Conduct of business standards: general

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.

31/10/2004

General

MCOB 2.2.2

In many circumstances there will be two or more customers under any home finance transaction, or two or more prospective customers looking to enter into the same home finance transaction. 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.

06/04/2007

Prescribed terms for regulated mortgage contracts and home reversion plans

MCOB 2.2.3

In any communication to a customer, a firm must:

(1) describe any early repayment charge as an 'early repayment charge';
(2) describe any higher lending charge as a 'higher lending charge';
(3) describe any lifetime mortgage as a 'lifetime mortgage'; and
(4) describe any home reversion plan as a 'home reversion plan';

and not use any other expression to describe them.

06/04/2007

Related investment advice

MCOB 2.2.5

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 associated with an equity release transaction or an ISA used as a repayment vehicle.

06/04/2007

Clear, fair and not misleading communications and financial promotions

MCOB 2.2.6

(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) [deleted]

06/04/2007

MCOB 2.2.6A

A firm which approves a financial promotion of a home purchase plan must take reasonable steps to ensure that the financial promotion is clear, fair and not misleading.

06/04/2007

MCOB 2.2.7

When considering how to comply with the requirements of, these rules on clear, fair and not misleading communications and financial promotions, a firm should have regard to the customer's knowledge of the home finance transaction to which the information relates.

06/04/2007

MCOB 2.2.8

The rule on clear, fair and not misleading communications covers all communications with customers, for example any oral or written statements, telephone calls and any correspondence which is not a financial promotion to which MCOB 3 (Financial promotion) applies. In respect of financial promotions of qualifying credit or of home reversion plans, firms should note the separate requirements of MCOB 3.

06/04/2007

MCOB 2.2.8A

If a firm uses a figure equivalent to an APR in a communication of a financial promotion of a home purchase plan, when calculating that figure it must use an approach equivalent to the APR rules.

06/04/2007

MCOB 2.2.8B

The following guidance may be relevant to a firm that communicates or approves a financial promotion of a home purchase plan:

(1) guidance on what 'communicate', 'approve' and 'financial promotion' mean, and on the media of communication to which financial promotion rules apply (see MCOB 3.2.1 G and MCOB 3.2.2 G);
(2) guidance on other Handbook provisions relevant to financial promotions (see MCOB 3.2.8 G to MCOB 3.2.9 G);
(3) guidance on other regulations and guidelines relevant to financial promotions (see MCOB 3.5.3 G);
(4) guidance on referring to the FSA (see MCOB 3.6.2 G (3));
(5) guidance on the clear, fair and not misleading standard (see MCOB 3.6.5 G, MCOB 3.6.10 G and MCOB 3.6.14 G); and
(6) guidance on the use of the Internet for communicating financial promotions (see MCOB 3.12 and PERG 8.22).

Note: A comparative financial promotion will need to comply with regulation 4A of the Control of Misleading Advertisements Regulations 1988.

06/04/2007

MCOB 2.2.9

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.

31/10/2004

MCOB 2.3

Inducements: regulated mortgage contracts and home reversion plans

06/04/2007

Purpose

MCOB 2.3.1

The purpose of MCOB 2.3 is to ensure, in accordance with Principles 1, 6 and 8, 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.

06/04/2007

Prohibition of inducements

MCOB 2.3.2

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

(1) offer, give, solicit or accept an inducement; or
(2) direct or refer any actual or potential business in relation to a regulated mortgage contract or home reversion plan to another person on its own initiative or on the instructions of an associate;

if it is likely to conflict to a material extent with any duty that the firm owes to its customers in connection with such a home finance transaction or any duty which such a recipient firm owes to its customers in connection with such a home finance transaction.

06/04/2007

MCOB 2.3.3

An inducement is a benefit offered with a view to bringing about a particular course of action.

31/10/2004

MCOB 2.3.4

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.

31/10/2004

MCOB 2.3.5

MCOB 2.3.2 R does not prevent a firm:

(1) assisting a home finance intermediary so that the quality of the home finance intermediary's service to customers is enhanced; or
(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).

