rule
  1. (1) A firm must not:
    1. (a) supply a service to a retail customer without a prior request on his part, when this activity includes a request for immediate or deferred payment; or
    2. (b) enforce any obligations against a retail customer in the event of unsolicited supplies of services, the absence of a reply not constituting consent.
  2. (2) Paragraph (1) applies in relation to advising on, arranging or entering into a regulated mortgage contract under an organised distance sales or service-provision scheme run by the firm or by an intermediary, who, for the purpose of that supply, makes exclusive use of one or more means of distance communication up to and including the time at which the services are supplied.

MCOB 2.8

Record keeping

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Purpose

MCOB 2.8.1

handbook-guidance
MCOB 2.8 provides details of the standard expected of firms where there is an obligation in MCOB requiring firms to maintain adequate records to evidence compliance. An overall view of the record keeping requirements in MCOB is in MCOB Sch 1.
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Accessibility of records

MCOB 2.8.2

handbook-rule
The records required in MCOB must be readily accessible for inspection by the FSA.
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MCOB 2.8.3

handbook-guidance
A record would be 'readily accessible' if it were available for inspection within two business days of the request being received.
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MCOB 2.8.4

handbook-guidance
  1. (1) A firm may arrange for records to be kept in such form as it chooses, provided the record is readily accessible for inspection by the FSA.
  2. (2) Where a firm chooses to maintain records in electronic form, it should take reasonable steps to ensure that:
    1. (a) the electronic record accurately reflects the original information; and
    2. (b) the electronic record has not been subject to unauthorised or accidental alteration.
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MCOB 2.8.5

handbook-guidance
Each rule in MCOB that requires a record also sets out a period that the record must be kept for. While not a requirement of MCOB, firms may choose to keep records for longer periods, for example, where there is the possibility of customer complaint or legal action against the firm.
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Export chapter as

MCOB 3

Financial Promotion

MCOB 3.1

Application: who?

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MCOB 3.1.1

handbook-rule
This chapter applies to every firm which communicates or approves a qualifying credit promotion financial promotion of qualifying credit or of a home reversion plan.

MCOB 3.1.2

handbook-guidance

This chapter applies generally to firms in relation to all qualifying credit promotions. This wide application is however cut back by MCOB 3.2 (Application: what?) and MCOB 3.3 (Application: where?) which limit the application of this chapter for:

  1. (1) qualifying credit promotions which would fall within the scope of the exemptions in the Financial Promotion Order or the additional exemptions set out in MCOB 3.2.5 R (Applications: what? Exemptions); and
  2. (2) qualifying credit promotions to persons outside the United Kingdom.

MCOB 3.1.3

handbook-guidance

MCOB 3.1.1 R means that:

  1. (1) this chapter applies not only to financial promotions for regulated mortgage contracts, but also to promotions for qualifying credit; and
  2. (2) this chapter applies to all aspects of a promotion by a firm of products which combine unsecured and secured lending.
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MCOB 3.1.4

handbook-guidance
In relation to MCOB 3.1.3 G(2), an example would be a promotion for a mortgage product, one feature of which was an unsecured lending facility or reserve.
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MCOB 3.1.5

handbook-guidance
Under section 39(3) of the Act, a firm is responsible for financial promotions communicated by its appointed representatives when acting as such.
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MCOB 3.1.6

handbook-rule
This chapter does not apply to a firm in relation to the communication or approval of a financial promotion that is not a qualifying credit promotion (but see COB 3 (Financial promotion)).
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MCOB 3.1.7

handbook-guidance

A communication may contain both a financial promotion and a qualifying credit promotion, for example a building society leaflet which describes the range of mortgage and savings products it provides. In such cases, both MCOB 3 and COB 3 will be relevant.

MCOB 3.1.8

handbook-guidance

As a result of articles 90 and 91 of the Regulated Activities Order:

  1. (1) a qualifying credit promotion is not subject to the advertising provisions of the Consumer Credit Act 1974, unless it is an exempt generic promotion; and
  2. (2) where a firm makes a communication, which consists of a qualifying credit promotion and information relating to a different form of lending that is not qualifying credit (for example an unsecured personal loan), the content of the latter will need to comply with the relevant advertising provisions of the Consumer Credit Act 1974.

Authorised professional firms

MCOB 3.1.9

handbook-rule
  1. (1) Except for MCOB 3.6.17 R to MCOB 3.6.25 R (Annual percentage rate (APR)), MCOB 3 does not apply to an authorised professional firm in relation to the communication of a qualifying credit promotion if the following conditions are satisfied:
    1. (a) the firm's main business must be the practice of its profession (see IPRU(INV) 2.1.2R(3));
    2. (b) the qualifying credit promotion must be made for the purposes of and incidental to the promotion or provision by the firm of:
      1. (i) its professional services; or
      2. (ii) its non-mainstream regulated activities (see PROF 5.2 (Nature of non-mainstream activities)); and
    3. (c) the qualifying credit promotion must not be communicated on behalf of another person who would not be able lawfully to communicate the qualifying credit promotion if he were acting in the course of business.
  2. (2) In (1)(b)(i), 'professional services' means services:
    1. (a) which do not constitute a regulated activity; and
    2. (b) the provision of which is supervised and regulated by a designated professional body.

MCOB 3.1.10

handbook-guidance
Authorised professional firms are reminded that in circumstances in which MCOB 3 does not apply to the firm MCOB 2.2.6 R (Clear fair and not misleading communication) may apply.
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Nationals of other EEA States

MCOB 3.1.11

handbook-guidance
A national of an EEA State (other than the United Kingdom) wishing to take advantage of the exemption in article 36 of the Financial Promotion Order in respect of a qualifying credit promotion should act in conformity with the rules in this chapter.

Illustrative examples of qualifying credit promotions

MCOB 3.1.12

handbook-guidance
MCOB 3 Annex 1 gives examples of qualifying credit promotions that would satisfy some of the provisions of MCOB 3.

MCOB 3.2

Application: what?

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What do "communicate", "approve" and "financial promotion" mean?

MCOB 3.2.1

handbook-guidance
  1. (1) The rules in this chapter adopt various concepts from the restriction on financial promotion by unauthorised persons in section 21(1) of the Act (Restrictions on financial promotion). Guidance on that restriction is contained in AUTH App 1 (Financial promotion and related activities) and that guidance will be relevant to interpreting these rules. In particular, guidance on the meaning of:
    1. (a) 'communicate' is in AUTH App 1.6 (Communicate); and
    2. (b) 'invitation or inducement' and 'engage in investment activity' (two elements which, with 'communicate', make up the definition of 'financial promotion') is in AUTH App 1.4 (Invitation or inducement) and AUTH App 1.7 (Engage in investment activity).
  2. (2) Guidance on the approval of a qualifying credit promotion is in MCOB 3.11.1 G (Approval of qualifying credit promotions).

Media of communication

MCOB 3.2.2

handbook-guidance
  1. (1) There is no restriction on the media of communication to which this chapter applies. It applies to a qualifying credit promotion communicated by any means, including by way of printed advertising, radio and television broadcasts, a personal visit, a telephone call, an e-mail, the Internet and electronic media such as digital and other forms of interactive television or media. Both solicited and unsolicited communications are covered.
  2. (2) Qualifying credit promotions may be communicated for example, by means of:
    1. (a) product brochures;
    2. (b) general advertising in magazines, newspapers, radio and television programmes and websites;
    3. (c) mailshots (whether distributed by post, facsimile, e-mail or other media);
    4. (d) telemarketing activities, such as telephone calls made by call centres;
    5. (e) written correspondence, telephone calls and face-to-face discussions with customers;
    6. (f) sales aids which themselves constitute a qualifying credit promotion;
    7. (g) presentations to groups of customers; and
    8. (h) other publications, which may contain non-personal recommendations as to obtaining qualifying credit.

MCOB 3.2.3

handbook-guidance
Guidance on the use of the Internet for communicating qualifying credit promotions is in AUTH App 1.22 (The Internet)

Exemptions

MCOB 3.2.4

handbook-rule

This chapter does not apply to a firm in relation to a qualifying credit promotion of a kind listed in MCOB 3.2.5 R, except that if the firm approves the qualifying credit promotion, the following apply:

  1. (1) MCOB 3.1 to MCOB 3.5 (Application, Purpose and General);
  2. (2) MCOB 3.6.3 R (Non-real time qualifying credit promotions: clear, fair and not misleading);
  3. (3) MCOB 3.11.1 G to MCOB 3.11.4 G (Approval of qualifying credit promotions; No approval of real time qualifying credit promotions; Approval of qualifying credit promotions when not all the rules apply); and
  4. (4) if the firm approves a non-real time qualifying credit promotion relating to qualifying credit by an overseas person MCOB 3.11.5 R (Non-real time qualifying credit promotions for overseas persons) applies.

MCOB 3.2.5

handbook-rule

This table belongs to MCOB 3.2.4 R.

MCOB 3.2.6

handbook-guidance

MCOB 3.2.5 R(2) exempts a qualifying credit promotion made by a firm or an appointed representative which refers to its activities only in general terms in image or brand advertising. The items identified in MCOB 3.2.5 R(2) do not enable detailed information to be given about the qualifying credit available from the firm. Thus firms should avoid the use of names, logos or addresses, for example, which attempt to convey additional mortgage or cost-related information.

Combination of exemptions

MCOB 3.2.7

handbook-rule
A firm may rely on more than one exemption (and also on MCOB 3.3.1 R (Application: where?)) in relation to the same qualifying credit promotion.

Other handbook rules relevant to qualifying credit promotions

MCOB 3.2.8

handbook-guidance
Firms are reminded that qualifying credit promotions (including those which are exempt) may be subject to more general rules, including Principle 7 (Communications with clients), SYSC 3 (Systems and controls) and MCOB 2.2.6 R (Clear, fair and not misleading communication).

MCOB 3.2.9

handbook-guidance
Firms are reminded that if in the course of making a qualifying credit promotion of any kind an adviser gives specific advice on regulated mortgage contracts to a customer about the suitability of a product for that individual, the adviser in giving the advice is subject to the rules, as appropriate, on advising and selling in MCOB 4 (Advising and selling standards) and MCOB 8 (Lifetime mortgages: advising and selling standards).

MCOB 3.3

Application: where?

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Territorial Scope

MCOB 3.3.1

handbook-rule

This chapter applies to a firm only in relation to:

  1. (1) the communication of a qualifying credit promotion to a person inside the United Kingdom;
  2. (2) the communication of an unsolicited real time qualifying credit promotion, unless:
    1. (a) it is made from a place outside the United Kingdom; and
    2. (b) it is made for the purposes of a business which is carried on outside the United Kingdom and which is not carried on in the United Kingdom; and
  3. (3) the approval of a non-real time qualifying credit promotion for communication to a person inside the United Kingdom;
subject to MCOB 3.3.3 R (Exceptions to territorial scope: rules without territorial limitation) and MCOB 3.3.5 R (Exceptions to territorial scope: distance contracts).

