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.

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.

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.21

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 2.2.6 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 promotionsfirms should note the separate requirements of MCOB 3.

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.

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.

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

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.

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).

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 themortgage 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.

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.

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).

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.

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.

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.

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.

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.

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.

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.

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

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.

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.