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MCOB 4.8A Execution-only sales

Scope and application of this section

MCOB 4.8A.1G

1This section sets out the conditions which must be satisfied for a firm to enter into or vary a regulated mortgage contract with a customer, or arrange such a transaction for a customer, without giving advice, or where the advice given by the firm has been rejected. As explained in MCOB 4.7A.1 G, it does not prohibit the giving of pre-contract or preliminary information which does not amount to advice to the particular customer. If a firm intends (where permitted under this section) to operate a business model under which it will not give advice to particular customers, it may wish to refer to PERG (particularly PERG 4.6) for guidance on the regulatory perimeter in relation to the regulated activities which constitute advising on home finance transactions.

MCOB 4.8A.2G

Subject to certain limited exceptions, where the rules in MCOB 4.8A apply to a firm they restrict execution-only sales (which term is defined to include variations of existing contracts) to cases where:

  1. (1)

    there is no spoken or other interactive dialogue between the firm and the customer during the sale; or

  2. (2)

    if there is spoken or other interactive dialogue between the firm and the customer during the sale:

    1. (a)

      the customer is a high net worth mortgage customer; or

    2. (b)

      the customer is a professional customer; or

    3. (c)

      the loan is solely for a business purpose;

    and in each case the customer has positively elected to proceed with an execution-only sale and (in the case of a professional customer) identified the product he wishes to purchase; or

  3. (3)

    the customer has rejected advice, identified the product he wishes to purchase and positively elected to proceed with an execution-only sale.

In each case certain requirements must be satisfied.

MCOB 4.8A.3G

Interactive dialogue includes SMS, mobile instant messaging, email and communication via social media sites; this list is not exhaustive. Where a sale is carried out entirely on the internet, a firm merely permitting the customer to input details about the matters specified in MCOB 4.8A.14R (1), (2) or (3) in order to select from the firm's product range the regulated mortgage contract he wishes to purchase, or the variation he wishes to enter into, would not be engaging in interactive dialogue. Firms are reminded that, if this process steers the customer towards any one or more of the products offered by it, so as to constitute advice, the requirements of MCOB 4.7A will apply.

The customer’s best interests

MCOB 4.8A.4G

Firms are reminded that MCOB 2.5A.1 R (The customer’s best interests) applies in all cases, including in relation to execution-only sales.

MCOB 4.8A.5R

A firm must not encourage a customer to opt out of receiving advice on regulated mortgage contracts from, or reject advice given by, it or any associate.

MCOB 4.8A.6G

Firms are not prohibited from entering into or arranging execution-only sales for regulated mortgage contracts for customers to whom they have provided product information (where otherwise permitted under this section), but MCOB 2.5A.1 R and MCOB 4.8A.5 R (The customer’s best interests) mean the information they provide should not steer the customer to elect to enter into an execution-only sale.

Cases where execution-only sales are not permitted

MCOB 4.8A.7R

A firm must not enter into or arrange an execution-only sale for a regulated mortgage contract2 if:

2
  1. (1)

    the customer is intending to use it to exercise a statutory “right to buy” the customer's home; or

  2. (2)

    the main purpose of the customer's entering into it is to raise funds for debt consolidation; or

  3. (3)

    there is spoken or other interactive dialogue between the firm and the customer at any point during the sale; or2

  4. (4)

    the regulated mortgage contract is a shared equity credit agreement.2

MCOB 4.8A.8E

An attempt by the firm either to:

  1. (1)

    misdescribe the customer's purpose or characteristics; or

  2. (2)

    encourage the customer to tailor the amount he wishes to borrow;

    so that MCOB 4.8A.7 R does not apply may be relied on as tending to show contravention of MCOB 2.5A.1 R (The customer’s best interests).

Exceptions: high net worth mortgage customers, professional customers and loans solely for a business purpose

MCOB 4.8A.9R
  1. (1)

    MCOB 4.8A.7 R does not apply where the customer is a high net worth mortgage customer.

