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Status: You are viewing the version of the handbook as on 2005-06-30.

MOGI 1.1 Using this Guide

MOGI 1.1.1G

The Guide to the FSA Handbook for Small Mortgage and Insurance Intermediaries (the Guide) is in three parts:

  1. (1)

    Part I covers all the parts of the Handbook that apply to mortgage and insurance intermediaries other than rules on conduct of business, training and competence and client money. Chapter 2 of Part I explains the structure of the Handbook, what parts apply to small insurance and mortgage intermediaries and how to interpret the provisions of the Handbook.

  2. (2)

    Part II (this Part) covers the conduct of business and training and competence rules for mortgage intermediaries.

  3. (3)

    Part III covers the client money, conduct of business and training and competence rules for insurance intermediaries.

MOGI 1.1.2G

From 31 October 2004, we (the FSA) will become responsible for regulating mortgage lenders and intermediaries. This Part of the Guide (together with Part I) will help the small mortgage intermediaries we authorise already or who have decided to seek authorisation, to find the rules in the FSA Handbook of rules and guidance (the Handbook) that apply to them. Part III will be relevant to mortgage intermediaries if they also do insurance mediation business.

MOGI 1.1.3G

The rules explained in this Part of the Guide are:

  1. (1)

    Mortgages: Conduct of Business sourcebook (MCOB)) (see chapter 2); and

  2. (2)

    Training and Competence sourcebook (TC) (see chapter 3).

MOGI 1.1.4G

Don't forget the Guide is only a tool to help you navigate and understand the Handbook and to find the rules that are relevant to your firm. It is not a substitute for the rules themselves and is not a comprehensive statement of your firm's obligations under our rules. You should use it to help guide you through the most relevant aspects of our regulatory regime.

MOGI 1.1.5G

This Guide is not formal guidance and does not have the status of guidance in the Handbook. You cannot use this Guide to counter a charge of breaking our rules. If there is any conflict between this Guide and the Handbook, the Handbook takes precedence.

MOGI 1.1.6G

This Guide is current as at 31 March 2004. This Guide does not remove the need for firms to keep up to date with regulatory developments and to consider the potential impact on their business of proposed changes. We will regularly update this Guide but we will not update it each time the handbook changes.

Key terms

MOGI 1.1.7G

This Guide uses terms consistent with those defined in the Handbook Glossary. These terms are in italics in the Handbook (though not in this Guide). To help you, Appendix A to Part I contains brief definitions of some of the terms that we use throughout the Guide. Appendix A to Part II explains the key terms used in this Part. In each case firms should consult the Handbook Glossary for the full definitions.

What does MCOB cover?

MOGI 1.1.8G

The rules in MCOB govern a firm's relationship with its consumers before, during and after the sale of a mortgage. They aim to ensure that firms treat consumers fairly.

MOGI 1.1.9G

The table in paragraph 1.1.13 summarises the content of each chapter of MCOB. Which chapters of MCOB apply to you will depend on the business you do. For example, the general standards and pre-sale rules in MCOB 2, MCOB 3, MCOB 4 and MCOB 5 will apply to you when selling mortgages day-to-day. MCOB 8 and MCOB 9 apply if you sell lifetime mortgages.

MOGI 1.1.10G

This Guide does not cover the rules on distance mortgage mediation contracts in MCOB 4 as we think these contracts rarely exist. You should check the guidance at MCOB 4.5.1 G to see if you provide distance mortgage mediation contracts.

Which activities does MCOB apply to?

MOGI 1.1.11G

MCOB applies to intermediaries that sell regulated mortgage contracts or that communicate or approve qualifying credit promotions. The terms "regulated mortgage contract" and "qualifying credit promotion" have a special meaning in the rules (see Appendix A). Guidance on the scope of our regime is in our Authorisation Manual (see AUTH App 4 available on our website). This will shortly be transferred to a new Perimeter Guide outside the Handbook (with the shortened title of PERG). Guidance on qualifying credit promotions is in our Authorisation Manual (see AUTH App 1.17.2 G, available on our website at www.fsahandbook.info/FSA/handbook.jsp?doc=/handbook/AUTH/App/1/17).