MCOB 3.3.2

handbook-guidance
  1. (1) The application under MCOB 3.3.1 R is relevant both when a firm communicates a qualifying credit promotion itself and when a firm approves a non-real time qualifying credit promotion for communication by others. But see also MCOB 3.3.3 R (Exceptions to territorial scope: rules without territorial limitation) regarding approvals.
  2. (2) The exemptions in MCOB 3.2.5 R (Application: what?; Exemptions) also incorporate some territorial elements. In particular, the exemption for financial promotions originating outside the United Kingdom (section 21(3) of the Act (Restrictions on financial promotion)) (see MCOB 3.2.5 R (4)) and the exemptions for overseas communicators (see MCOB 3.2.5 R (4)) and the exemption for incoming electronic commerce communications (see AUTH App 1.12.38 G (Incoming electronic commerce communication (article 20B)).
  3. (3) In the context of the provision of an electronic commerce activity to an EEA ECA recipient, the scope of MCOB 3 is extended by ECO 2.2.3 R (Financial promotion). This means that MCOB 3 will apply for communications to EEA ECA recipients.

Exceptions to territorial scope: rules without territorial limitation

MCOB 3.3.3

handbook-rule

Subject to MCOB 3.3.5 R the following parts of this chapter apply without any territorial limitation if a firm approves a qualifying credit promotion:

  1. (1) MCOB 3.1 to MCOB 3.5 (Application, Purpose and General);
  2. (2) MCOB 3.6.3 R(1) (Non-real time qualifying credit promotions: clear, fair and not misleading); and
  3. (3) MCOB 3.11.1 G to MCOB 3.11.4 G (Approval of qualifying credit promotions; No approval of real time qualifying credit promotions; Approval of qualifying credit promotions when not all the rules apply).

MCOB 3.3.4

handbook-guidance
There is no need for a qualifying credit promotion which is indicated in MCOB 3.3.1 R to be outside the territorial scope of the application of MCOB 3 to be approved before being communicated by an unauthorised person (because the restriction in section 21 of the Act (Restrictions on financial promotion) does not apply). If a firm nevertheless approves such a qualifying credit promotion, it must comply with the rules indicated in MCOB 3.3.3 R. However, a firm must not approve a real time qualifying credit promotion (see MCOB 3.11.2 R (No approval of real time qualifying credit promotions).

Exceptions to territorial scope: distance contracts

MCOB 3.3.5

handbook-rule
  1. (1) Notwithstanding MCOB 3.3.1 R and MCOB 3.3.3 R, where a firm which satisfies the conditions in (2) communicates a qualifying credit promotion, the rules in (3) do not apply.
  2. (2) The conditions are that:
    1. (a) the firm communicates the qualifying credit promotion from an establishment maintained by the firm in an EEA State other than the United Kingdom, and not from an establishment maintained by the firm in the United Kingdom or outside the EEA;
    2. (b) either that EEA State:
      1. (i) has implemented the DMD; or
      2. (ii) has obligations in its domestic law corresponding to those provided for by the DMD;
    3. (c) the qualifying credit promotion relates, exclusively, to a distance contract, for the conclusion of which the obligations provided for by the DMD (or corresponding obligations) are applied by that State; and
    4. (d) the firm is a national of an EEA State or a company or firm mentioned in article 48 of the Treaty.
  3. (3) The rules which do not apply are:
    1. (a) MCOB 3.6.1 R (Non-real time qualifying credit promotions: name and contact point);
    2. (b) MCOB 3.6.13 R (Required risk statements);
    3. (c) MCOB 3.6.15 R (Transient advertising);
    4. (d) MCOB 3.6.26 R (Multi-rate mortgages);
    5. (e) MCOB 3.6.27 R (Fees for advice or arranging); and
    6. (f) MCOB 3.8.2 R (3) and (4) (Form and content of real time qualifying credit promotions).

Meaning of 'communicated to a person inside or outside the United Kingdom'

MCOB 3.3.6

handbook-rule

For the purposes of this chapter:

  1. (1) a qualifying credit promotion is communicated to a person outside the United Kingdom if it is:
    1. (a) made to a person who receives it outside the United Kingdom; or
    2. (b) directed only at persons outside the United Kingdom; and
  2. (2) a qualifying credit promotion is communicated to a person inside the United Kingdom if it is communicated to a person other than as described in (1);
and see MCOB 3.3.7 R and MCOB 3.5.6 R which amplify this rule.

MCOB 3.3.7

handbook-rule

Meaning of "'directed only at persons outside the United Kingdom'

  1. (1) If the conditions set out in 4(a), (b), (c) and (d) are met, a qualifying credit promotion directed from a place inside the United Kingdom will be regarded as directed only at persons outside the United Kingdom.
  2. (2) If the conditions set out in 4(c) and (d) are met, a qualifying credit promotion directed from a place outside the United Kingdom will be regarded as directed only at persons outside the United Kingdom.
  3. (3) In any other case, where one or more of the conditions in 4(a) to (e) is met, that fact will be taken into account in determining whether a qualifying credit promotion is directed only at persons outside the United Kingdom (but a qualifying credit promotion may still be regarded as directed only at persons outside the United Kingdom even if none of these conditions is met).
  4. (4) The conditions are that:
    1. (a) the qualifying credit promotion is accompanied by an indication that it is directed only at persons outside the United Kingdom;
    2. (b) the qualifying credit promotion is accompanied by an indication that it must not be acted upon by persons in the United Kingdom;
    3. (c) the qualifying credit promotion is not referred to in, or directly accessible from, any other qualifying credit promotion which is made to a person or directed at persons in the United Kingdom by or on behalf of the same person;
    4. (d) there are in place proper systems and procedures to prevent recipients in the United Kingdom (other than those to whom the qualifying credit promotion might otherwise lawfully have been made) obtaining the qualifying credit to which the qualifying credit promotion relates, from the person directing the qualifying credit promotion, a close relative of his or a member of the same group;
    5. (e) the qualifying credit promotion is included in:
      1. (i) a website, newspaper, journal, magazine or periodical publication which is principally accessed in or intended for a market outside the United Kingdom; and
      2. (ii) a radio or television broadcast or teletext service transmitted principally for reception outside the United Kingdom.

MCOB 3.4

Purpose

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MCOB 3.4.1

handbook-guidance
  1. (1) Section 21(1) of the Act (Restriction on financial promotion) imposes a restriction on the communication of financial promotions (qualifying credit promotions in MCOB) by unauthorised persons. A person must not, in the course of business, communicate a qualifying credit promotion unless:
    1. (a) he is an authorised person; or
    2. (b) the content of the qualifying credit promotion is approved by an authorised person.
  2. (2) However, the Financial Promotion Order exempts from the restriction created by section 21(1) of the Act certain types of financial promotions (qualifying credit promotions in MCOB).

MCOB 3.4.2

handbook-guidance
  1. (1) The purpose of this chapter is to provide rules and guidance for a firm which wishes to communicate or approve a qualifying credit promotion. MCOB 3.5.2 G (Application: what? Exemptions) provides a guide to the topics covered in this chapter.
  2. (2) This chapter amplifies, for activities within its scope:
    1. (a) Principle 6 (Customers' interests) which requires a firm to pay due regard to the interests of its customers and treat them fairly; and
    2. (b) Principle 7 (Communications with clients) which requires a firm to pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.

MCOB 3.5

General

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Topics covered in this chapter

MCOB 3.5.1

handbook-guidance
MCOB 3 includes some provisions which are applicable to all types of qualifying credit promotion and others which apply only to specific types. MCOB 3.5.2 G has been provided to help locate the areas of particular relevance to types of qualifying credit promotion.

MCOB 3.5.2

handbook-guidance

This table belongs to MCOB 3.5.1 G

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Other regulations and guidelines

MCOB 3.5.3

handbook-guidance

A firm communicating a qualifying credit promotion may also be subject to other regulations and guidelines, outside the remit of the FSA, such as:

  1. (1) the codes issued from time to time by the Advertising Standards Authority, the Independent Television Commission and the Radio Authority;
  2. (2) regulations of any overseas regulator (where relevant) if the firm intends to market from the United Kingdom into any other country;
  3. (3) the Privacy and Electronic Communications (EC Directive) Regulations 2003
  4. (4) the Timeshare Act 1992, as amended by the Timeshare Regulations 1997 (SI 1997/1081); and
  5. (5) the Consumer Protection Act 1987, or Consumer Protection (Northern Ireland) Order 1987 (SI 1987/2049 (N.I 20)).

'Real time' and 'non-real time' qualifying credit promotions

MCOB 3.5.4

handbook-guidance
This chapter draws a distinction between real time and non-real time qualifying credit promotions. Guidance on the meaning of those expressions, which are based upon article 7 of the Financial Promotion Order, is contained in AUTH App 1.10.2 G (Real time v. non-real time promotions).

MCOB 3.5.5

handbook-rule
  1. (1) A 'real time qualifying credit promotion' is a qualifying credit promotion which is communicated in the course of a personal visit, telephone conversation or other interactive dialogue.
  2. (2) A 'non-real time qualifying credit promotion' is a qualifying credit promotion that is not a real time qualifying credit promotion. It includes a qualifying credit promotion made by letter, e-mail or contained in a newspaper, journal, magazine, other periodical publication, website, television or radio programme, or teletext service.
  3. (3) The following are to be regarded as indications that a qualifying credit promotion is a non-real time qualifying credit promotion:
    1. (a) the qualifying credit promotion is communicated to more than one person in identical terms (save for details of the recipient's identity);
    2. (b) the qualifying credit promotion is communicated by way of a system which in the normal course constitutes or creates a record of the communication which is available to the recipient to refer to at a later time; and
    3. (c) the qualifying credit promotion is communicated by way of a system which in the normal course does not enable or require the recipient to respond immediately to it.

Meaning of 'made', 'directed at' and 'recipient' in MCOB 3

MCOB 3.5.6

handbook-rule

(In accordance with article 6 of the Financial Promotion Order (Interpretation: communications)) any reference in this chapter to:

  1. (1) a communication being made to another person is a reference to a communication being addressed, whether verbally or in legible form, to a particular person or persons (for example, where it is contained in a telephone call or letter);
  2. (2) a communication being directed at persons is a reference to a communication being addressed to persons generally (for example where it is contained in a television broadcast or website); and
  3. (3) a 'recipient' of a communication is the person to whom the communication is made or, in the case of a non-real time qualifying credit promotion which is directed at persons generally, any person who reads or hears the communication.

MCOB 3.6

Form and content of non-real time qualifying credit promotions

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Non-real time qualifying credit promotions: name and contact point

MCOB 3.6.1

handbook-rule
A non-real time qualifying credit promotion must contain the name of the firm or its appointed representative and either an address or a contact point from which an address is available.

