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MCOB 1.2 General application: who? what?

MCOB 1.2.1RRP
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  1. (1)

    This sourcebook3 applies to every firm that:1

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    1. (a)

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

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    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

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MCOB 1.2.1AGRP

1Firms 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 1.2.2GRP
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.

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

MCOB 1.2.3RRP

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.

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MCOB 1.2.3ARRP

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 1.2.3BRRP

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 1.2.4GRP

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 1.2.4AGRP

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 1.2.4BGRP

7Table 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 1.2.5GRP
  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 1.2.6GRP

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 1.2.7RRP

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

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  1. (1)

    (except in relation to sections 5 and 8 of any combined initial disclosure document) substitute 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

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  3. (3)

    limit disclosure to facilities provided under the regulated mortgage contract.

MCOB 1.2.8GRP
  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 overdraft', 'secured loan' or 'secured business credit'.

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MCOB 1.2.9GRP

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, 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 1.2.9AGRP

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 1.2.9BGRP

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 1.2.9CRRP

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 1.2.9DRRP

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 1.2.9ERRP

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 1.2.9FRRP

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 1.2.10RRP

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).7

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MCOB 1.2.11GRP

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 financial promotion of qualifying credit or of a home reversion plan3 of authorised professional firms under MCOB 3.2.5 R(3) (Exemptions).

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Pre-contractual arrangements by a 3home finance provider3

MCOB 1.2.12RRP

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

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MCOB 1.2.13GRP

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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MCOB 1.2.14GRP

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