This chapter applies to a firm in a category listed in column (1) of the table in MCOB 4.1.2 R in accordance with column (2) of that table.

This chapter applies if a firm in the course of carrying on a home finance activity4:

1. (1)

   makes, or anticipates making, a personal recommendation about; or

2. (2)

   gives, or anticipates giving, personalised information relating to;

the customer:

1. (3)

   entering into a home finance transaction4; or

   4
2. (4)

   varying the terms of a home finance transaction4 entered into by the customer.

   4

1. (1)

   MCOB 4.4 (Initial disclosure requirements) applies only in relation to varying the terms of a regulated mortgage contract entered into by the customer in any of the following ways:

   1. (a)

      adding or removing a party;

   2. (b)

      taking out a further advance; or

   3. (c)

      switching all or part of the regulated mortgage contract from one interest rate to another.1

2. (2)

   Otherwise, this chapter, MCOB 4, applies in relation to any form of variation of a regulated mortgage contract.

In relation to an equity release transaction,4 this chapter 4 is modified by MCOB 8 (Equity release4: advising and selling standards).2

1. (1)

   Subject to (2), a firm must take reasonable steps to ensure that the scope of the service given to a customer, and the home finance transactions1 offered, is based on a selection from one of the following:

   1
   1. (a)

      the whole market; or

   2. (b)

      a limited number of home finance providers1; or

      1
   3. (c)

      a single home finance provider1.

      1
2. (2)

   A firm may change the scope of the service it gives to a particular customer by widening the scope, for example, from that in (1)(c) to that in (b) or (a) but it must take reasonable steps to ensure that before doing so:

   1. (a)

      the customer is made aware of the proposed change by a communication in a durable medium; and

   2. (b)

      the customer's attention is drawn to any change in the fees that the customer must pay to the firm for the firm's services.

A firm must take reasonable steps to ensure that the extent of the scope of the service which it holds itself out as offering to a customer reflects the extent of that scope in practice.

1. (1)

   A firm which holds itself out as giving information or advice to customers on regulated mortgage contracts from the whole market must not give any such information or advice unless:

   1. (a)

      it has considered a sufficiently large number of regulated mortgage contracts which are generally available from the market; and

   2. (b)

      the consideration in (a) is based on criteria which reflect adequate knowledge of the regulated mortgage contracts generally available from the market as a whole.

2. (2)

   A firm in (1) must satisfy the obligation in MCOB 4.7.2 R by taking reasonable steps to ensure that a personal recommendation given to a customer is:

   1. (a)

      in accordance with the consideration in (1); and

   2. (b)

      the regulated mortgage contract which on the basis of that consideration is the most suitable to meet the customer's needs.

1In applying this chapter, there is:

1. (1)

   one market for regulated mortgage contracts that are not lifetime mortgages; and

2. (2)

   another market for home purchase plans.

1. (1)

   When providing information or giving advice to a customer on home finance transactions1, a firm must not hold itself out as acting independently unless it intends to:

   1
   1. (a)

      provide that service wholly or predominantly based on the whole market in the relevant type of home finance transaction1; and

   2. (b)

      enable the customer to pay a fee for the provision of that service.

2. (2)

   A firm which in accordance with (1) holds itself out as independent must ensure that the information or advice subsequently given to the customer concerned is information or advice on home finance transactions1 from the whole market in the relevant type of home finance transaction1.

   1

A firm may restrict the home finance transactions1it authorises a particular appointed representative to sell. If it does so, the appointed representative must reflect this restricted scope in any initial disclosure document or combined initial disclosure document1 provided to the customer.

1. (1)

   A firm must ensure that, on first making contact with a customer when it anticipates giving personalised information or advice on a regulated mortgage contract, it:

   1. (a)

      establishes with the customer whether it will provide advice or information;

   2. (b)

      establishes with the customer how much he will pay or, alternatively, the basis on which the firm will be remunerated, where appropriate; and

   3. (c)

      provides the customer with either:

      4
      1. (i)

         an initial disclosure document4; or

         4
      2. (ii)

         if the firm has reasonable grounds to be satisfied that the services which it is likely to provide to the customer will relate to a combination of different types of home finance transaction, or will4 relate to home finance transactions and4 one or more of non-investment insurance contracts or packaged products 3, a combined initial disclosure document4;

         434

      in a durable medium.