06/04/2007

MCOB 2.3.6

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

06/04/2007

Quantification of inducements

MCOB 2.3.7

(1) A mortgage lender or reversion provider must quantify, in cash terms, any material inducement it offers to a mortgage intermediary, reversion intermediary or a third party.
(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 home finance transaction.

06/04/2007

MCOB 2.3.8

(1) Quantification of any material inducement offered by the mortgage lender or reversion provider 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 for regulated mortgage contracts other than lifetime mortgages, MCOB 9.4.124 G for lifetime mortgages and MCOB 9.4.173 G for home reversion plans.
(2) A payment made to a third party unconnected with the home finance intermediary, where that payment only reflects the cost of outsourcing work relating to the processing of mortgage applications, would not be considered an inducement for these purposes.

06/04/2007

MCOB 2.4

High pressure sales: regulated mortgage contracts and home reversion plans

06/04/2007

Purpose

MCOB 2.4.1

The purpose of this section 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 or home reversion plan.

06/04/2007

Fair treatment

MCOB 2.4.2

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 or home reversion plan 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).

06/04/2007

Information

MCOB 2.4.3

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 or home reversion plan, such as describing it as a 'special offer' not available after a certain date unless this is really the case.

06/04/2007

MCOB 2.5

Reliance on others

01/12/2004

Purpose

MCOB 2.5.1

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 home finance activities and that communicate or approve a financial promotion can meet this requirement by relying on others.

06/04/2007

When firms can rely on others

MCOB 2.5.2

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.

31/10/2004

MCOB 2.5.3

(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:

(a) not connected with the firm; and
(b) competent to provide the information.

(2) Compliance with (1) may be relied on as tending to establish compliance with MCOB 2.5.2 R.
(3) Contravention of (1) may be relied on as tending to establish contravention of MCOB 2.5.2 R.

31/10/2004

MCOB 2.5.4

(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) 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.

31/10/2004

MCOB 2.6

Exclusion of liability

01/12/2004

Purpose

MCOB 2.6.1

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.

31/10/2004

Limits on the exclusion of liability

MCOB 2.6.2

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.

31/10/2004

MCOB 2.6.3

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.

31/10/2004

MCOB 2.6A

Protecting customers' interests: home purchase plans and home reversion plans

06/04/2007

Protecting customers' interests: home purchase plans and home reversion plans

MCOB 2.6A.1

A firm must ensure that the interests of its customer under a home purchase plan or home reversion plan are protected to a reasonable standard.

06/04/2007

MCOB 2.6A.2

Circumstances that a firm should consider include how the customer will be protected in the event of:

(1) the failure of a reversion provider or home purchase provider;
(2) the transfer of a reversion provider's or home purchase provider's interest (or the interest the provider would have had, had it not nominated a third party to hold it) in the property to a third party;
(3) other dealings by a reversion provider or home purchase provider (or its nominee) with a third party; and
(4) a reversion provider's or home purchase provider's (or its nominee's) failure to perform obligations owed to third parties, or imposed by statute.

06/04/2007

MCOB 2.6A.3

The steps that a firm might take in order to protect its customer's interests will depend on a number of factors, including the nature and structure of the home purchase plan or home reversion plan and the jurisdiction in which the property is situated. If it is not possible to achieve reasonable protection (for example, due to impediments under a particular legal system) then a firm should not enter into, arrange or administer the plan.

06/04/2007

MCOB 2.6A.4

(1) In the FSA's view, a customer's interests will include:

(a) protection of the customer's rights under the plan, in particular the right to occupy the property throughout its term;
(b) protection of any interest (legal or beneficial) that the customer retains, acquires or is intended to acquire in the property, including the expectation that such interests will be unencumbered by third party interests; and
(c) that, where a customer pays sums under a home purchase plan towards the purchase price of the property, those sums will be applied towards the purchase price. Or, in circumstances where that is not practicable (for example, on repossession), that an appropriate amount will be returned to the customer.