MCOB 3.6.2

handbook-guidance
  1. (1) For the purposes of MCOB 3.6.1 R, the name may be a trading name or shortened version of the legal name of the firm (although other legislation, for example, the Companies Act 1985, may require a firm to include information not required by this rule).
  2. (2) The type of contact point envisaged for a firm by MCOB 3.6.1 R is an e-mail address or telephone or facsimile number, where a customer can contact the firm for its address.
  3. (3) A firm is not required in a qualifying credit promotion which it communicates or approves to name the FSA as its regulator. However, to comply with MCOB 3.6.3 R (Non-real time qualifying credit promotions: clear, fair and not misleading), if the firm chooses to name the FSA as its regulator and the qualifying credit promotion refers to matters not regulated by the FSA, it should also make clear that those matters are not regulated by the FSA. This might arise, for example, where the communication included both a qualifying credit promotion and a promotion for unsecured lending.

Non-real time qualifying credit promotions: clear, fair and not misleading

MCOB 3.6.3

handbook-rule
  1. (1) A firm must be able to show that it has taken reasonable steps to ensure that a non-real time qualifying credit promotion is clear, fair and not misleading.
  2. (2) A non-real time qualifying credit promotion which includes a comparison or contrast must:
    1. (a) compare qualifying credit meeting the same needs or which is intended for the same purpose;
    2. (b) objectively compare one or more material, relevant, verifiable and representative features of the qualifying credit, which may include price;
    3. (c) not create confusion in the market place between the firm itself (or the person whose qualifying credit promotion it approves) and a competitor or between the firm's trademarks, trade names, other distinguishing marks, qualifying credit (or those of the person whose qualifying credit promotion it approves) and those of a competitor;
    4. (d) not discredit or denigrate the trademarks, trade names, other distinguishing marks, qualifying credit, services, activities or circumstances of a competitor;
    5. (e) not take unfair advantage of the reputation of a trademark, trade name or other distinguishing marks of a competitor;
    6. (f) not present qualifying credit as an imitation or replica of qualifying credit bearing a protected trademark or trade name; and
    7. (g) indicate in a clear and unequivocal way in any comparison referring to a special offer the date on which the offer ends or, where appropriate, that the special offer is subject to the availability of the qualifying credit, and, where the special offer has not yet begun, the date of the start of the period during which the special price or other specific conditions will apply.

MCOB 3.6.4

handbook-evidential-provisions
  1. (1) A firm should take reasonable steps to ensure that, for a non-real time qualifying credit promotion:
    1. (a) it does not omit any matters the omission of which causes the qualifying credit promotion not to be clear, fair and not misleading;
    2. (b) if it describes a feature of any qualifying credit, it gives no less prominence to the possible disadvantages than to the benefits associated with that feature;
    3. (c) it uses plain and intelligible language, and is easily legible (or, in the case of oral promotions, clearly audible);
    4. (d) the accuracy of all statements of fact in it can be substantiated;
    5. (e) its promotional purpose is not in any way disguised or misrepresented;
    6. (f) any statement of fact, promise or prediction is clear, fair and not misleading and any relevant assumptions are clearly and prominently disclosed (but a firm is not required to explain, on the face of the qualifying credit promotion, the basis on which a stated APR is calculated: see MCOB 3.6.18 G);
    7. (g) any statement of opinion is honestly held and, unless consent is impracticable, given with the written consent of the person concerned;
    8. (h) the facts on which any comparison or contrast is made are verified, or, alternatively, that relevant assumptions are prominently disclosed and that the comparison or contrast is presented in a fair and balanced way, which is not misleading and includes all factors which are relevant to the comparison or contrast;
    9. (i) it does not contain any false indications, in particular as to:
      1. (i) the firm's independence;
      2. (ii) the firm's resources and scale of activities; or
      3. (iii) the scarcity of any qualifying credit;
    10. (j) the design, content or format does not in any way disguise, obscure or diminish the significance of any statement, warning or other matter which the qualifying credit promotion is required by this chapter to contain;
    11. (k) it does not include any reference to approval by the FSA or any government body, unless such approval has been obtained in writing from the FSA or that body (see also GEN 1.2 (Referring to approval by the FSA));
    12. (l) where it contains information required as a consequence of the following provisions, the items of information provided in relation to each provision appear in proximity to each other:
      1. (i) MCOB 3.6.11 R;
      2. (ii) MCOB 3.6.13 R (Required risk statements), unless MCOB 3.6.15 R (transient advertising) applies;
      3. (iii) MCOB 3.6.17 R (Annual percentage rate (APR));
      4. (iv) MCOB 3.6.25 R;
      5. (v) MCOB 3.6.26 R (Multi-rate mortgages); and
      6. (vi) MCOB 3.6.27 R (Fees for advice or arranging).
  2. (2)
    1. (a) Contravention of MCOB 3.6.4 E(1) may be relied on as tending to show contravention of MCOB 3.6.3 R(1).
    2. (b) Compliance with MCOB 3.6.4 E(1) may be relied on as tending to show compliance with MCOB 3.6.3 R(1).

MCOB 3.6.5

handbook-guidance

In relation to MCOB 3.6.3 R:

  1. (1) firms should avoid the use of small print to qualify prominent claims;
  2. (2) if a non-real time qualifying credit promotion includes information on the performance of the firm, on conditions in the market, interest rates, APRs or other price information this information should be relevant and recent. Firms should therefore avoid including this information in qualifying credit promotions which have a long shelf-life, and where the information can become outdated; and
  3. (3) firms must ensure that an adequate description of mortgage products is given. For example, firms should take care to ensure that where a rate is variable at any time during the term of the mortgage, the content of the qualifying credit promotion does not imply the rate may be fixed.

MCOB 3.6.6

handbook-guidance

The effect of MCOB 3.6.4 E(1)(b) will depend upon the content of the promotion. A non-exhaustive list of examples satisfying MCOB 3.6.4 E(1)(b) follows:

  1. (1) a promotion which, when describing any cashback offered to the customer, also clearly refers to any relevant conditions, such as a requirement to pay back some or all of the cashback on early repayment of the mortgage;
  2. (2) a promotion which, when describing any fixed or discount rate, also clearly states the duration of any early repayment charges;
  3. (3) a promotion which, when describing any reduction in regular payments following from the re-arrangement of existing loans, also clearly indicates any increase in the total cost and any extension to the repayment period for the customer;
  4. (4) a promotion which, when describing any possible monetary saving, also clearly states how this could be achieved;
  5. (5) a promotion which, when including references to non-standard services or facilities, also clearly states that an additional fee may be payable for these; and
  6. (6) a promotion which, when it includes an indication of an initial payment holiday (for example, 'pay nothing for 3 months'), also makes clear whether or not interest will be charged during this period.
  • 31/10/2004

MCOB 3.6.7

handbook-guidance
The requirement in MCOB 3.6.4 E(1)(l) that certain information must be given in proximity means, for example, in relation to printed qualifying credit promotions, that this information is all visible at the same time.

MCOB 3.6.8

handbook-rule

In complying with its obligations under MCOB 3.6.3 R (Non-real time promotions: clear fair and not misleading), a firm must ensure that the qualifying credit promotion does not contain any of the following words or expressions, unless the relevant condition applies:

  1. (1) the word 'overdraft' or any similar expression as describing any agreement for running-account credit except an agreement enabling the customer to overdraw on a current account;
  2. (2) the expression 'interest free' or any similar expression (such as '0% Finance' or 'Interest Free Option') indicating that a customer is liable to pay no greater amount in respect of a transaction financed by credit than the customer would be liable to pay as a cash purchaser in relation to the same transaction, except where:
    1. (a) the total amount payable by the customer does not exceed the cash price; or
    2. (b) MCOB 3.6.26 R (Multi-rate mortgages) applies, in which case the expression may be used in respect of any rate of charge of 0% provided that during the period in which the rate applies there is no interest charged and no increase in the amount of the mortgage loan.
  3. (3) the expression 'no deposit' or any similar expression, except where no advance payments are required to be made on the loan;
  4. (4) the expression 'mortgage guaranteed', 'pre-cleared' or any similar expression, unless the qualifying credit promotion invites entry into a contract that is free of any conditions regarding the credit status of the customer; and
  5. (5) the expression 'gift', 'present' or any similar expressions, unless there are no conditions which would require the customer to return the money or items that are the subject of the claim.

MCOB 3.6.9

handbook-rule

A non-real time qualifying credit promotion must:

  1. (1) describe any early repayment charge as an 'early repayment charge' and not use any other expression to describe such charges;
  2. (2) describe any higher lending charge as a 'higher lending charge' and not use any other expression to describe such charges;
  3. (3) not contain the 'key facts' logo unless it is required by a rule; and
  4. (4) describe any regulated lifetime mortgage contract as a 'lifetime mortgage' and not use any other expression to describe such a mortgage.

MCOB 3.6.10

handbook-guidance
  1. (1) It cannot be assumed that customers necessarily have an understanding of the qualifying credit being promoted. If a non-real time qualifying credit promotion is specially designed for a targeted collection of customers who are reasonably believed to have particular knowledge of the qualifying credit being promoted, this fact should be made clear.
  2. (2) In relation to quotations of opinion:
    1. (a) where only part of an opinion is quoted, it should nevertheless be a fair representation; and
    2. (b) any connection between the holder of the opinion and the firm should be made clear.

MCOB 3.6.11

handbook-rule
A non-real time qualifying credit promotion that features qualifying credit which is conditional upon the customer obtaining one or more further products from a specific firm (or its agents or associates) must prominently state the compulsory nature of these purchases.

MCOB 3.6.12

handbook-guidance
MCOB 3.6.11 R is concerned with ensuring that customers are adequately informed, at an early stage, as to the existence of any tied products or services. However, it does not introduce equivalent disclosure requirements for services or products that must be obtained as a condition for the making of the loan, but where the customer has a free choice as to the supplier.
  • 31/10/2004

Required risk statements

MCOB 3.6.13

handbook-rule

A non-real time qualifying credit promotion must, unless MCOB 3.6.15 R (Transient advertising) applies, prominently contain one or more of the following statements in the circumstances described:

  1. (1) where the qualifying credit promotion relates to a regulated lifetime mortgage contract: 'This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.'
  2. (2) where the qualifying credit promotion refers to paying off unsecured debts (for example, credit cards, personal loans or overdrafts) by taking out qualifying credit: 'Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.'
  3. (3) in all cases except (1) and (2): 'Your home may be repossessed if you do not keep up repayments on your mortgage.'
  4. (4) where the mortgage will be denominated in a currency other than sterling: 'Changes in the exchange rate may increase the sterling equivalent of your debt.'
  5. (5) where more than one of the statements in (1) to (4) applies, each relevant statement should be included in the qualifying credit promotion. In such cases, the statement set out in (1), (2) or (3) should precede that in (4).