      4
2. (2)

   The requirement in (1)(c) does not apply where;

   1. (a)

      an initial disclosure document has already been provided by the firm and that document is still likely to be accurate and appropriate for the customer; or

   2. (b)

      an initial disclosure document has already been provided by the firm which first made contact with the customer in respect of the particular regulated mortgage contract, and the firm subsequently making contact with the customer:

      1. (i)

         does not anticipate altering or replacing the service described in that document; or

      2. (ii)

         is not making contact with a view to concluding a distance mortgage mediation contract; or

   3. (c)

      initial contact is made by telephone.

3. (3)

   A firm may choose not to include the initial disclosure information required by sections 6, 7 and 8 of the initial disclosure document4, and sections 5, 7 and 8 of the combined initial disclosure document4, if it provides the customer with the information required by those sections in some other durable medium before the customer makes an application for a regulated mortgage contract.

   44
4. (4)

   4A firm must not use a combined initial disclosure document in relation to a combination of:

   1. (a)

      regulated mortgage contracts (other than lifetime mortgages)5 or home purchase plans; and

   2. (b)

      equity release transactions.

1. (1)

   If at the point that initial disclosure must be made in accordance with MCOB 4.4.1 R or MCOB 4.4.7 R a firm is uncertain whether the contract will be a regulated mortgage contract, the firm must:

   1. (a)

      provide the initial disclosure document; or

   2. (b)

      seek to obtain from the customer information that will enable the firm to ascertain whether the contract will be a regulated mortgage contract.

2. (2)

   Where (1)(b) applies, the initial disclosure document must be provided unless, on the basis of the information provided by the customer, the firm has reasonable evidence that the contract is not a regulated mortgage contract.

1. (1)

   If a firm's scope of service is based on MCOB 4.3.1 R (1)(b) it must maintain, and keep up to date, in a durable medium and in a form which is appropriate for distribution to the customer, a list of the mortgage lenders whose regulated mortgage contracts it offers. This list must also confirm whether or not the firm provides services in relation to all of the regulated mortgage contracts generally available from each mortgage lender.

2. (2)

   The customer must be provided with a copy of the information described in (1) on request.

3. (3)

   A firm must take reasonable steps to ensure that its appointed representatives provide a copy of the record in (1) to a customer on request.

1. (1)

   If the initial contact of a kind in MCOB 4.4.1 R(1) is by telephone, then unless MCOB 4.4.1 R(2)(a) applies, the following information must be given before proceeding further:

   1. (a)

      the name of the firm and (if the call is initiated by or on behalf of the firm) the commercial purpose of the call;

   2. (b)

      the scope of the service provided by the firm (within the meaning of MCOB 4.3.1 R);

   3. (c)

      if the scope of the service is based on MCOB 4.3.1 R(1)(b), that the customer can request a copy of the list of mortgage lenders whose regulated mortgage contracts it offers and confirmation of whether the firm provides services in relation to all of the regulated mortgage contracts generally available from each mortgage lender;1

   4. (d)

      whether or not the firm will provide the customer with advice on those regulated mortgage contracts within its scope; and

   5. (e)

      that the information given under (a) to (d) will be confirmed in writing.

2. (2)

   2Provided that the telephone call in (1) has not led the firm to conclude that the customer is ineligible for any of its regulated mortgage contracts, and that the customer has provided his contact details, the firm must send the customer a copy of an initial disclosure document or combined initial disclosure document4 and any other information required to be provided, in a durable medium within five business days of the telephone call (see also MCOB 4.5.2 R (2)(b) for the equivalent requirement in relation to distance mortgage mediation contracts).2

   4
3. (3)

   If the customer accepts the offer in (1)(c) of a list of the mortgage lenders whose regulated mortgage contracts the firm offers, that list must also be sent with the information required in (2).

If the initial contact of a kind in MCOB 4.4.1 R (1) is with a consumer5 with a view to concluding a distance mortgage mediation contract,6 a distance home purchase mediation contract or a distance regulated sale and rent back mediation contract6,4 a firm must:

1. (1)

   in addition to initial disclosure information and any other required information, provide the consumer5 with the information in MCOB 4 Annex 3 in a durable medium in good time before the conclusion of the distance mortgage mediation contract,6distance home purchase mediation contract or distance regulated sale and rent back mediation contract6

   44564

   with that customer unless an exemption in (2), (3), (4) or (5) applies.

