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MCOB 2A.1 1Remuneration: MCD regulated mortgage contracts

MCOB 2A.1.1 R
  1. (1)

    An MCD mortgage lender must not remunerate its members of staff or MCD mortgage credit intermediaries in a way that impedes the MCD mortgage lender from complying with the rules.

  2. (2)

    An MCD mortgage credit intermediary must not remunerate its members of staff or appointed representatives in a way that impedes the MCD mortgage credit intermediary from complying with the rules.

[Note: article 7(2) of the MCD]

MCOB 2A.1.2 R

When establishing and applying remuneration policies for members of staff who are responsible for the assessment of affordability for consumers, an MCD mortgage lender must comply with the following principles:

  1. (1)

    be consistent with, and promote, sound and effective risk management;

  2. (2)

    not encourage risk-taking that exceeds the level of tolerated risk of the MCD mortgage lender;

  3. (3)

    be in line with the business strategy, objectives, values and long-term interests of the MCD mortgage lender; and

  4. (4)

    incorporate measures to avoid conflicts of interest, in particular by providing that remuneration is not contingent on the number or proportion of applications accepted.

[Note: article 7(3) of the MCD]

MCOB 2A.1.3 R

An MCD mortgage lender must comply with MCOB 2A.1.2 R in a way and to the extent that is appropriate to its size, internal organisation and the nature, scope and complexity of its activities:

[Note: article 7(3) of the MCD]

MCOB 2A.1.4 R

An MCD mortgage adviser, or any other firm that is an MCD mortgage lender or an MCD mortgage arranger that provides advisory services within the meaning of article 4(21) of the MCD, must ensure that the remuneration structure of the members of staff involved does not:

  1. (1)

    prejudice the ability of the members of staff or the firm to act in the consumer's best interest; and

  2. (2)

    be contingent on sales targets.

[Note: article 7(4) of the MCD]

MCOB 2A.1.5 G

The remuneration policies of MCD mortgage lenders and MCD mortgage credit intermediaries, including those that take account of sales volumes, should not be designed in a way that would incentivise their members of staff to conclude a given number or type of MCD regulated mortgage contracts.

MCOB 2A.2 Tying practices

MCOB 2A.2.1 R

Except in the circumstances specified in MCOB 2A.2.2 G, MCOB 2A.2.3 R and MCOB 2A.2.4 R, neither an MCD mortgage lender nor an MCD mortgage credit intermediary may engage in any tying practice.

[Note: article 12(1) of the MCD]

MCOB 2A.2.2 G

A firm will not be engaging in a tying practice where the financial service or product offered together with the MCD credit agreement cannot be offered separately as it is a fully integrated part of the credit, for example, a secured overdraft.

MCOB 2A.2.3 R

An MCD mortgage lender may request the consumer, family member or close relation of the consumer to:

  1. (1)

    open or maintain a payment or a savings account, where the only purpose of the account is to accumulate capital to repay the credit, to service the credit, to pool resources to obtain the credit, or to provide additional security for the MCD mortgage lender in the event of default;

  2. (2)

    purchase or keep an investment product or a private pension product, where such product primarily offers the investor an income in retirement and also serves to provide additional security for the MCD mortgage lender in the event of default or to accumulate capital to repay the credit, to service the credit or to pool resources to obtain the credit; or

  3. (3)

    conclude a separate MCD regulated mortgage contract in conjunction with a shared equity credit agreement to obtain the credit.

[Note: article 12(2) of the MCD]

MCOB 2A.2.4 R

An MCD mortgage lender may engage in tying practices where it can demonstrate to the FCA that the tied products or categories of product offered, on terms and conditions similar to each other, which are not made available separately, result in a clear benefit to the consumer taking due account of the availability and the prices of the relevant products offered on the market. This rule only applies to products which are marketed after 20 March 2014.