MCOB 3.6.14

handbook-guidance
  1. (1) Prominence of relevant information can play a key role in ensuring that a communication is clear, fair and not misleading. As a consequence, a number of requirements in MCOB relate to prominence. Where this is the case, the FSA will assess prominence in the context of the promotion as a whole. Use can be made of the positioning of text, background and text colour and typesize to ensure that prescribed information meets the requirements of MCOB. The surrounding of required statements with other information should be avoided where this might detract from the prominence which it is obligatory to afford to the statements.
  2. (2) Firms may if they wish include a foreign language version of any required warning, in addition to the English language version required by these rules. If foreign language versions of warnings are included, firms are reminded of prominence requirements in MCOB 3.6.13 R and MCOB 3.6.14 G (1). Information should not be included which detracts from the required prominence of warning statements.
  • 31/10/2004

Transient advertising

MCOB 3.6.15

handbook-rule

MCOB 3.6.13 R (Required risk statements) does not apply if the non-real time qualifying credit promotion is communicated:

  1. (1) by way of sound broadcasting or television where the primary purpose of the programming in which the promotion is contained is not to promote lending; or
  2. (2) by an exhibition of pictures or photographic or cinematographic films.

MCOB 3.6.16

handbook-guidance
  1. (1) MCOB 3.6.15 R (1) is intended to distinguish between promotions in breaks between 'normal' commercial broadcast programming (where the text prescribed in MCOB 3.6.13 R (Required risk statements) is not required) and promotions in breaks which are in or around programming intended to promote lending where MCOB 3.6.13 R (Required risk statements) applies.
  2. (2) In relation to promotions on dedicated interactive television services, if the promotion is not contained within programming but instead forms a separate feature, the exemption offered by MCOB 3.6.15 R (1) would not be available.
  • 31/10/2004

Annual percentage rate (APR)

MCOB 3.6.17

handbook-rule
  1. (1) A firm must ensure that if a non-real time qualifying credit promotion contains either price information for specific qualifying credit, or makes reference (either explicitly or implicitly) to the availability of credit for customers who might otherwise consider their access to credit restricted, the promotion also:
    1. (a) states the APR;
    2. (b) gives the APR, and the accompanying statement in (3), with no less prominence than any price information or reference (either explicitly or implicitly) to the availability of credit for customers who might otherwise consider their access to credit restricted; and
    3. (c) positions the APR after any other rate of charge relating to the qualifying credit, clearly distinguishing it from any such rate but without interjecting other information in between the APR and any other rate of charge.
  2. (2) A firm must calculate the APR in accordance with MCOB 10 (Annual percentage rate).
  3. (3) The APR must be expressed as follows, with X being the APR calculated for the particular qualifying credit: 'The overall cost for comparison is X% APR'

MCOB 3.6.18

handbook-guidance
MCOB 3.6.17 R does not require a firm to explain the basis on which the APR is calculated, or to provide a figure for the total charge for credit, in the non-real time qualifying credit promotion.

MCOB 3.6.19

handbook-guidance

For the purposes of MCOB 3.6.17 R(1), references to the availability of credit for customers who might otherwise consider their access restricted include references to:

  1. (1) credit history; or
  2. (2) credit rating; or
  3. (3) county court judgments; or
  4. (4) employment; or
  5. (5) housing circumstances (for example, council tenants).
  • 31/10/2004

MCOB 3.6.20

handbook-guidance
  1. (1) In relation to MCOB 3.6.17 R(1)(c), the intention is that the APR should follow on, but be readily identifiable as different, from the indicated rate or rates of charge.
  2. (2) For multi-rate products this should mean that the APR is presented, in sequence, after the different rates of charge that apply.
  3. (3) The APR may be distinguished from other rates of charge by techniques such as using a contrasting (and legible) colour for text. However, the requirement of MCOB 3.6.17 R(1)(c) will not be satisfied by text devices such as the use of brackets which tend to diminish the impact of the APR.
  • 31/10/2004

MCOB 3.6.21

handbook-guidance

If a qualifying credit promotion contains price information for more than one qualifying credit product, MCOB 3.6.17 R requires an APR to be provided for each product. Where more than one APR is required to be given, each APR will need to be no less prominent than:

  1. (1) any price information relating to the particular product;
  2. (2) any reference (either explicitly or implicitly) to the availability of credit for customers who might otherwise consider their access to credit restricted; and
  3. (3) any other APR in the qualifying credit promotion.

MCOB 3.6.22

handbook-rule
If the non-real time qualifying credit promotion concerns a contract under which the APR varies (for example, depending upon the circumstances of the customer), the APR required by MCOB 3.6.17 R (Annual percentage rate (APR)) is that which is representative of the business expected to arise from the promotion.

MCOB 3.6.23

handbook-rule
For the purposes of MCOB 3.6.22 R, an APR is not representative of business unless it is an APR at or below which at least 66% of customers responding to the promotion and who enter into a qualifying credit agreement which is the subject of the promotion would be charged.
  • 31/10/2004

MCOB 3.6.24

handbook-guidance
  1. (1) The FSA would not regard an APR described as 'from X%' as satisfying MCOB 3.6.22 R.
  2. (2) In MCOB 3.6.22 R, when determining the representative APR, account should be taken of the business that has arisen from similar qualifying credit promotion in the previous 12 months. Where the qualifying credit promotion is for a new product or business, reference should instead be had to the relevant business plans.

MCOB 3.6.25

handbook-rule
If the non-real time qualifying credit promotion concerns a contract where the APR varies depending upon the circumstances of the customer, the following further statement must be included with due prominence: 'The actual rate available will depend upon your circumstances. Ask for a personalised illustration.'

Multi-rate mortgages

MCOB 3.6.26

handbook-rule

If the non-real time qualifying credit promotion is for a product where more than one rate of charge will or may apply during the course of the contract, and the non-real time qualifying credit promotion contains information about any of these rates then:

  1. (1) the non-real time qualifying credit promotion must contain a clear and no less prominent description of all of the rates of charge that will apply;
  2. (2) where any rate to be charged in the future is variable (such as the mortgage lender's standard variable rate), the rate indicated must be the level of that rate current at the time of the promotion; and
  3. (3) the rates must be stated in sequence from the rate initially applying through to the rate assumed to apply at the end of the mortgage, and after each rate must be given a statement:
    1. (a) of its period of application; and
    2. (b) that the rate then changes.

Fees for advice or arranging

MCOB 3.6.27

handbook-rule

If a non-real time qualifying credit promotion relates to the controlled activities of advising on or arranging qualifying credit and a fee may be charged for these activities, a firm must ensure that a prominent indication is given of:

  1. (1) the amount of the fee (if known); or
  2. (2) a representative fee based upon the business expected to arise from the promotion.

MCOB 3.6.28

handbook-guidance
MCOB 3.6.27 R seeks to ensure that customers are given early notice of the existence of any fees charged by intermediaries in connection with the provision of qualifying credit. Where the fee is known at the outset, this must be indicated. The indication could be either as a cash value or as a percentage. If the charging of a fee, and the level of this, are dependent upon the circumstances of the customer, the indication must be based upon the business that is expected to result from the promotion.
  • 31/10/2004

MCOB 3.6.29

handbook-guidance
MCOB 3.6.14 G(1) provides further guidance in relation to prominence.
  • 31/10/2004

MCOB 3.6.30

handbook-guidance
MCOB 3.6.27 R(2) does not require the promotion to set out the characteristics of the representative business (loan amount etc) on which the indicated fee is based. For example, where the fee charged by a firm relates to circumstances of the customer such as their previous credit history, it would be sufficient to state that 'There will be a fee for mortgage advice. The precise amount will depend upon your circumstances but we estimate that it will be X'.
  • 31/10/2004

MCOB 3.7

Unsolicited real time qualifying credit promotions

Meaning of 'solicited' and 'unsolicited' real time qualifying credit promotion

MCOB 3.7.1

handbook-rule
  1. (1) An unsolicited real-time qualifying credit promotion is a real time qualifying credit promotion which is not solicited as described in (2).
  2. (2) A solicited real-time qualifying credit promotion is a real time qualifying credit promotion which is solicited, that is, it is made in the course of a personal visit, telephone call or other interactive dialogue if that call, visit or dialogue:
    1. (a) was initiated by the recipient of the qualifying credit promotion; or
    2. (b) takes place in response to an express request from the recipient of the qualifying credit promotion;
  3. and it is clear from all the circumstances when the call, visit or dialogue is initiated or requested that during the course of the visit, call or dialogue a qualifying credit promotion would be made.
  4. (3) In (2), a person is not to be treated as expressly requesting a call, visit or dialogue:
    1. (a) because he omits to indicate that he does not wish to receive any or any further visits or calls or to engage in any or any further dialogue;
    2. (b) because he agrees to standard terms that state that such visits, calls or dialogues will take place unless he has signified clearly that, in addition to agreeing to the terms, he is willing for them to take place.
  5. (4) If a qualifying credit promotion is solicited by a person ('R') it is treated as also having been solicited by any other person to whom it is made at the same time as R if that other person is a close relative of R or is expected to enter into any contract for qualifying credit jointly with R.

MCOB 3.7.2

handbook-guidance
MCOB 3.7.1 R is based on article 8 of the Financial Promotion Order. Guidance on whether a real time qualifying credit promotion is solicited is contained in AUTH App 1.10.8 G (Solicited v unsolicited real-time promotions). AUTH App 1.10.11 G to AUTH App 1.10.14 G also gives guidance on who will be considered the 'recipient' of a communication.

Prohibition on unsolicited real time qualifying credit promotions to customers

MCOB 3.7.3

handbook-rule
A firm must not make an unsolicited real time qualifying credit promotion unless the customer has an established existing customer relationship with the firm and the relationship is such that the customer envisages receiving unsolicited real time qualifying credit promotions.

MCOB 3.7.4

handbook-guidance
  1. (1) Firms are reminded of the exemptions in MCOB 3.2.5 R (Application: what? exemptions). MCOB 3.7.3 R does not prohibit an exempt unsolicited real time qualifying credit promotion.
  2. (2) MCOB 3.2.5 R(2) creates an exemption for qualifying credit promotions that contain only very limited information about the firm (such as its name or contact details). The limited nature of this exemption means that a firm is unlikely to be able to use it to induce a customer to approach the firm and turn any subsequent communication by the firm into a solicited real-time qualifying credit promotion.

MCOB 3.8

Form and content of real time qualifying credit promotions

  • 01/12/2004

MCOB 3.8.1

handbook-guidance

A firm should note that MCOB 3.7.3 R (Prohibition on unsolicited real time promotions to customers) prevents a firm from communicating to a customer an unsolicted real time qualifying credit promotion other than an exempt promotion (which is outside the scope of this chapter) or where MCOB 3.7.3 R applies. Many solicited real time qualifying credit promotions will be exempt promotions (and, therefore, outside the scope of this chapter). Accordingly, MCOB 3.8.2 R and MCOB 3.8.3 G apply only to solicited real time qualifying credit promotions which are not exempt qualifying credit promotions and to unsolicited real time qualifying credit promotions within MCOB 3.7.3 R.