2. (2)

   Exemption: telephone sales

   1. (a)

      This exemption applies if the service is being provided on the telephone and the customer wishes to enter into a contract with the firm. Provided the customer gives his explicit consent to receiving only limited information, the firm may proceed on the basis of at least the following information:2

      1. (i)

         the name of the person in contact with the customer and his link with the firm;

      2. (ii)

         the total price to be paid by the customer to the firm for the services, including all related fees, charges and expenses, and all taxes paid through the firm or, where an exact price cannot be indicated, the basis for the calculation of the price, enabling the customer to verify it;

      3. (iii)

         notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it;

      4. (iv)

         the information about cancellation rights set out in MCOB 4 Annex 3(5); and

      5. (v)

         that other information is available on request, and the nature of that information.

   2. (aa)

      If the customer does not give his explicit consent to receiving limited information, and the parties wish to proceed by telephone, the firm must, prior to the conclusion of the contract, provide orally to the customer all of the information required by (1).2

   3. (b)

      Where (a) or (aa) applies, the firm must send the consumer5 without delay and, at the latest immediately after a contract is concluded, the information required by (1), in a durable medium.2

      5
3. (3)

   Exemption: certain other means of distance communication. This exemption applies if the contract is concluded at the consumer's5 request using a means of distance communication5 (other than telephone) which does not enable provision of the information referred to in MCOB 4 Annex 3 in a durable medium before the conclusion of the contract. In that case, the firm must provide the consumer5 with the information in a durable medium immediately after its4 conclusion.

   5554
4. (4)

   Exemption: successive operations or separate operations under an initial service agreement. This exemption applies if the firm has an initial service agreement with the consumer5 and the contract is in relation to a successive operation or a separate operation of the same nature under that agreement.

   5
5. (5)

   Exemption: other successive or separate operations This exemption applies if:

   1. (a)

      the firm has no initial service agreement with the consumer5; and

      5
   2. (b)

      the firm has performed an operation with the consumer5 within the last year; and

      5
   3. (c)

      the contract is in relation to a successive operation or separate operation of the same nature.

1. (1)

   A consumer2 has a right to cancel a distance mortgage mediation contract,3 a distance home purchase mediation contract or a distance regulated sale and rent back mediation contract31 in accordance with this section.

   23
2. (2)

   The right to cancel must be exercised within 14 days beginning on the later of:

   1. (a)

      the day of the conclusion of the contract; or

   2. (b)

      the day on which the consumer2 receives the contractual terms and conditions and other information required by MCOB 4.4 and MCOB 4.5.

      2

A consumer2 who has a right to cancel a distance mortgage mediation contract, a distance home purchase mediation contract or a distance regulated sale and rent back mediation contract31 may, without giving any reason, cancel the contract by serving notice on the firm, before the expiry of the cancellation period in MCOB 4.6.4 R either:

1. (1)

   by serving on, or otherwise sending by post, notice to the firm's last known address, addressed to the firm, its appointed representative or on any agent of the firm with authority to accept notice on the firm's behalf; or

2. (2)

   in accordance with any other practical instructions for exercising that right provided to the consumer2 in accordance with MCOB 4 Annex 3(5).

   2

Where the notice of cancellation is in a durable medium and is served in accordance with MCOB 4.6.5 R, it must be treated as being served on the firm on the date it is despatched by the consumer2.

By exercising a right to cancel under MCOB 4.6.4 R the consumer2 withdraws from the contract and the entire contract is terminated.

When a consumer2 exercises a right to cancel under MCOB 4.6.4 R:

1. (1)

   the firm must:

   1. (a)

      pay to the consumer2 without delay, and no later than 30 days after the date on which the firm received notice of cancellation from him, any sums which he has paid to or for the benefit of the firm in connection with the contract (including sums paid by the consumer2 to agents of the firm) except for the amount referred to in (b);

      22
   2. (b)

      subject to (c), the firm is permitted to require the consumer2 to pay for the services it has actually provided in connection with the contract; the amount payable, however, must be in accordance with the sums which the consumer2 agreed to pay and must not:

      22
      1. (i)

         exceed an amount which is in proportion to the extent of the service already provided to the consumer2 by the firm; and

         2
      2. (ii)

         be such that it could be construed as a penalty;

   3. (c)

      sub-paragraph (b) applies only if:

      1. (i)

         where performance of the contract has commenced before expiry of the cancellation period, this was requested by the consumer2; and

         2
      2. (ii)

         the firm can demonstrate that the consumer2 was provided with details of the amount which he may be required to pay if exercising his right to cancel in accordance with MCOB 4 Annex 3(5).

