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MCOB 1.2 General application: who? what?

MCOB 1.2.1 R
1
  1. (1)

    This sourcebook3 applies to every firm that:1

    13
    1. (a)

      carries on a home finance activity3 (subject to 31the business loan and loans to high net worth mortgage customers7 application provisions3); or

      3
    2. (b)

      communicates or approves a financial promotion of qualifying credit, of a home purchase plan,6of a home reversion plan3or of a regulated sale and rent back agreement.6

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  2. (2)

    Where a firm has outsourced activities to a third party processor, any rule in MCOB which requires the third party processor, when acting as such, to disclose its identity to a customer must be read as requiring disclosure of the identity of the firm (or appointed representative, as appropriate) which is taking responsibility for the acts and omissions of the third party processor when carrying on the outsourced activities.1

    1
MCOB 1.2.1A G

1 Firms which outsource regulated activities are reminded of the guidance on outsourcing in SYSC 3.2.4 G and SYSC 84.

Firm types and the 3home finance 3activities

MCOB 1.2.2 G
3
  1. (1)

    This sourcebook applies to activities carried out in respect of regulated mortgage contracts, equity release transactions, home purchase plans, and regulated sale and rent back agreements. Together, these products are referred to as home finance transactions.

    5555377
  2. (2)

    Lifetime mortgages and home reversion plans are together referred to as equity release transactions.3

  3. (3)

    The application of most of this sourcebook is expressed by reference to four types of firm: lenders/providers, administrators, arrangers, and advisers. Arrangers and advisers are together referred to as intermediaries. 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. PERG 4 contains detailed guidance on regulated mortgage activities and PERG 14 contains detailed guidance on home purchase activities,6reversion activities3and regulated sale and rent back activities.6

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2

7Business loans and loans to high net worth mortgage customers: application of MCOB7

MCOB 1.2.3 R

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 in full, but taking account of all7 those tailored provisions, including MCOB 1.2.7 R.

      7
MCOB 1.2.3A R

7In relation to a regulated mortgage contract with a high net worth mortgage customer, a firm must either:

  1. (1)

    comply with MCOB in full (disregarding the tailored provisions for regulated mortgage contracts with high net worth mortgage customers in the remainder of MCOB); or

  2. (2)

    subject to MCOB 1.2.9C R, comply with MCOB in full, but taking account of all those tailored provisions, including MCOB 1.2.7 R.

MCOB 1.2.3B R

7Where any provision of MCOB is expressed to apply in respect of a high net worth mortgage customer, it applies in respect of joint borrowers (or potential borrowers) if one of them satisfies that definition in his own right.

MCOB 1.2.3C G

8In relation to an MCD regulated mortgage contract with a high net worth mortgage customer, to comply in full with MCOB, a firm does not need to comply with those provisions in MCOB that are expressed not to apply to MCD regulated mortgage contracts.

MCOB 1.2.4 G

The tailored provisions are those in the sections 'Business loans and loans to high net worth mortgage customers: tailored provisions’ set out in each relevant chapter.7

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MCOB 1.2.4A G

7Certain other provisions of MCOB apply in all cases in respect of high net worth mortgage customers or of transactions which are solely for a business purpose. The application of the tailored and other provisions for high net worth mortgage customers and transactions for a business purpose are summarised in the table at MCOB 1.2.4B G.

MCOB 1.2.4B G

7 Table of provisions applicable to business loans and high net worth mortgage customers: this table belongs to MCOB 1.2.4AG

Provisions

Tailored provisions or applicable in all cases?

For business loans only, are the provisions applicable to all business loans, or only where the loan is solely for a business purpose?

Various of the provisions in MCOB 4.7A and MCOB 4.8A

Applicable in all cases

Applicable only where loan is solely for a business purpose

MCOB 4.9

Tailored

Applicable to all business loans

MCOB 5.7

Tailored

Applicable to all business loans

MCOB 6.7

Tailored

Applicable to all business loans

MCOB 7.7

Tailored

Applicable to all business loans

Various of the provisions in MCOB 11.6

Applicable in all cases

Applicable only where loan is solely for a business purpose

MCOB 12.6

Tailored

Applicable to all business loans

MCOB 13.7

Tailored

Applicable to all business loans

MCOB 1.2.5 G
  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, or is solely,7 for a business purpose will be a matter of fact to be determined by a firm (in accordance with MCOB 1.2.9D R where applicable) 7depending on the individual circumstances of each case. In the FCA'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.

MCOB 1.2.6 G

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.