MCOB 3.8.2

handbook-rule

A firm must ensure that an individual who makes a real time qualifying credit promotion on the firm's behalf:

  1. (1) does so in a way which is clear, fair and not misleading;
  2. (2) does not make any untrue claims;
  3. (3) makes clear the purpose (or purposes) of the qualifying credit promotion at the initial point of communication, and identifies himself and the firm which he represents;
  4. (4) if the time and method of communication were not previously agreed by the recipient:
    1. (a) checks that the recipient wishes him to proceed;
    2. (b) terminates the communication if the recipient does not wish him to proceed (but may ask for another appointment);
    3. (c) recognises and respects, promptly, the right of the recipient to:
      1. (i) end the communication at any time;
      2. (ii) refuse any request for another appointment;
  5. (5) gives any person with whom he arranges an appointment a contact point;
  6. (6) does not communicate with a person:
    1. (a) at an unsocial hour, unless the person has previously agreed to such a communication;
    2. (b) on an unlisted telephone number, unless the person has previously agreed to such calls on that number.

MCOB 3.8.3

handbook-guidance
In MCOB 3.8.2 R(6)(a) an unsocial hour usually means on a Sunday or before 9am or after 9pm on any other day. It could also mean other days of the week or other times if the firm knows that a particular customer would not wish to be called on that day or at that time for reasons of, for example, religious faith or night shift working.
  • 31/10/2004

MCOB 3.8.4

handbook-guidance

The requirements of MCOB 3.8.2 R and MCOB 3.8.3 G:

  1. (1) apply in respect of all individuals who initiate the communication, including advisers and call centre operators;
  2. (2) apply to all forms of real time qualifying credit promotion with customers, including face-to-face and telephone qualifying credit promotion;
  3. (3) but do not prevent, for example, a telephone call centre which has received a call from a customer at an hour generally regarded as unsocial, either responding to that call or asking during the call if the customer would like details of other qualifying credit

MCOB 3.8.5

handbook-guidance
SYSC 3.2.20 R (Records) requires a firm to take reasonable care to make and retain certain records. For a telemarketing campaign to which MCOB 3.8.2 R and MCOB 3.8.3 G apply, those records should include copies of any scripts used.
  • 31/10/2004

MCOB 3.8.6

handbook-guidance
Firms should note the additional disclosure requirements in MCOB 4.4.7 R (Disclosure where initial contact is by telephone) and MCOB 4.5 (Additional disclosure for distance mortgage mediation contracts with retail customers) in relation to telephone calls that may fall within the definition of a financial promotion.

MCOB 3.9

Confirmation of compliance

MCOB 3.9.1

handbook-rule
  1. (1) Before a firm communicates or approves a non-real time qualifying credit promotion it must confirm that the qualifying credit promotion complies with the rules in this chapter.
  2. (2) A firm must arrange for the confirmation exercise in (1) to be carried out by an individual or individuals with appropriate expertise.

MCOB 3.9.2

handbook-guidance
  1. (1) In MCOB 3.9.1 R(2) 'appropriate expertise' will vary depending on the complexity of the qualifying credit promotion and the qualifying credit to which it relates. The individuals engaged by a firm to confirm the compliance of its qualifying credit promotions with this chapter may themselves have different levels of expertise and therefore a different level of authority for confirmation depending on the type of promotion and the qualifying credit involved.
  2. (2) A firm may arrange for a third party with appropriate expertise to carry out the confirmation exercise on the firm's behalf, but the responsibility for the qualifying credit promotion remains with the firm.

Withdrawing confirmation

MCOB 3.9.3

handbook-rule

If, at any time after it has completed a confirmation exercise in MCOB 3.9.1 R(1), a firm becomes aware that a qualifying credit promotion no longer complies with the rules in this chapter, it must ensure that the qualifying credit promotion is withdrawn as soon as is reasonably practicable by:

  1. (1) ceasing to communicate it;
  2. (2) withdrawing its approval (if applicable); and
  3. (3) notifying any person that the firm knows to be relying on its approval (if applicable) or confirmation (under MCOB 3.9.5 R).

MCOB 3.9.4

handbook-guidance
  1. (1) MCOB 3.9.3 R is of particular importance to a qualifying credit promotion, such as a product brochure, that a firm uses over a period of time. It has little application to a qualifying credit promotion which is of its nature ephemeral, for example a mobile phone text message. Further, a qualifying credit promotion which clearly speaks as at a particular date will not cease to comply with the rules in this chapter merely because the passage of time has rendered it out-of-date. This does not mean, however, that a qualifying credit promotion can include information (such as price information) which is likely to become outdated during the currency of the qualifying credit promotionwithout the firm having regard to the need for any qualifying credit promotion to be clear, fair and not misleading. See further MCOB 3.6.5 G (2).
  2. (2) For compliance with MCOB 3.9.3 R, the FSA will expect a firm to monitor its relevant qualifying credit promotions as part of the firm's routine compliance monitoring procedures. A firm may find it helpful to designate a relevant qualifying credit promotion with a 'review date', a date at which the qualifying credit promotion should be checked once more against the rules in this chapter. If it is found no longer to meet these requirements it should be withdrawn as soon as is reasonably practicable.
  3. (3) If at any time a firm becomes aware that customers may have been misled by a qualifying credit promotion it should consider whether customers who have responded to the qualifying credit promotion should be contacted with a view to explaining the position and offering any appropriate form of redress to those who have suffered financial loss.

MCOB 3.9.5

handbook-rule

A firm will not contravene any of the rules in this chapter in circumstances where it (firm 'A') communicates a non-real time qualifying credit promotion which has been produced by another person provided that:

  1. (1) A takes reasonable care to establish that another firm (firm 'B') has already confirmed the compliance of the qualifying credit promotion in accordance with MCOB 3.9.1 R;
  2. (2) A takes reasonable care to establish that A communicates the qualifying credit promotion only to recipients of the type for whom it was intended at the time B carried out the confirmation exercise; and
  3. (3) so far as A is, or ought reasonably to be, aware:
    1. (a) the qualifying credit promotion has not ceased to be clear, fair and not misleading since that time; and
    2. (b) B has not withdrawn the qualifying credit promotion.

MCOB 3.10

Records

Requirement to make and retain records

MCOB 3.10.1

handbook-rule
A firm must make an adequate record of each non-real time qualifying credit promotion which it has confirmed as complying with the rules in this chapter. The record must be retained for a year from the date at which the qualifying credit promotion was last communicated.

Content of records

MCOB 3.10.2

handbook-guidance

In deciding what is an adequate record under MCOB 3.10.1 R, a firm should consider including, or providing reference to, where appropriate, such matters as:

  1. (1) the name of the individual or individuals who confirmed that the qualifying credit promotion complied with the rules in this chapter;
  2. (2) the date of confirmation and (where appropriate) approval;
  3. (3) details of the medium for which the qualifying credit promotion was authorised;
  4. (4) the evidence supporting any material factual statement about qualifying credit in the qualifying credit promotion. For example, for any testimonial they use, advertisers should hold signed and dated proof, including a contact address. Unless they are genuine opinions taken from a published source, testimonials should only be used with the written permission of those giving them; and
  5. (5) where the promotion contains a typical APR, evidence to show that the APR was representative of the business expected to arise from the promotion (see MCOB 3.6.22 R).

MCOB 3.10.3

handbook-guidance
  1. (1) A firm should also retain a copy of the qualifying credit promotion as finally published or, if this is not practicable, monitor the published version to verify that it is in substantially the same format as the version which the firm confirmed complied with the rules in this chapter.
  2. (2) Records which should be retained include:
    1. (a) any written qualifying credit promotion used by an adviser; and
    2. (b) any written material which is used in an organised marketing campaign (including, for example, written mailshots whether sent by e-mail, post, facsimile or other media).
  3. (3) If the qualifying credit promotion is not in written form, the record should represent the actual qualifying credit promotion as accurately as possible.

Form of records

MCOB 3.10.4

handbook-guidance
MCOB 2.8 (Record keeping) applies to the form in which records required in accordance with this chapter must be kept.
  • 31/10/2004

MCOB 3.11

Communication and approval of qualifying credit promotions for an overseas person or an unauthorised person

  • 01/12/2004

Approval of qualifying credit promotions

MCOB 3.11.1

handbook-guidance
  1. (1) Section 21(1) of the Act (Restrictions on financial promotion) prohibits an unauthorised person from communicating a financial promotion (qualifying credit promotion in the case of MCOB), in the course of business, unless an exemption applies or the qualifying credit promotion is approved by a firm.
  2. (2) Most of the rules in this chapter apply when a firm approves a qualifying credit promotion in the same way as when a firm communicates a qualifying credit promotion itself. A firm therefore has a similar responsibility for a qualifying credit promotion that it approves as for one that it communicates. For example, a firm which approves a non-real time qualifying credit promotion must:
    1. (a) if MCOB 3.9.1 R applies, confirm that the qualifying credit promotion complies with the rules in this chapter; and
    2. (b) if MCOB 3.6.3 R(1) applies, be able to show that it has taken reasonable steps to ensure that the qualifying credit promotion is clear, fair and not misleading.
  3. (3) A firm may also wish to approve a qualifying credit promotion that it communicates itself. This would ensure that an unauthorised person who then also communicates the qualifying credit promotion to another person will not contravene the restriction in section 21(1) of the Act (Restrictions on financial promotion).
  4. (4) A firm which approves a promotion that is exempt under MCOB 3.2.5 R (Application: what?; exemptions) or MCOB 3.3.1 R (Application: where?) must still comply with certain rules in this chapter (see MCOB 3.2.4 R (Application: what? exemptions) and MCOB 3.3.3 R (Exceptions to territorial scope: rules without territorial limitation)).

No approval of real time qualifying credit promotions

MCOB 3.11.2

handbook-rule
A firm must not approve a real time qualifying credit promotion.

Approval of qualifying credit promotions when not all the rules apply

MCOB 3.11.3

handbook-rule
If a firm approves a qualifying credit promotion in circumstances in which one or more of the rules in this chapter are expressly disapplied, the approval must be given on terms that it is limited to those circumstances.

MCOB 3.11.4

handbook-guidance
If an approval is limited in accordance with MCOB 3.11.3 R, and an unauthorised person communicates the qualifying credit promotion to persons not covered by the approval, the unauthorised person may commit an offence under section 21(1) of the Act (Restrictions on financial promotion). A firm giving a limited approval may wish to advise the unauthorised person accordingly.

Non-real time qualifying credit promotions for overseas persons

MCOB 3.11.5

handbook-rule

A firm must not communicate or approve a non-real time qualifying credit promotion which relates to qualifying credit provided by an overseas person, unless:

  1. (1) the qualifying credit promotion makes clear which firm has approved or communicated it and, where relevant, explains;
    1. (a) that the rules made under the Act for the protection of customers do not apply;
    2. (b) the extent and level to which the compensation scheme will be available, or if the scheme will not be available, a statement to that effect; and
    3. (c) if the communicator wishes, the protection or compensation available under another system of regulation; and
  2. (2) the firm has no reason to doubt that the overseas person will deal with customers in the United Kingdom in an honest and reliable way.