         2
2. (2)

   The firm is entitled to receive without delay, and no later than 30 days after the date on which the consumer2 posted or otherwise sent notice of cancellation to the firm any property that became the consumer's2 under the contract and any sums payable to the firm under (1)(b).

   22

Where notice of cancellation has been served on a firm (or its appointed representative or agent), the firm must make and retain a record (which includes a copy of any receipt of notice issued to the consumer2 and the consumer's2 original notice instructions) for three years from the date when the firm first became aware that notice of cancellation had been served.

A firm must take reasonable steps to ensure that it does not make a personal recommendation to a customer to enter into a regulated mortgage contract, or to vary an existing regulated mortgage contract, unless the regulated mortgage contract is, or after the variation will be, suitable for that customer (see MCOB 4.3.4 R (2), MCOB 4.3.5 G and MCOB 4.3.6 G).

In MCOB 4.7, a reference to a recommendation to enter into a regulated mortgage contract is to be read as including a reference to a recommendation to vary an existing regulated mortgage contract if the context so requires.

For the purposes of MCOB 4.7.2 R:

1. (1)

   a regulated mortgage contract will be suitable if, having regard to the facts disclosed by the customer and other relevant facts about the customer of which the firm is or should reasonably be aware, the firm has reasonable grounds to conclude that:

   1. (a)

      the customer can afford to enter into the regulated mortgage contract;

   2. (b)

      the regulated mortgage contract is appropriate to the needs and circumstances of the customer; and

   3. (c)

      the regulated mortgage contract is the most suitable of those that the firm has available to it within the scope of the service provided to the customer;

2. (2)

   no recommendation must be made if there is no regulated mortgage contract from within the scope of the service provided to the customer which is appropriate to his needs and circumstances; and

3. (3)

   if a firm is dealing with an existing customer in arrears and has concluded that there is no suitable regulated mortgage contract for the purposes of MCOB 4.7.2 R, the firm must nonetheless have regard to MCOB 13.3.2AR (1), MCOB 13.3.2AR (5) and MCOB 13.3.2AR (6)2 (see also MCOB 13.3.4AR (1)(a) and MCOB 13.3.4AR (1)(b)).2

   2

In relation to MCOB 4.7.4 R(1)(a), a firm must explain to the customer that the assessment of whether he can afford to enter into a regulated mortgage contract is based on:

1. (1)

   current interest rates, which might rise in the future; and

2. (2)

   the customer's current circumstances, which might change in the future.

In relation to MCOB 4.7.4 R(1)(a) and (b), where a firm makes a personal recommendation to a customer to enter into a regulated mortgage contract where a main purpose is to consolidate existing debts it must also take account of the following, where relevant, in assessing whether the regulated mortgage contract is suitable for the customer:

1. (1)

   the costs associated with increasing the period over which a debt is to be repaid;

2. (2)

   whether it is appropriate for the customer to secure a previously unsecured loan; and

3. (3)

   where the customer is known to have payment difficulties, whether it would be more appropriate for the customer to negotiate an arrangement with his creditors than to take out a regulated mortgage contract.

1. (1)

   If a customer has:

   1. (a)

      rejected all of the personal recommendations made by a firm and requested information instead on a regulated mortgage contract that the firm does not consider suitable (and therefore could not recommend to the customer in accordance with MCOB 4.7.2 R); and

   2. (b)

      been issued with a new initial disclosure document in accordance with MCOB 4.4.1 R or MCOB 4.4.7 R;

   the firm may be able to provide information on that regulated mortgage contract in the light of the information on which the personal recommendations in (1) were made.

2. (2)

   If the firm needs to ask further questions regarding the needs and circumstances of the customer to be able to provide information on that regulated mortgage contract, the firm must obtain that information by asking scripted questions (in accordance with MCOB 4.8.1 R).