(2) The protections that a firm should consider include:

(a) the extent to which different forms of tenure protect the tenant's right to occupy the property and afford protection against removal. In particular, granting the customer a licence to occupy the property is unlikely to provide an adequate level of security;
(b) (except in Scotland) the need for any agreement under which a customer has a right to acquire an interest in the property to be specifically enforceable;
(c) the extent to which appropriate registrations, restrictions, notices or other entries should be made in the relevant land register;
(d) the timing of entries in the relevant land register and who should be responsible for making them; and
(e) the customer's need for a full and clear understanding of all the steps that the firm expects him or his advisers to take to protect his interests both at the time the plan is entered into, and throughout its duration.

06/04/2007

Protecting customers' interests: additional material for home reversion plans

MCOB 2.6A.5

Unless it is satisfied on reasonable grounds based on the customer's knowledge, expertise and experience that it is unnecessary, a firm must obtain from its customer's legal adviser, before its customer enters into a home reversion plan, confirmation that:

(1) he has been instructed to ensure that the customer's legal rights under the plan are protected to a reasonable standard; and
(2) he has explained to the customer those aspects of the customer's legal rights and obligations under the home reversion plan that he needs to understand.

06/04/2007

MCOB 2.6A.6

Firms remain responsible for ensuring that their customers' interests are protected to a reasonable standard.

06/04/2007

Protecting customers' interests: additional material for home purchase plans

MCOB 2.6A.7

A home purchase provider should consider obtaining confirmation from the customer's legal adviser that he has carried out, or will carry out, the steps that the firm expects the customer or his legal advisers to take to protect his interests at the time the plan is taken out.

06/04/2007

Treating customers fairly: home purchase plans and home reversion plans

MCOB 2.6A.8

A firm must pay due regard to the interests of its customer and treat him fairly when drafting, amending the terms of, or imposing obligations or exercising rights or discretions under, a home purchase plan or home reversion plan.

06/04/2007

MCOB 2.6A.9

A firm is unlikely, for example, to be treating its customer fairly in relation to termination of a home purchase plan or home reversion plan if:

(1) the grounds on which it may terminate all or part of a plan are unduly wide, or on which a customer may terminate are unduly narrow; or
(2) the customer is not given appropriate notice of termination.

06/04/2007

MCOB 2.6A.10

A firm is also unlikely to be treating its customer fairly if, upon termination of an agreement under a home purchase plan or home reversion plan, the customer does not receive (net of any reasonable sums payable by the customer):

(1) in the case of a home reversion plan where the customer retains a beneficial interest in the property, the value of that beneficial interest; or
(2) in the case of a home purchase plan, the value of purchase payments made.

[Note: The terms of a home purchase plan or home reversion plan should take into account relevant legal obligations such as those under the Unfair Terms Regulations and, where applicable, the Housing Act 1988 (or, in Scotland, the Housing (Scotland) Act 1988). A firm may find material on the FSA website concerning the FSA's consumer protection powers useful. The Office of Fair Trading has also published guidance on the impact of the Unfair Terms Regulations on tenancy agreements.]

06/04/2007

Treating customers fairly: home reversion plans

MCOB 2.6A.11

A firm is unlikely, for example, to be treating a reversion occupier fairly if:

(1) the reversion occupier is obliged to maintain the property to a standard which exceeds the standard that the property is in when the home reversion plan commences;
(2) the reversion occupier is not entitled to, or is not given, reasonable notice of an inspection, or the inspection is conducted in a way that is biased against him;
(3) unreasonable restrictions are imposed on who may occupy the property, taking into account the potential needs of the reversion occupier throughout the duration of the home reversion plan;
(4) unreasonable restrictions are imposed on the uses to which the property may be put;
(5) the reversion occupier is unreasonably treated as having abandoned the property. For example, it is likely to be unreasonable to treat a property as abandoned based only on a period of non-occupation;
(6) where the reversion occupier has a reasonable expectation that the home reversion plan can be transferred to another property, agreement to such a transfer is, or can be, refused unreasonably.

06/04/2007

Independent valuation: home reversion plans

MCOB 2.6A.12

A firm must ensure that any valuation is carried out by a competent valuer who is independent of the reversion provider.

06/04/2007

MCOB 2.6A.13

(1) A valuer may be considered competent if he is a suitably qualified member of a professional body.
(2) A valuer may be considered independent if:

(a) the customer can choose the valuer subject to the firm objecting on reasonable grounds and to the valuer being competent;
(b) he owes a duty of care to the customer in valuing the property; and
(c) the customer has an appropriate remedy against him under a complaints procedure which allows the complaint to be referred to an independent person whose decision is binding on the valuer.

