MCOB applies to regulated mortgage contracts entered into on or after 31 October 2004. A contract that was entered into before 31 October 2004, and that is subsequently varied on or after that date, will not be a regulated mortgage contract but may be a regulated credit agreement to which the CCA and CONC apply. If, however, a new contract is entered into on or after 31 October 2004, replacing the previous contract, this may be a regulated mortgage contract.4PERG 4.4.13G2 contains guidance on the variation of contracts entered into before 31 October 2004.142
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 FCA would expect firms to take appropriate steps to determine whether any mortgage it proposes to enter into is subject to FCA regulation and, if so, whether it is a regulated mortgage contract or a regulated credit agreement4.
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 or as a regulated credit agreement4 is in fact a regulated mortgage contract, the firm must as soon as practicable after the correct status of the mortgage has been established:
a statement that the mortgage contract is a regulated mortgage contract ; and444
- (b) 4
where the firm has treated the mortgage as unregulated, a statement that the mortgage contract is subject to FCA regulation, stating in particular the position with regard to redress and compensation; or4
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).
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 FCA 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.
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 or is a regulated credit agreement4. In deciding whether to take disciplinary action as a result of a breach of MCOB, the FCA will take into account whether the action by the firm was reckless or deliberate (see DEPP 6.2.1G (1)(a)). 33