1. (1)

   A firm must make and retain a record:

   1. (a)

      of the customer information, including that relating to the customer's needs and circumstances, that it has obtained for the purposes of MCOB 4.7; and

   2. (b)

      that explains why the firm has concluded that any personal recommendation given in accordance with MCOB 4.7.2 R satisfies the suitability requirements in MCOB 4.7.4 R(1). This explanation must include, where this is the case, the reasons why a personal recommendation has been made on a basis other than that described in MCOB 4.7.13 E(1).

2. (2)

   The record in (1) must be retained for a minimum of three years from the date on which the personal recommendation was made.

1. (1)

   If a firm arranges a regulated mortgage contract or a variation to an existing regulated mortgage contract without giving a personal recommendation, it must ensure that all the questions it asks the customer about the customer's needs and circumstances are scripted in advance.1

2. (2)

   In the remainder of MCOB 4.8, a reference to a firm providing information to a customer in relation to a regulated mortgage contract is to be read as including a reference to providing information in relation to varying the terms of an existing regulated mortgage contract if the context so requires.1

Where MCOB 4.8.1 R applies, the firm must ensure that staff using the scripted questions are:

1. (1)

   trained in the use of the script;

2. (2)

   trained in the difference between what constitutes a personal recommendation and what does not; and

3. (3)

   instructed not to give a personal recommendation unless they meet the TC requirements for advising on regulated mortgage contracts.

A firm must take reasonable steps to supervise staff who do not meet the TC requirements for advising on regulated mortgage contracts so that:

1. (1)

   they do not give personal recommendations; and

2. (2)

   when using scripted questions to comply with MCOB 4.8.1 R, they adhere to the script in all material respects.

1. (1)

   A firm must make, and keep up to date, a record of the scripted questions required by MCOB 4.8.1 R. The record must be made on the date on which the scripted questions are first used.

2. (2)

   The record in (1) must be retained for one year from the date on which it was superseded by a more up-to-date record.

For the purposes of the rules in MCOB 4 there is one market in regulated mortgage contracts for a business purpose. Within this market, a firm should describe its scope of service in accordance with MCOB 4.3.1 R.

MCOB 4.8.1 R does not apply in relation to a regulated mortgage contract for a business purpose.

1A firm must comply with the scope of service requirements at MCOB 4.3.1 R and MCOB 4.3.2 R (Providing services within and beyond scope), MCOB 4.3.4A R (Whole of market) and MCOB 4.3.10 R (Appointed representatives).

1. (1)

   A firm must, on first making contact with a customer when it anticipates giving personalised information or advice on entering into a new home purchase plan, ensure that the customer is, or has been, provided with an appropriate initial disclosure document or combined initial disclosure document in a durable medium.

2. (2)

   If the initial contact in (1) is by telephone, a firm must:

   1. (a)

      (if the call is with a view to concluding a distance home purchase mediation contract) give the following information before proceeding further:

      1. (i)

         the name of the firm and (if initiated by the firm) the commercial purpose of the call;

      2. (ii)

         the scope of the service provided by the firm; and

      3. (iii)

         whether or not the firm will provide the customer with advice on those home purchase plans within its scope; and

   2. (b)

      ensure that the customer is, or has been, provided with such a document in a durable medium as soon as is practicable.

3. (3)

   A firm must not use a combined initial disclosure document in relation to a combination of home purchase plans and equity release transactions.2

1A firm, before making a personal recommendation on a home purchase plan, must take reasonable steps to ensure that it is:

1. (1)

   affordable;

2. (2)

   appropriate to the customer's needs and circumstances; and

3. (3)

   the most suitable of those home purchase plans that the firm has available to it within the scope of the service provided to the customer.

1If a firmarranges a home purchase plan or a variation to an existing home purchase plan without giving a personal recommendation, it must ensure that the questions it asks about the customer's needs and circumstances are scripted in advance.

1A firm must, beforemaking a personal recommendation to a customer of, or when a customer requests or selects, a home purchase plan ensure that the customer is, or has been, provided with an appropriate risks and features statement about that plan.