MCOB 3.12

The Internet and other electronic media

  • 01/12/2004

MCOB 3.12.1

handbook-guidance
This section contains guidance on the use of the Internet and other electronic media to communicate qualifying credit promotions. Firms are also referred to the guidance in MCOB 2.7 (Application to electronic media and distance communications).

Approach and general guidance

MCOB 3.12.2

handbook-guidance
Any material, which meets the definition of a qualifying credit promotion, including any video or moving image material incorporated in any website containing a qualifying credit promotion, should comply with the rules in this chapter. See AUTH App 1 (The Internet) for further guidance on financial promotions on the Internet, including the treatment of hyperlinks and banners.

MCOB 3.12.3

handbook-guidance

As indicated in MCOB 3.3 (Application: where?), for the purposes of the qualifying credit promotion rules there are two types of approach to qualifying credit promotion communicated via the Internet and other electronic media

  1. (1) real time qualifying credit promotions where the communication is in the form, for example, of a telephone conversation, or other form of interactive dialogue; and
  2. (2) non-real time qualifying credit promotions where the customer may, for example, choose from reading a description of the qualifying credit, through to the completion of a contract in a similar way to browsing through a leaflet rack. The rules in this chapter relating to hard copy qualifying credit promotions such as advertisements in magazines or newspapers apply equally to such promotions. E-mails, material displayed on a website and sound and television broadcasts are non-real time qualifying credit promotions (see MCOB 3.5.5 R(2)).

MCOB 3.12.4

handbook-guidance
  1. (1) Before using the Internet, digital or any other form of interactive television or other electronic media to promote its services, a firm should refer to legislation such as the Data Protection Act 1998 and the Computer Misuse Act 1990, as well as to this chapter.
  2. (2) In relation to qualifying credit promotions communicated by way of television, firms will want to have regard to Guidance Note 3 of the ITC Code of Advertising Standards and Practice on the use and appearance of superimposed text.
  3. (3) When designing websites and other electronic media, firms should be aware of the difficulties that can arise when reproducing certain colours and printing certain types of text. These difficulties could cause problems with the presentation and retrieval of required information. Any qualifying credit promotion communicated by the Internet, digital or other forms of interactive television is subject to the requirements in MCOB 3.6 (Form and content of non-real time qualifying credit promotions) and MCOB 3.8 (Form and content of real time qualifying credit promotions) as applicable.

Specific guidance

MCOB 3.12.5

handbook-guidance
The FSA website http://www.fsa.gov.uk contains a wide range of information including pages of specific relevance to customers. Firms may, if they wish, include a reference or hyperlink to the FSA's site; this will not, however, replace any requirements of the qualifying credit promotion rules.

MCOB 3 Annex 1

Examples of qualifying credit promotions

  • 01/12/2004

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



Examples of qualifying credit promotions - mcob3_annex1.pdf

Export chapter as

MCOB 4

Advising and selling standards

MCOB 4.1

Application

  • 01/12/2004

Who?

MCOB 4.1.1

handbook-rule
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

handbook-rule

This table belongs to MCOB 4.1.1 R

What?

MCOB 4.1.3

handbook-rule

This chapter applies if a firm in the course of carrying on a regulated mortgage activity:

  1. (1) makes, or anticipates making, a personal recommendation about; or
  2. (2) gives, or anticipates giving, personalised information relating to;
the customer:
  1. (3) entering into a regulated mortgage contract; or
  2. (4) varying the terms of a regulated mortgage contract entered into by the customer.

MCOB 4.1.4

handbook-rule
  1. (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:
    1. (a) adding or removing a party;
    2. (b) taking out a further advance; or
    3. (c) switching all or part of the regulated mortgage contract from one interest rate to another.
  2. (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

handbook-rule
In relation to a regulated lifetime mortgage contract or a home reversion scheme, this chapter MCOB 4 is modified by MCOB 8 (Lifetime mortgages: advising and selling standards).

MCOB 4.1.6

handbook-guidance
MCOB 4.1.5 R means that this chapter, MCOB 4, deals with standard regulated mortgage contracts only and therefore firms should note that the scope of service rules in MCOB 4.3.1 R apply in respect of standard regulated mortgage contracts only.

MCOB 4.1.7

handbook-guidance
If a firm is an authorised professional firm, MCOB 1.2.10 R (3) has the effect that when the firm conducts non-mainstream regulated activities with a customer, MCOB 4.4 (Initial disclosure requirements) applies. The firm is only required to provide the initial disclosure information in MCOB 4 Annex 1 or MCOB 4 Annex 2 section 7 (What to do if you have a complaint) and section 8 (Are we covered by the Financial Services Compensation Scheme (FSCS)?).

MCOB 4.1.8

handbook-guidance
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).
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MCOB 4.2

Purpose

  • 01/12/2004

MCOB 4.2.1

handbook-guidance
  1. (1) This chapter amplifies Principle 6 (Customers' interests), Principle 7 (Communications with clients) and Principle 9 (Customers: relationships of trust). Principle 6 requires a firm to pay due regard to the interests of its customers and treat them fairly. Principle 7 requires a firm to pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading. Principle 9 requires a firm to take reasonable care to ensure the suitability of its advice.
  2. (2) The purpose of this chapter is to ensure that:
    1. (a) customers are adequately informed about the nature of the service which they may receive from a firm in relation to regulated mortgage contracts. In particular firms need to make clear to customers the scope of regulated mortgage contracts available from them; and
    2. (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 regulated mortgage contract.
  3. (3) This chapter also implements certain requirements of the Distance Marketing Directive in relation to distance mortgage mediation contracts (see MCOB 4.5 (Additional disclosure for distance mortgage mediation contracts with retail customers) and MCOB 4.6 (Cancellation of distance mortgage mediation contracts)).

MCOB 4.3

Scope of service provided

  • 01/12/2004

Providing services within and beyond scope

MCOB 4.3.1

handbook-rule
  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 regulated mortgage contracts offered, is based on a selection from one of the following:
    1. (a) the whole market; or
    2. (b) a limited number of mortgage lenders; or
    3. (c) a single mortgage lender.
  2. (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:
    1. (a) the customer is made aware of the proposed change by a communication in a durable medium; and
    2. (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.

MCOB 4.3.2

handbook-rule
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

handbook-guidance
SYSC 3.2.6 R (Compliance) requires a firm to 'take reasonable care to establish 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.

Whole of market

MCOB 4.3.4

handbook-rule
  1. (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:
    1. (a) it has considered a sufficiently large number of regulated mortgage contracts which are generally available from the market; and
    2. (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. (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:
    1. (a) in accordance with the consideration in (1); and
    2. (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 4.3.5

handbook-guidance
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

handbook-guidance
  1. (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. (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

handbook-rule
  1. (1) When providing information or giving advice to a customer on regulated mortgage contracts, a firm must not hold itself out as acting independently unless it intends to:
    1. (a) provide that service wholly or predominantly based on the whole market; and
    2. (b) enable the customer to pay a fee for the provision of that service.
  2. (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 regulated mortgage contracts from the whole market.

MCOB 4.3.8

handbook-guidance
  1. (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 regulated mortgage contracts.
  2. (2) A firm that sells both investments and regulated mortgage contracts can offer from the whole market 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).

MCOB 4.3.9

handbook-guidance
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

handbook-rule
A firm may restrict the regulated mortgage contracts it authorises a particular appointed representative to sell. If it does so, the appointed representative must reflect this restricted scope in the initial disclosure document provided to the customer in accordance with MCOB 4.4.1 R (1)(c).

MCOB 4.4

Initial disclosure requirements

  • 01/12/2004

Disclosure where initial contact is not made by telephone

MCOB 4.4.1

handbook-rule
  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:
    1. (a) establishes with the customer whether it will provide advice or information;
    2. (b) establishes with the customer how much he will pay or, alternatively, the basis on which the firm will be remunerated, where appropriate; and
    3. (c) (unless (2) applies) provides the customer with either:
      1. (i) the initial disclosure document in MCOB 4 Annex 1; or
      2. (ii) if the firm has reasonable grounds to be satisfied that the services which it is likely to provide to the customer will, in addition to relating to regulated mortgage contracts or regulated lifetime mortgage contracts relate to one or more of non-investment insurance contracts or packaged products, the combined initial disclosure document in MCOB 4 Annex 2;
  2. subject to (3) and in a durable medium.
  3. (2) The requirement in (1)(c) does not apply where;
    1. (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
    2. (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:
      1. (i) does not anticipate altering or replacing the service described in that document; or
      2. (ii) is not making contact with a view to concluding a distance mortgage mediation contract; or
    3. (c) initial contact is made by telephone.
  4. (3) A firm may choose not to include the initial disclosure information required by sections 6, 7 and 8 of MCOB 4 Annex 1, and sections 5, 7 and 8 of MCOB 4 Annex 2, 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.

MCOB 4.4.2

handbook-guidance
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

handbook-guidance
  1. (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. (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

handbook-guidance
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

handbook-rule
  1. (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:
    1. (a) provide the initial disclosure document; or
    2. (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. (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

handbook-rule
  1. (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. (2) The customer must be provided with a copy of the information described in (1) on request.
  3. (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

handbook-rule
  1. (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:
    1. (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;
    2. (b) the scope of the service provided by the firm (within the meaning of MCOB 4.3.1 R);
    3. (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;
    4. (d) whether or not the firm will provide the customer with advice on those regulated mortgage contracts within its scope; and
    5. (e) that the information given under (a) to (d) will be confirmed in writing.
  2. (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 the initial disclosure document required by MCOB 4.4.1 R in the form set out in MCOB 4 Annex 1 or MCOB 4 Annex 2 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. (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).

MCOB 4.4.8

handbook-guidance
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 with retail customers

MCOB 4.5.1

handbook-guidance
  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 to a retail customer prior to the conclusion of a distance mortgage 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 a distance mortgage mediation contract.
  2. (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 mortgage market. MCOB 4.5 and MCOB 4.6 will only be relevant if a mortgage intermediary enters into a distance contract in respect of its mortgage mediation activities quite independent of any contractual arrangement with a retail customer relating to a particular regulated mortgage contract. 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.