  2. (2)

    MCOB 4.8A.7R (3) does not apply where the customer is a professional customer or the loan is solely for a business purpose.

Exception: rate switches and other variations

MCOB 4.8A.10R
  1. (1)

    MCOB 4.8A.7 R does not apply in the case of a variation of a regulated mortgage contract, provided that:

    1. (a)

      the variation would not involve the customer taking on additional borrowing beyond the amount currently outstanding under the existing regulated mortgage contract, other than to finance any product fee or arrangement fee for the proposed new or varied contract; and

    2. (b)

      where the variation will (in whole or part) change from one interest rate to another, the firm has presented to the customer, using only a non-interactive channel, all products offered by it for which the customer is eligible, whether or not the customer then selects from those products using an interactive channel.

  2. (2)

    The reference to a variation in (1) (and in all other provisions which cross-refer to this rule) must be read as including any new regulated mortgage contract which would replace an existing regulated mortgage contract between the customer (or, where there are joint borrowers, at least one of them) and the firm (either as the original mortgage lender or as the transferee of the existing contract).

MCOB 4.8A.11G
  1. (1)

    The variation in MCOB 4.8A.10 R might involve: a transfer to a different property (“porting”); the addition or removal of a borrower for joint mortgages; an extension of the term; a change in payment method; or consent to let the property. This list is not exhaustive.

  2. (2)

    Examples of rate changes in MCOB 4.8A.10R (1)(b) are: a transfer from a variable rate to a fixed rate; and a transfer from one fixed rate to another fixed rate.

  3. (3)

    Firms are reminded that, if their presentation in MCOB 4.8A.10R (1)(b) has (either explicitly or implicitly) steered the customer towards any one or more if the products offered by them such as to constitute advice, the requirements of MCOB 4.7A will apply.

Exception: rejected advice

MCOB 4.8A.12R

MCOB 4.8A.7 R does not apply where the customer has rejected advice given by a firm and instead wishes to enter into a different regulated mortgage contract as an execution-only sale (see MCOB 4.8A.14 R).

Execution-only sales: guidance

MCOB 4.8A.13G
  1. (1)

    If a firm wishes to be able to apply the exception in MCOB 4.8A.9 R for a high net worth mortgage customer, it should first consider the provision in MCOB 1.2.9C R (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).

  2. (2)

    Where a firm's business model is such that it does not offer advice on regulated mortgage contracts to particular customers, it should ensure that it does not enter into or arrange regulated mortgage contracts for customers in breach of MCOB 4.8A.7 R. Such a firm may wish to use filtering questions which the customer is required to answer before he is able to proceed, in order to establish whether any of the exceptions to MCOB 4.8A.7 R apply.

Requirements for execution-only sales

MCOB 4.8A.14R

A firm must not enter into or arrange an execution-only sale for a regulated mortgage contract unless, except as provided in MCOB 4.8A.15 R:

  1. (1)

    for a new regulated mortgage contract not falling within MCOB 4.8A.10 R, the customer has identified the regulated mortgage contract he wishes to purchase, specifying to the firm at least the following information:

    1. (a)

      the name of the mortgage lender;

    2. (b)

      the rate of interest;

    3. (c)

      the interest rate type (that is, whether fixed, variable or some other type);

    4. (d)

      the price or value of the property on which the regulated mortgage contract would be secured (estimated where necessary);

    5. (e)

      the length of the term required by the customer;

    6. (f)

      the sum the customer wishes to borrow; and

    7. (g)

      whether the customer wants an interest-only mortgage or a repayment mortgage;

  2. (2)

    for a contract variation not falling within MCOB 4.8A.10 R (but permitted by MCOB 4.8A.7 R), the customer has specified at least the following information, where applicable to the variation he wishes to enter into:

    1. (a)

      the price or value of the property;

    2. (b)

      the length of term required (or confirmation that this should remain unchanged); and

    3. (c)

      the amount the customer wishes to borrow;