7Business loans and loans to high net worth mortgage customers: additional requirements if tailored route is used7

MCOB 1.2.7 R

In relation to a regulated mortgage contract for a business purpose or with a high net worth mortgage customer7, if a firm has opted for the tailored route, it must adopt the following modifications to the sourcebook:3

3 3
  1. (1)

    11substitute an alternative description of the facility provided under the regulated mortgage contract for 'mortgage' where that term is used in any disclosure;7

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  2. (2)

    substitute the term 'illustration' for ‘Key facts illustration’ when opting to use the tailored business loans or loans to high net worth mortgage customers rules in 7MCOB 4.9, MCOB 5.7, MCOB 6.7 or MCOB 7.7; and

    7
  3. (3)

    limit disclosure to facilities provided under the regulated mortgage contract.

MCOB 1.2.8 G
  1. (1)

    Firms are reminded of the requirement in MCOB 3A.2.1R8 that any communication should be fair, clear8 and not misleading when substituting an alternative for the term 'mortgage' in accordance with MCOB 1.2.7 R(1).

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  2. (2)

    Possible alternatives to the term 'mortgage' include, for example, 'secured overdraft', 'secured loan' or 'secured business credit'.

    7
MCOB 1.2.9 G

The disclosure rules in MCOB place particular emphasis on the description of borrowing. Where the regulated mortgage contract is for a business purpose or with a high net worth mortgage customer7 who is not a consumer under an MCD regulated mortgage contract8, 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.

Home purchase plans3

MCOB 1.2.9A G

For detail of the tailored provisions applying to home purchase plans, see the section on 'home purchase plans' set out in each relevant chapter.

Provisions for professional customers

MCOB 1.2.9B G

7Certain provisions of MCOB 4.7A and MCOB 4.8Aapply in respect of professional customers. Where they apply, they provide greater flexibility for firms.

Requirement for evidence before treating a loan as being solely for business purposes, or a customer as a high net worth mortgage customer or a professional customer

MCOB 1.2.9C R

7A firm may not treat a customer as being a high net worth mortgage customer for the purposes of MCOB unless either:

  1. (1)

    it is aware, from evidence already in its possession as a result of a business relationship between it and the customer, that the customer satisfies the definition of high net worth mortgage customer; or

  2. (2)

    it has first obtained a written statement which:

    1. (a)

      confirms that the customer satisfies the definition of high net worth mortgage customer;

    2. (b)

      specifies the period for which it is valid, which includes the time when the regulated mortgage contract is entered into; and

    3. (c)

      is signed by a suitably qualified professional adviser of the customer who is not an associate of the firm or of the customer.

MCOB 1.2.9CA G

10Where the regulated mortgage contract is a legacy CCA mortgage contract, the firm should not treat the customer as a high net worth mortgage customer for the purposes of MCOB unless it is aware from evidence in its possession that the customer satisfied the definition of high net worth mortgage customer at the time the contract was entered into.

MCOB 1.2.9D R

7A firm must not treat a loan as being solely for a business purpose for the purposes of MCOB unless it has reviewed a business plan provided by the customer which provides credible evidence that that is the case.

MCOB 1.2.9E R

7A firm must not treat a customer as being a professional customer for the purposes of MCOB unless it has credible evidence that the customer satisfies the definition.

MCOB 1.2.9F R

7A firm must keep the evidence in MCOB 1.2.9CR (1) and MCOB 1.2.9ER, the business plan in MCOB 1.2.9DR and the written statement in MCOB 1.2.9CR (2) for not less than three years from the date on which it was obtained or, if later, used to satisfy MCOB 1.2.

Authorised professional firms

MCOB 1.2.10 R

MCOB does not apply to an authorised professional firm with respect to its non-mainstream regulated activities except for MCOB 3A (Financial promotions and communications with customers).8

8
MCOB 1.2.11 G

Authorised professional firms should be aware of the following:

  1. (1)

    PROF 5 (Non-mainstream regulated activities); and

  2. (2)

    MCOB 3A.1.3R8 (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 financial promotion of qualifying credit or of a home reversion plan3 of authorised professional firms under MCOB 3A.1.9R(2)8 (Exemptions).

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Pre-contractual arrangements by a 3home finance provider3

MCOB 1.2.12 R

In MCOB the activities of a home finance provider which would be arranging but for article 28A of the Regulated Activities Order (Arranging contracts or plans 3to which the arranger is a party), are to be treated as arranging and therefore also as home finance activities.3

3
MCOB 1.2.13 G

The effect of article 28A of the Regulated Activities Order would normally mean that arrangements made by a party to a home finance transaction3 would not fall within the home finance activity3 of arranging. So in a direct sale, a home finance provider3 would not be carrying on the regulated activity of arranging but, where the transaction proceeds to completion, would instead be involved in a regulated activity comprising entering into a home finance transaction3. However, the provisions in MCOB on arranging home finance transactions3 are applied to pre-contractual arrangements by a home finance provider3.

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MCD application

MCOB 1.2.14 G
  1. (1)

    8The provisions in the table in (2) apply only in relation to an MCD regulated mortgage contract.

  2. (2)

    This table belongs to (1).