MCOB 4.5.2

handbook-rule

If the initial contact of a kind in MCOB 4.4.1 R (1) is with a retail customer with a view to concluding a distance mortgage mediation contract., a firm must:

  1. (1) in addition to the initial disclosure information required by MCOB 4.4.1 R (1)(c) and any other required information, provide the retail customer with the information in MCOB 4 Annex 3 in a durable medium in good time before the conclusion of the distance mortgage mediation contract with that customer unless an exemption in (2), (3), (4) or (5) applies.
  2. (2) Exemption: telephone sales
    1. (a) This exemption applies if the service is being provided on the telephone and the customer wishes to enter into a contract with the firm. Provided the customer gives his explicit consent to receiving only limited information, the firm may proceed on the basis of at least the following information:
      1. (i) the name of the person in contact with the customer and his link with the firm;
      2. (ii) the total price to be paid by the customer to the firm for the services, including all related fees, charges and expenses, and all taxes paid through the firm or, where an exact price cannot be indicated, the basis for the calculation of the price, enabling the customer to verify it;
      3. (iii) notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it;
      4. (iv) the information about cancellation rights set out in MCOB 4 Annex 3(5); and
      5. (v) hat other information is available on request, and the nature of that information.
    2. (aa) If the customer does not give his explicit consent to receiving limited information, and the parties wish to proceed by telephone, the firm must, prior to the conclusion of the contract, provide orally to the customer all of the information required by (1).
    3. (b) Where (a) or (aa) applies, the firm must send the retail customer without delay and, at the latest immediately after a contract is concluded, the information required by (1), in a durable medium.
  3. (3) Exemption: certain other means of distance communication. This exemption applies if the contract is concluded at the retail customer's request using a means of distance communication (other than telephone) which does not enable provision of the information referred to in MCOB 4 Annex 3 in a durable medium before the conclusion of the contract. In that case, the firm must provide the retail customer with the information in a durable medium immediately after conclusion of the distance mortgage mediation contract.
  4. (4) Exemption: successive operations or separate operations under an initial service agreement. This exemption applies if the firm has an initial service agreement with the retail customer and the contract is in relation to a successive operation or a separate operation of the same nature under that agreement.
  5. (5) Exemption: other successive or separate operations This exemption applies if:
    1. (a) the firm has no initial service agreement with the retail customer; and
    2. (b) the firm has performed an operation with the retail customer within the last year; and
    3. (c) the contract is in relation to a successive operation or separate operation of the same nature.

MCOB 4.5.3

handbook-guidance
  1. (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. (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 with retail customers, this will need to be accompanied by the information in MCOB 4 Annex 3.

MCOB 4.6

Cancellation of distance mortgage mediation contracts

MCOB 4.6.1

handbook-guidance
A retail customer has no right to cancel a regulated mortgage contract concluded with a firm but may have a right to cancel a distance contract concluded with a mortgage intermediary for the provision of his services. Whether a mortgage intermediary or a home purchase intermediary concludes a distance mortgage 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 contract, 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 mortgage intermediary, 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).

MCOB 4.6.2

handbook-guidance
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.

MCOB 4.6.3

handbook-guidance

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.

Cancellation period

MCOB 4.6.4

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

Exercising the right to cancel

MCOB 4.6.5

handbook-rule

A retail customer who has a right to cancel a distance mortgage 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. (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. (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).

MCOB 4.6.6

handbook-rule
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.

MCOB 4.6.7

handbook-guidance

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.

Effects of cancellation

MCOB 4.6.8

handbook-rule
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.

MCOB 4.6.9

handbook-guidance
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

handbook-rule

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

  1. (1) the firm must:
    1. (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);
    2. (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:
      1. (i) exceed an amount which is in proportion to the extent of the service already provided to the retail customer by the firm; and
      2. (ii) be such that it could be construed as a penalty;
    3. (c) sub-paragraph (b) applies only if:
      1. (i) where performance of the contract has commenced before expiry of the cancellation period, this was requested by the retail customer; and
      2. (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. (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).

Record keeping

MCOB 4.6.11

handbook-rule
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.

MCOB 4.7

Advised sales

  • 01/12/2004

Suitability

MCOB 4.7.1

handbook-guidance
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

handbook-rule
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

handbook-rule
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

handbook-rule

For the purposes of MCOB 4.7.2 R:

  1. (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:
    1. (a) the customer can afford to enter into the regulated mortgage contract;
    2. (b) the regulated mortgage contract is appropriate to the needs and circumstances of the customer; and
    3. (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. (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. (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)

MCOB 4.7.5

handbook-rule

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. (1) current interest rates, which might rise in the future; and
  2. (2) the customer's current circumstances, which might change in the future.
  • 31/10/2004

MCOB 4.7.6

handbook-rule

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. (1) the costs associated with increasing the period over which a debt is to be repaid;
  2. (2) whether it is appropriate for the customer to secure a previously unsecured loan; and
  3. (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

handbook-evidential-provisions
  1. (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:
    1. (a) information that the customer provides about his income and expenditure, and any other resources that he has available;
    2. (b) any likely change to the customer's income, expenditure or resources; and
    3. (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. (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).
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MCOB 4.7.8

handbook-guidance
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

handbook-guidance
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

handbook-guidance

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. (1) purchase a property by using his own resources, rather than by borrowing under a regulated mortgage contract;
  2. (2) rent a property, rather than purchase one; or
  3. (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

handbook-evidential-provisions
  1. (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:
    1. (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);
    2. (b) whether the customer should have an interest-only mortgage, a repayment mortgage, or a combination of the two;
    3. (c) whether the customer has a preference for a particular term;
    4. (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;
    5. (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);
    6. (f) whether the customer intends to make early repayments; and
    7. (g) whether the customer has a preference or need for any other features of a regulated mortgage contract (for example, payment holidays).
  2. (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

handbook-guidance
  1. (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. (2) Where the scope of the advice provided is restricted (within the meaning of MCOB 4.3.1 R(1)(b) or (c)), MCOB 4.7.4 R(2) means that the assessment of suitability should not be limited to the types of regulated mortgage contracts which the firm offers. MCOB 4.7.4 R(2) prevents a firm recommending the 'least worst' regulated mortgage contract where the firm does not have access to products appropriate to the customer's needs and circumstances. It 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.

MCOB 4.7.13

handbook-evidential-provisions
  1. (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. (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

handbook-guidance
  1. (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. (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 Sharia law. The obligation to satisfy MCOB 4.7.4 R(1)(c) remains the same in such cases.
  3. (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. (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.

Rejected recommendations

MCOB 4.7.15

handbook-rule
  1. (1) If a customer has:
    1. (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
    2. (b) been issued with a new initial disclosure document in accordance with MCOB 4.4.1 R or MCOB 4.4.7 R;
  2. 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.
  3. (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

handbook-guidance
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

handbook-rule
  1. (1) A firm must make and retain a record:
    1. (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
    2. (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. (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

handbook-rule
  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. (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

handbook-guidance
  1. (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 AUTH App 4.6.21 G to 4.6.24 G.
  2. (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.

MCOB 4.8.3

handbook-rule

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

  1. (1) trained in the use of the script;
  2. (2) trained in the difference between what constitutes a personal recommendation and what does not; and
  3. (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

handbook-rule

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. (1) they do not give personal recommendations; and
  2. (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

handbook-guidance
  1. (1) Scripted questions should be clear, fair and not misleading.
  2. (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

handbook-guidance
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

handbook-rule
  1. (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. (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.
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MCOB 4.9

Business loans

  • 01/12/2004

MCOB 4.9.1

handbook-rule
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

handbook-guidance
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

handbook-guidance
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

handbook-guidance
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

handbook-guidance
  1. (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 provided in accordance with MCOB 4.4.1 R(1)(c)(i) or sections 5 and 8 of any initial disclosure document provided in accordance with MCOB 4.4.1 R(1)(c)(ii)).
  2. (2) MCOB 1.2.7 R also means that a firm must amend the initial disclosure document in MCOB 4 Annex 1 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. (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'.

Non-advised sales

MCOB 4.9.5

handbook-rule
MCOB 4.8.1 R does not apply in relation to a regulated mortgage contract for a business purpose.
  • 31/10/2004

MCOB 4 Annex 1

Initial disclosure document ("IDD")

handbook-rule
This Annex belongs to MCOB 4.4.1 R (1)

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

Initial disclosure document - mcob4_annex1.pdf

MCOB 4 Annex 2

Combined initial disclosure document ('CIDD')

handbook-rule
This annex consists only of one or more forms or templates. Forms and templates are to be found through the 'Forms' link under Useful Links section at www.fsahandbook.info or on the Handbook CD-ROM.

MCOB 4 Annex 3

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

handbook-rule
This table belongs to MCOB 4.5.2 R

Export chapter as

MCOB 5

Pre-application disclosure

MCOB 5.1

Application

  • 01/12/2004

Who?

MCOB 5.1.1

handbook-rule
This chapter applies to a firm in a category listed in column (1) of the table in MCOB 5.1.2 R in accordance with column (2) of that table.
  • 31/10/2004

MCOB 5.1.2

handbook-rule

This table belongs to MCOB 5.1.1 R

What?

MCOB 5.1.3

handbook-rule
  1. (1) This chapter applies if a firm:
    1. (a) makes a personal recommendation to a customer to enter into a regulated mortgage contract; or
    2. (b) provides information to a customer that is specific to the amount that the customer wants to borrow on a particular regulated mortgage contract, including information provided in response to a request from a customer; or
    3. (c) provides the means for a customer to make an application to it;
  2. in connection with entering into, or agreeing to enter into, a regulated mortgage contract provided by a mortgage lender, other than a regulated lifetime mortgage contract or a variation to an existing regulated mortgage contract.
  3. (2) In relation to further advances and other variations, MCOB 5 is modified by MCOB 7 (Disclosure at start of contract and after sale), regardless of whether they are variations to an existing regulated mortgage contract, or are such that they involve the customer entering into a new regulated mortgage contract.
  4. (3) In relation to a regulated lifetime mortgage contract, MCOB 5 is modified by MCOB 9 (Lifetime mortgages: product disclosure).

MCOB 5.1.4

handbook-guidance
The table in MCOB 5.1.5 G shows how the relevant rules and guidance in MCOB 5.6 apply to certain types of regulated mortgage contracts.
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MCOB 5.1.5

handbook-guidance

This table belongs to MCOB 5.1.4G

  • 31/10/2004

MCOB 5.1.6

handbook-rule
In this chapter, references to a regulated mortgage contract include, where the context requires, references to arrangements which are capable of becoming a regulated mortgage contract.

MCOB 5.1.7

handbook-guidance
  1. (1) MCOB 5.1.3 R means that this chapter applies where the customer can apply to enter into a regulated mortgage contract. This includes circumstances where, for example, the means to apply is provided in person, by telephone, through a website or through an application pack sent through the post.
  2. (2) The effect of this chapter is to require a customer to be provided with an illustration before he submits an application to a mortgage lender.

MCOB 5.1.8

handbook-guidance
Although an illustration is a financial promotion in respect of the controlled activity of providing qualifying credit, the effect of MCOB 3.2.5 R(1), section 145(3) of the Act (Financial promotion rules) and article 28 of the Financial Promotion Order (One-off non-real time communications and solicited real time communications) is that an illustration is exempt from the provisions of MCOB 3 (Financial promotion).