1A risks and features statement need not be personalised to the customer's circumstances but must:

1. (1)

   include the Key facts logo in a prominent position at the top of the statement;

2. (2)

   state that the FSA requires a firm to provide the statement;

3. (3)

   state that mortgages are available and that the customer should think carefully about the product appropriate to his needs;

4. (4)

   describe the significant features of the plan, including:

   1. (a)

      how the home purchase plan works;

   2. (b)

      the nature of the customer's commitment;

   3. (c)

      when and how a customer's commitment is reviewed;

   4. (d)

      any significant restrictions of the plan; and

   5. (e)

      the charges that a customer may incur under the plan, including the reason for, and amount of, each charge, when they are payable, whether they will be reimbursed and, if so, when;

5. (5)

   describe the risks associated with the plan, including:

   1. (a)

      the risks to the customer if he fails to keep up repayments and the circumstances in which this might occur; and

   2. (b)

      risks to the customer of the home purchase providerfailing or disposing of any of its obligations or rights (including its interest in the property) to a third party (taking into account steps that will be taken by the home purchase provider to mitigate such risks); and

6. (6)

   state the importance of obtaining independent legal advice.

1A firm may omit details of the charges that a customer may incur under a home purchase plan from the risks and features statement if they are included in a separate tariff of charges provided to the customer at the same time.

1. (1) 1

   A regulated sale and rent back firm, on first making contact with a potential SRB agreement seller for whom it might reasonably be expected to carry on any regulated sale and rent back activity, must make the following disclosures to him, both orally and in writing:

   1. (a)

      the service the firm is offering the customer, making it clear whether the firm will be acting as a SRB agreement provider, a SRB adviser or a SRB arranger and the particular regulated sale and rent back activities for which the firm has a Part IV permission;

   2. (b)

      if the firm is acting as an intermediary, whether it deals with a single or a range of SRB agreement providers and whether or not those providers are authorised under the Act; and

   3. (c)

      how much the firm will receive in connection with the transaction, whether by way of fees, commissions, charges, retentions or otherwise and whether any such sum will be payable out of the sale proceeds of the property, paid directly by the customer or provider or otherwise and whether or not any of these will be payable if the customer decides not to enter into a regulated sale and rent back agreement.

2. (2)

   If the precise fees, commissions, charges, retentions or other sums in (1)(c) are not known in advance, the firm should estimate the amount likely to apply in respect of the transaction.

1. (1)

   As soon as the customer expresses an interest in becoming a SRB agreement seller, a regulated sale and rent back firm must provide him with the FSA consumer factsheet on sale and rent back in a durable medium which may be accessed through www.fsa.gov.uk.

2. (2)

   The firm on providing the FSA consumer factsheet in (1) to the customer must give him an oral explanation of it, so as to ensure that the customer fully understands its contents.

A regulated sale and rent back firm must not permit a potential SRB agreement seller to become contractually committed to enter into a regulated sale and rent back agreement unless it has reasonable grounds to be satisfied that:

1. (1)

   the customer can afford the payments he will be liable to make under the agreement; and

2. (2)

   the proposed regulated sale and rent back agreement is appropriate to the needs, objectives and circumstances of the customer.

1. (1)

   A firm must make and retain a record of the customer information that has been provided to it, including that relating to:

   1. (a)

      the customer's income, expenditure and other resources that it has obtained from him for the purpose of assessing affordability, together with the stress testing of the rental payments;

   2. (b)

      the customer's needs, objectives and individual circumstances that it has obtained from him for the purpose of assessing appropriateness; and

   3. (c)

      the customer's entitlement to means-tested benefits and housing benefits, including any evidence provided by the customer, that it has obtained from him for the affordability and appropriateness assessment;

   and which explains why the firm concluded that the customer could afford, and why it was appropriate for him, to enter into the proposed regulated sale and rent back agreement.

2. (2)

   The record in (1) must be retained for a minimum of five years from the date on which the assessment of affordability and appropriatenesswas made, or one year after the end of the fixed term of the tenancy agreement under the regulated sale and rent back agreement, if later.

A firm need not comply with the requirements imposed on a regulated sale and rent back firm in this section to the extent that it is satisfied on reasonable grounds that another firm has already done so.

This Annex belongs to MCOB 4.4.1 R (1)2 and MCOB 4.10.2 R.4

This annex consists only of one or more forms. Forms are to be found through the following address:

Initial disclosure document - FSAmcob4_annex_1R_010110.pdf6