    Chapter

    Provisions

    MCOB 2A

    Whole chapter

    MCOB 3A

    MCOB 3A.2.4R(2) and MCOB 3A.5

    MCOB 3B

    Whole chapter

    MCOB 4

    MCOB 4.4A.4R (1)(a) and (3), MCOB 4.4A.8R (1)(d) and MCOB 4.4A.8R (2)(e)

    MCOB 4A

    Whole chapter

    MCOB 5A

    Whole chapter

    MCOB 6A

    Whole chapter

    MCOB 7A

    Whole chapter

    MCOB 7B

    Whole chapter

    MCOB 10A

    Whole chapter

    MCOB 11

    MCOB 11.6.21A R and MCOB 11.6.21B G

    MCOB 11A

    Whole chapter

MCOB 1.2.15 G
  1. (1)

    8In the table in (2), the provisions in column (1) apply in relation to an MCD regulated mortgage contract instead of the provisions in column (2).

  2. (2)

    This table belongs to (1).

    (1) MCD requirement

    (2) Non-MCD requirement

    MCOB 5A

    MCOB 5

    MCOB 6A

    MCOB 6

    MCOB 7B

    MCOB 7.6.7R to 7.6.17

    MCOB 10A

    MCOB 10

MCOB 1.2.16 R
  1. (1)

    8 For any regulated mortgage contract which is not an MCD regulated mortgage contract, a firm may elect to comply with any part of MCOB as if the contract was an MCD regulated mortgage contract.

  2. (2)

    Where the contract in (1) is an MCD exempt lifetime mortgage, the firm must continue to provide an illustration in accordance with the relevant requirements in MCOB, rather than an ESIS.

MCOB 1.2.17 G

8The purpose of MCOB 1.2.16 R is to allow a firm to apply provisions of MCOB which implement the MCD for an MCD regulated mortgage contract to regulated mortgage contracts that are not MCD regulated mortgage contracts, save in respect of MCD exempt lifetime mortgages where the firm must continue to provide an illustration in accordance with the relevant requirements in MCOB, rather than an ESIS.

MCOB 1.2.18 R

8A firm that makes the election in MCOB 1.2.16 R to treat an MCD exempt bridging loan as if it were an MCD regulated mortgage contract must calculate the APRC for the MCD exempt bridging loan by applying the following additional assumptions:

  1. (1)

    the total amount of credit must be deemed to be drawn down in full and for the duration of the MCD exempt bridging loan; and

  2. (2)

    if the duration of the MCD exempt bridging loan is not known, the APRC must be calculated on the assumption that the duration of the credit is 12 months.

Identifying MCD credit agreements

MCOB 1.2.19 G
  1. (1)

    8To meet the definition of an MCD credit agreement (including a foreign currency loan), a contract must come within the definition at the time it is entered into.

  2. (2)

    The effect of (1) is that:

    1. (a)

      a contract which, at the time it is entered into, comes within the definition of an MCD regulated mortgage contract (and a foreign currency loan where applicable) remains an MCD regulated mortgage contract (and a foreign currency loan where applicable) throughout its remaining term, even if there are subsequent periods of time when some or all of the conditions set out in the definition are not satisfied; and

    2. (b)

      unless the contract is subsequently replaced with a new contract which meets the conditions in the definition, a contract which does not start out as an MCD regulated mortgage contract or a foreign currency loan cannot subsequently become one, even if the contract is subsequently amended so that it meets all the conditions set out in definition.

Applicability of MCOB to regulated mortgage contracts which had previously been regulated credit agreements

MCOB 1.2.20 G

[deleted]10

9
MCOB 1.2.21 G
  1. (1)

    10By virtue of amendments to articles 60B, 60C and 61 of the Regulated Activities Order which came into force on 21 March 2016, certain regulated credit agreements became regulated mortgage contracts (but see the transitional provisions described in (3) below). The provisions of MCOB that apply to these regulated mortgage contracts include:

    1. (a)

      MCOB 7 (Disclosure at start of contract and after sale);

    2. (b)

      MCOB 12 (Charges); and

    3. (c)

      MCOB 13 (Arrears, payment shortfalls and repossessions: regulated mortgage contracts and home purchase plans).

  2. (2)

    Where a regulated mortgage contract is a second charge regulated mortgage contract which was entered into before 21 March 2016, MCOB applies to the contract from 21 March 2016.

  3. (3)

    Where a regulated mortgage contract is a legacy CCA mortgage contract secured by a first charge legal mortgage, MCOB applies to the contract from the earliest of:

    1. (a)

      the date on which the lender first acts in compliance or purported compliance with rules in the FCAHandbook which apply to regulated mortgage contracts in respect of the contract;

    2. (b)

      the date from which the lender notifies the borrower in writing that it will act in compliance with such rules in respect of the contract; and

    3. (c)

      21 March 2017.