MCOB 5.1.9

handbook-guidance
Where part of the loan is not a regulated mortgage contract, for example it is a linked unsecured loan, the details of this loan can be shown in Section 12 of the illustration as an additional feature. It should not be added to the regulated mortgage contract loan amount in MCOB 5.6.6 R(2).

MCOB 5.1.10

handbook-guidance
A firm that finds any rule in MCOB 5.6 (Content of illustrations) inappropriate for the particular kind of regulated mortgage contract that the mortgage lender provides will need to seek from the FSA a waiver of that rule. SUP 8 contains details of the waiver procedure.
  • 31/10/2004

MCOB 5.2

Purpose

  • 01/12/2004

MCOB 5.2.1

handbook-guidance
  1. (1) MCOB 5 amplifies Principle 6 and Principle 7, which require a firm to pay due regard to the information needs of its customers and to treat them fairly.
  2. (2) The purpose of MCOB 5 is to ensure that, before a customer submits an application for a particular regulated mortgage contract, he is supplied with information that makes clear:
    1. (a) the features of that regulated mortgage contract;
    2. (b) the price that the customer will be required to pay under that regulated mortgage contract, to enable the customer to assess whether it is affordable to him; and
    3. (c) any linked deposits, any linked borrowing and any tied products.
  3. (3) MCOB 5 requires information to be disclosed in a consistent way to facilitate comparison between regulated mortgage contracts provided by different mortgage lenders.

MCOB 5.3

Applying for a regulated mortgage contract

MCOB 5.3.1

handbook-rule
A mortgage lender must not enter into a regulated mortgage contract, or agree to do so, with a customer unless the customer has submitted an application for that particular regulated mortgage contract.

MCOB 5.3.2

handbook-guidance
The purpose of MCOB 5.3.1 R, taken in conjunction with other rules in this chapter, is to ensure that the customer has received details of the particular regulated mortgage contract for which he has applied, in the form of an illustration, and has had the opportunity to satisfy himself that it is appropriate for him. The application should identify the type of interest rate, rate of interest, and the mortgage lender at the point it is submitted by the customer (for how to describe interest rates see MCOB 5.6.26 R and MCOB 5.6.27 R).

MCOB 5.4

Illustrations: general

Clear, fair and not misleading

MCOB 5.4.1

handbook-rule
A firm must be able to show that it has taken reasonable steps to ensure that any illustration it issues is clear, fair and not misleading.
  • 31/10/2004

Accuracy

MCOB 5.4.2

handbook-rule
An illustration on a particular regulated mortgage contract issued by, or on behalf of, a mortgage lender, must be an accurate reflection of the costs of the regulated mortgage contract.
  • 31/10/2004

MCOB 5.4.3

handbook-rule

A mortgage intermediary must take reasonable steps to ensure that an illustration which it issues, or which is issued on its behalf, other than that provided by a mortgage lender:

  1. (1) is accurate within the following tolerances:
    1. (a) no more than one percent or £1, whichever is the greater, below the actual figures charged by the mortgage lender for the following:
      1. (i) the total amount payable in Section 5 of the illustration;
      2. (ii) the amount payable for every £1 borrowed in Section 5 of the illustration;
      3. (iii) the amounts that the customer must pay by regular instalment in Section 6 of the illustration (or in Section 7 of the illustration for an interest rate with a floor or a ceiling); and
      4. (iv) the amount by which the regular instalment (or the total amount payable for loans without a term or a regular repayment plan) would increase following a one percentage point increase in interest rates in Section 7;
    2. (b) the APR in Section 5 of the illustration cannot be understated by more than 0.1%; and]
  2. (2) except in the case of conveyancing fees and insurance premiums (where estimates may be used), is accurate in respect of other figures quoted in the illustration including fees payable to the mortgage lender or mortgage intermediary in Section 8 of the illustration and cash examples of early repayment charges, calculated in accordance with the rules in MCOB 5.6.84 R to MCOB 5.6.88 R, in Section 10.
  • 31/10/2004

MCOB 5.4.4

handbook-guidance
Given that the APR is presented as a percentage, and must be rounded to one decimal place in accordance with MCOB 10 (Annual Percentage Rate), firms should note that the tolerance allowed for the APR in MCOB 5.4.3 R(1)(b) means that, for example, where the actual APR is 5.0% the quoted APR must be no lower than 4.9%, or where the actual APR is 16.0%, the quoted APR must be no lower than 15.9%.
  • 31/10/2004

MCOB 5.4.5

handbook-guidance
There are no restrictions on figures which are quoted as higher than those actually charged by the mortgage lender although this should not be purposely done in order to make one regulated mortgage contract look more expensive than another.
  • 31/10/2004

MCOB 5.4.6

handbook-guidance
It is the responsibility of a mortgage intermediary to ensure compliance with MCOB 5.4.3 R. However, where a firm can show that it was reasonable for it to rely on information provided to it by another person, other than the mortgage lender, that an illustration was within the tolerances described in MCOB 5.4.3 R, he may be able to rely on MCOB 2.5.2 R, if this turns out not to be the case.
  • 31/10/2004

MCOB 5.4.7

handbook-guidance
An offer document may not always exactly match the illustration provided before application even when the loan requirements have not changed. For example, where a fixed rate has a defined end date, the total amount payable may be different because the number of payments at the fixed rate has reduced assuming a later date at which the regulated mortgage contract will start.
  • 31/10/2004

Illustrations where customer ineligible

MCOB 5.4.8

handbook-rule
A firm must not issue an illustration to a customer for a regulated mortgage contract for which the customer is clearly ineligible on the basis of the information that the firm has obtained from the customer or the mortgage lender's lending criteria.
  • 31/10/2004

MCOB 5.4.9

handbook-guidance
The purpose of MCOB 5.4.8 R is not to require a firm to ascertain whether a customer is eligible for a particular regulated mortgage contract before providing an illustration. Instead, the purpose is to ensure that the firm takes into account the information it has obtained from the customer before providing an illustration to the customer.
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Explaining the importance of an illustration

MCOB 5.4.10

handbook-rule
In providing an illustration to a customer, a firm must explain to the customer the importance of reading the illustration and understanding it.
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MCOB 5.4.11

handbook-guidance
A firm may satisfy MCOB 5.4.10 R by drawing the customer's attention orally to the importance of reading and understanding the illustration, for example in a face-to-face meeting, or by referring to its importance in a covering letter or electronic communication or other written information that accompanies the illustration.
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Form of an illustration

MCOB 5.4.12

handbook-rule
Any illustration provided to a customer by a firm must be in a durable medium.
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Restriction on provision of information

MCOB 5.4.13

handbook-rule

A firm must not provide a customer with information that is specific to the amount that the customer wants to borrow on a particular regulated mortgage contract except in the following circumstances:

  1. (1) when it is in the form of an illustration;
  2. (2) when it is provided on screen, for example a computer screen;
  3. (3) when supplementary information which is not contained within an illustration is provided after or at the same time as an illustration; or
  4. (4) when it is provided orally, for example by telephone.
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MCOB 5.4.14

handbook-rule

Where MCOB 5.4.13 R(2) applies:

  1. (1) if the customer initiates the accessing of quotation information on screen (for example, by using the internet or interactive television), the following warning must be displayed prominently on each page on screen: 'This information does not contain all of the details you need to choose a mortgage. Make sure that you read the separate key facts illustration before you make a decision.'; and
  2. (2) a firm must not provide a customised print function where the information on the screen would not be in the form of an illustration if the information were printed in hard copy.
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MCOB 5.4.15

handbook-rule
Where MCOB 5.4.13 R(3) applies, supplementary information must only be provided when it does not significantly duplicate information provided in the illustration.
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MCOB 5.4.16

handbook-guidance

MCOB 5.4.13 R places no restrictions on the provision of information that is not specific to the amount the customer wants to borrow, for example, marketing literature including generic mortgage repayment tables or graphs illustrating the benefits of making a regular overpayment on a flexible mortgage. Such literature may, however, constitute a qualifying credit promotion and be subject to the provisions of MCOB 3 (Financial promotion).

MCOB 5.4.17

handbook-guidance
Where MCOB 5.4.13 R(2) and MCOB 5.4.13 R(4) apply, firms should encourage the customer to obtain a copy of an illustration in a durable medium. This could be done, for example, if the information was contained on the firm's website, by a prompt which asked the customer whether he wished to print off an illustration.
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MCOB 5.4.18

handbook-rule
  1. (1) Unless (2) applies, where MCOB 5.4.13 R(2) or MCOB 5.4.13 R(4) apply, a firm must provide the means for the customer to obtain an illustration as soon as practicable, through a delivery channel acceptable to the customer.
  2. (2) A firm does not need to provide an illustration if the customer refuses to disclose key information (for example, in a telephone conversation, his name or a communication address) or where the provision of an illustration is not appropriate, for example, because on the basis of discussions undertaken the customer is ineligible given the mortgage lender's lending criteria, or is not interested in pursuing the enquiry.
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Record keeping

MCOB 5.4.19

handbook-rule
A firm must make an adequate record of each illustration that it issues to a customer in accordance with MCOB 5.5.1 R where the customer applies for that particular regulated mortgage contract.
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MCOB 5.4.20

handbook-rule
The record required by MCOB 5.4.19 R must be retained for a year from the date of the application made by the customer.
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MCOB 5.4.21

handbook-guidance
MCOB 5.4.19 R does not require a firm to keep records of illustrations that are issued to a customer where the customer does not apply to enter into that particular regulated mortgage contract.
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MCOB 5.4.22

handbook-guidance

The record maintained in accordance with MCOB 5.4.19 R should contain or refer to matters such as:

  1. (1) the date on which the illustration was provided to the customer;
  2. (2) the date of the application made by the customer; and
  3. (3) details of the medium through which the illustration was provided.
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Tied products

MCOB 5.4.23

handbook-rule

Where the illustration provided to the customer does not contain an accurate quotation or a reasonable estimate of the payments the customer will need to make in connection with any tied product that the customer must take out with the regulated mortgage contract, and the customer applies for that regulated mortgage contract:

  1. (1) the firm must provide the customer with an accurate quotation as soon as possible after he has applied, and in good time before the offer document is provided;
  2. (2) the customer has a right to withdraw his application for the regulated mortgage contract for a period of seven days from receipt of the quotation referred to in (1);
  3. (3) the quotation for the tied product must be accompanied by a notice explaining that the customer can withdraw his application and receive a full refund of any fees paid in connection with the application for that regulated mortgage contract (excluding any fees paid in respect of the regulated activity of arranging or advising on a regulated mortgage contract by a mortgage lender or a mortgage intermediary) for a period of seven days from receipt of the quotation or acceptance of the mortgage lender's offer if sooner; and
  4. (4) the firm must refund any fees paid by the customer (excluding any fees paid in respect of any advice provided by a mortgage lender or a mortgage intermediary) if the customer decides to exercise his right to withdraw his application in accordance with (2).
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MCOB 5.4.24

handbook-guidance
The rules on the content of an illustration at MCOB 5.6 (Content of illustrations) mean that if the