[Note: article 12(3) of the MCD]

MCOB 2A.2.5 R

An MCD mortgage lender may require the consumer to hold a relevant insurance policy related to the MCD regulated mortgage contract but, where it does so, the MCD mortgage lender must accept an insurance policy from a supplier different to his preferred supplier where such policy has a level of guarantee equivalent to the one the MCD mortgage lender has proposed.

[Note: article 12(4) of the MCD]

MCOB 2A.3 Foreign currency loans

MCOB 2A.3.1 R

Where an MCD regulated mortgage contract relates to a foreign currency loan, at the time the MCD regulated mortgage contract is entered into the MCD mortgage lender must ensure:

  1. (1)

    the consumer has a right to convert the MCD regulated mortgage contract into an alternative currency under specified conditions; or

  2. (2)

    there are other arrangements in place to limit the exchange rate risk to which the consumer is exposed under the MCD regulated mortgage contract.

[Note: article 23(1) of the MCD]

MCOB 2A.3.2 G

The “other arrangements” referred to in MCOB 2A.3.1R (2) may include:

  1. (1)

    a cap; or

  2. (2)

    a risk warning (where a risk warning would be sufficient to limit the exchange rate risk (if any) to which the consumer is exposed).

MCOB 2A.3.3 G

Where:

  1. (1)

    an MCD regulated mortgage contract is denominated in the currency of the EEA State in which the consumer is resident ("currency A"); and

  2. (2)

    the consumer receives income or holds assets in currency A but also receives income or holds assets in another currency ("currency B");

the MCD regulated mortgage contract will not be a foreign currency loan unless the credit is to be repaid wholly or in part from the income received or assets held in currency B.

MCOB 2A.3.4 R

The alternative currency referred to in MCOB 2A.3.1R (1) must be either:

  1. (1)

    the currency in which the consumer primarily receives income or holds assets from which the credit is to be repaid, as indicated at the time that the most recent affordability assessment in relation to the regulated mortgage contract was made; or

  2. (2)

    the currency of the EEA State in which the consumer either was resident at the time that the MCD regulated mortgage contract was entered into or is currently resident.

[Note: article 23(2) of the MCD]

MCOB 2A.3.5 R

Where a consumer has a right to convert the MCD regulated mortgage contract into an alternative currency in accordance with MCOB 2A.3.1R (1), the exchange rate at which the conversion is carried out must be the market exchange rate applicable on the day of application for conversion, unless otherwise specified in the MCD regulated mortgage contract.

[Note: article 23(3) of the MCD]

MCOB 2A.3.6 R

A firm must disclose to the consumer its arrangements for complying with the obligations in MCOB 2A.3.1 R in the MCD regulated mortgage contract.

[Note: article 23(6) of the MCD]

MCOB 2A.4 Early repayment

MCOB 2A.4.1 R
  1. (1)

    An MCD mortgage lender must give a consumer who enters into an MCD regulated mortgage contract the right to discharge fully or partially his obligations under that MCD regulated mortgage contract prior to its expiry.

  2. (2)

    If the consumer exercises the right in (1), the MCD mortgage lender must reduce the total cost of the credit to the consumer by an amount equal to the interest and costs for the remaining duration of the MCD regulated mortgage contract.

[Note: article 25(1) of the MCD]

MCOB 2A.4.2 R

MCOB 2A.4.1R (1) does not prevent an MCD mortgage lender from imposing an early repayment charge in accordance with MCOB 12.3.1 R.

MCOB 2A.4.3 G

MCOB 7A.3 sets out the MCOB disclosure rules in relation to early repayment.

MCOB 2A.5 Variable rate credits

MCOB 2A.5.1 R

Where the borrowing rate under an MCD regulated mortgage contract is variable, the MCD mortgage lender must:

  1. (1)

    ensure that any index or reference rate used to calculate that rate is clear, accessible, objective and verifiable by the parties to the MCD regulated mortgage contract and the FCA; and

  2. (2)

    keep a record of the index or reference rate used to calculate that rate for as long as the MCD regulated mortgage contract remains outstanding.

[Note: article 24 of the MCD]