(3) Compliance with (1) and (2) may be relied on as tending to establish compliance with MCOB 2.6A.12 R.

06/04/2007

MCOB 2.6A.14

Members of the Royal Institution of Chartered Surveyors, for example, are required to operate a complaints procedure that allows the complaint to be referred to an independent person whose decision binds the valuer and which, in the FSA's view, provides a customer with an appropriate remedy.

06/04/2007

Obtaining best price: partial home reversion plans

MCOB 2.6A.15

A firm must take reasonable steps to ensure that, when a home reversion plan ends and the customer retains a beneficial interest in the property:

(1) the property is sold within a reasonable period of time; and
(2) the best price that might reasonably be obtained is paid.

06/04/2007

MCOB 2.6A.16

It is recognised that a balance has to be struck between the need to sell the property as soon as possible, and other factors, such as market conditions, which may prompt the delay of the sale. Legitimate reasons for deferring action might include the expiry of a period when a grant is repayable on re-sale, or the discovery of a title defect that needs to be remedied if the optimal selling price is to be achieved.

06/04/2007

Arranging or administering for unauthorised providers: home reversion plans

MCOB 2.6A.17

For the purpose of this section (except this rule), a reversion arranger or reversion administrator's customer:

(1) includes a reversion occupier or potential reversion occupier who enters, or proposes to enter, into a home reversion plan with an unauthorised reversion provider who is the firm's customer; and
(2) excludes an unauthorised reversion provider.

06/04/2007

MCOB 2.6A.18

A person may enter into a home reversion plan as provider without being regulated by the FSA (or an exempt person) if the person does not do so by way of business (see PERG 14.5). If a firm arranges for such a person to enter into a home reversion plan as provider, the firm will be responsible for ensuring that the reversion occupier's interests are protected to a reasonable standard, even if the reversion arranger is not acting for the reversion occupier. A reversion administrator is under the same obligation in relation to a reversion occupier under a home reversion plan which it administers on behalf of an unauthorised reversion provider.

06/04/2007

MCOB 2.7

Application to electronic media and distance communications

01/12/2004

MCOB 2.7.1

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.

31/10/2004

Additional guidance in respect of electronic communication with or for customers

MCOB 2.7.2

For any electronic communication with a customer in relation to a home finance transaction a firm should:

(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) be able to demonstrate that the customer wishes to communicate using this medium; and
(3) if entering into an agreement, make it clear to the customer that a contractual relationship is created that has legal consequences.

06/04/2007

MCOB 2.7.3

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.

31/10/2004

General provisions related to distance contracts

MCOB 2.7.4

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 or home purchase plan:

(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, home purchase plan or services being provided by the firm; and
(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, home purchase plan or service being provided by the firm.

06/04/2007

MCOB 2.7.5

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.

31/10/2004

Unsolicited services

MCOB 2.7.6

(1) A firm must not:

(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
(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) Paragraph (1) applies in relation to mortgage mediation activities, entering into a regulated mortgage contract, home purchase mediation activities or entering into a home purchase plan 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.

06/04/2007

MCOB 2.8

Record keeping

01/12/2004

Purpose

MCOB 2.8.1

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.

31/10/2004

Accessibility of records

MCOB 2.8.2

The records required in MCOB must be readily accessible for inspection by the FSA.

31/10/2004

MCOB 2.8.3

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

31/10/2004

MCOB 2.8.4

(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) Where a firm chooses to maintain records in electronic form, it should take reasonable steps to ensure that:

(a) the electronic record accurately reflects the original information; and
(b) the electronic record has not been subject to unauthorised or accidental alteration.

31/10/2004

MCOB 2.8.5

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.

31/10/2004

Home purchase plans

MCOB 2.8.6

This sourcebook does not specify detailed record keeping requirements for a firm that carries on a home purchase activity or that communicates or approves a financial promotion of a home purchase plan (but note the high-level record-keeping provisions in the Senior Management Arrangements, Systems and Controls sourcebook).

06/04/2007