  3. (3)

    for a contract variation falling within MCOB 4.8A.10 R, the customer has specified the variation he wishes to enter into;

  4. (4)

    the customer has been informed, clearly and prominently and in a durable medium (after providing the information in (1), (2), or (3), where that is required):

    1. (a)

      in any case falling within MCOB 4.7A.24 R (Rejected advice) where the firm has advised the customer that the regulated mortgage contract (or variation) is unsuitable for the customer, that that is the case; or

    2. (b)

      in any other case, that in the provision of its services for the execution-only sale the firm is not required to assess the suitability of that regulated mortgage contract (or variation);

      and in either case that the customer will not benefit from the protection of the rules (in MCOB 4.7A) on assessing suitability. In any case where there is spoken dialogue between the firm and the customer at any point during the sale, the firm must also provide this information orally; and

  5. (5)

    once the customer has been provided with the information in (4), in any case where there is spoken or other interactive dialogue between the firm and the customer at any point during the sale, he has confirmed, in writing, to the firm that he is aware of the consequences of losing the protections of the rules on assessing suitability and is making a positive election to proceed with an execution-only sale. The written confirmation must be in the same document as the information in durable medium in (4), which must be separate from any other information or contractual documentation.

MCOB 4.8A.15R

The requirements in MCOB 4.8A.14R (1) to (3) do not apply if the customer is a high net worth mortgage customer or entering into the regulated mortgage contract solely for a business purpose.

MCOB 4.8A.16G

Where the information in MCOB 4.8A.14R (4) is given by electronic means, the firm should ensure that the customer cannot progress to the next stage of the sale unless the information has been communicated to the customer.

Managing execution-only sales

MCOB 4.8A.17R

A firm which intends to transact execution-only sales in regulated mortgage contracts must have in place and operate in accordance with a clearly defined policy which:

  1. (1)

    sets out the amount of business the firm reasonably expects to transact by way of execution-only sales and the steps to be taken by the firm if that business exceeds the expected levels; and

  2. (2)

    sets out its processes and procedures for ensuring compliance with the rules in MCOB 4.8A; in particular:

    1. (a)

      how it will ensure in every case that, before proceeding with an eexecution-only sale it has obtained (where required) a voluntary and informed positive election from the customer in order to comply with MCOB 4.8A.14R (5);

    2. (b)

      how it will ensure in every case that it acts in compliance with MCOB 2.5A.1 R and MCOB 4.8A.5 R (The customer’s best interests), including not encouraging a customer to enter into a regulated mortgage contract (or variation) as an execution-only sale; and

    3. (c)

      how it will identify whether a customer meets the definition of high net worth mortgage customer or professional customer, if it will offer execution-only sales to those customers; and

  3. (3)

    includes the arrangements for monitoring and auditing compliance with the policy, processes and procedures.

Record keeping

MCOB 4.8A.18R
  1. (1)

    Whenever a firm enters into or arranges an execution-only sale for a regulated mortgage contract, it must make and maintain a record of:

    1. (a)

      the information provided by the customer which satisfies MCOB 4.8A.14R (1), (2) or (3);

    2. (b)

      the information in durable medium in MCOB 4.8A.14R (4);

    3. (c)

      (where applicable) the confirmation by the customer in MCOB 4.8A.14R (5); and

    4. (d)

      any advice from the firm which the customer rejected, including the reasons why it was rejected, before deciding to enter into an execution-only sale.

  2. (2)

    The record in (1) must be retained for a minimum of three years from the date on which the regulated mortgage contract was entered into or arranged (or the variation was entered into or arranged).

  3. (3)

    A firm must keep an adequate and up-to-date record of the policy in MCOB 4.8A.17 R, where such policy is required by that rule. When the policy is changed, a record of the previous policy must be retained for one year from the date of change.

Forbearance

MCOB 4.8A.19R

MCOB 4.8A does not apply to any variation which is made solely for the purposes of forbearance where the customer has a payment shortfall, or in order to avoid a payment shortfall.