How to tell whether the chapters of MCOB apply to you

MOGI 1.1.12G

At the start of most chapters a table tells you which parts of the chapter apply to you. For example, the table in MCOB 7 explains that sections 7.4 to 7.6.6 do not apply to mortgage advisers and arrangers (the rest of MCOB 7 does apply to intermediaries). Annex 3 to MCOB 1 summarises which rules apply to which firm.

MOGI 1.1.13G

Summary of the content of MCOB:

Chapter

Title

Does it apply to you?

What does it include?

MCOB 1

Application and purpose

Yes

A summary of how the MCOB rules apply to firms.

Guidance on the other parts of the FSA Handbook.

MCOB 2

Conduct of business standards: general

Yes

General requirements that apply throughout MCOB.

Communications to consumers must be clear, fair and not misleading.

Rules on inducements.

MCOB 3

Financial promotions

Yes

Content requirements for qualifying credit promotions.

A ban on unsolicited real time promotions (cold calling) except in limited circumstances.

Rules on the approval of promotions.

MCOB 4

Advising and selling standards

Yes

The initial disclosure document.

The scope of service provided.

Suitability of advice.

Rules for non-advised sales.

MCOB 5

Pre-application disclosure

Yes

Timing and content of the key facts illustration (KFI).

MCOB 6

Disclosure at the offer stage

No

Content of the offer document.

MCOB 7

Disclosure at start of contract and after sale

Partially

Information requirements for post-sale contract variations (such as further advances).

MCOB 8

Lifetime mortgages - advising and selling standards

Only if you sell lifetime mortgages

A tailored regime for advising on and selling lifetime mortgages.

MCOB 9

Lifetime mortgages - product disclosure

Only if you sell lifetime mortgages

Tailored product disclosure requirements for lifetime mortgages.

MCOB 10

Annual percentage rate

Yes if you calculate APRs.

How to calculate the APR.

MCOB 11

Responsible lending

No

Lenders must check the consumer's ability to repay.

MCOB 12

Charges

Partially

Charges must not be excessive.

MCOB 13

Arrears and repossessions

Generally no, unless you do any debt collection activity.

Rules on treatment of borrowers in arrears and facing repossession.

Example materials

MOGI 1.1.14G

MCOB contains rules about what the following materials should look like:

  1. (1)

    advertisements;

  2. (2)

    initial disclosure documents (IDD); and

  3. (3)

    key facts illustrations (KFI).

MOGI 1.1.15G

Annex 1 to MCOB 3 includes example adverts that comply with the rules. We provide blank templates in the relevant chapters that show what the IDD, the Combined Initial Disclosure Document (CIDD) and KFI should look like. There are also word templates of the IDD and CIDD on our website at  www.fsa.gov.uk/pubs/policy/ps186/examples_disclosure.pdf. We have published example IDDs and KFIs on our website at www.fsa.gov.uk/pubs/policy/ps186/examples_disclosure.pdf .

Business lending

MOGI 1.1.16G

Some business lending will come under the MCOB rules where the loan meets the definition of a regulated mortgage and is to a sole trader or partnership (but not loans made to limited companies). Because business lending processes can be different, certain chapters allow firms to tailor the process and documentation.

General requirements

MOGI 1.1.17G

There are several general rules that apply in MCOB (set out in MCOB 2) covering:

  1. (1)

    clear, fair and not misleading communication (MCOB 2.2);

  2. (2)

    unfair inducements (MCOB 2.3);

  3. (3)

    high pressure sales (MCOB 2.4);

  4. (4)

    when you can rely on information provided to you by another person (MCOB 2.5);

  5. (5)

    general requirements related to distance contracts (MCOB 2.7); and

  6. (6)

    general requirements on record keeping (MCOB 2.8).

Key facts logo

MOGI 1.1.18G

The key facts logo is a logo that we have developed following consumer research to highlight key information that consumers should read. The MCOB rules say that it must be used on the IDD, the combined initial disclosure document (CIDD) and the KFI. You will find a specimen of the logo on our website at: www.fsa.gov.uk/Pages/Library/Other_publications/Logos_and_Photos/Key facts_logo.shtml. We require the logo to be used on certain documents required by our rules in the insurance, investment and mortgage markets. Our rules also prevent firms using the key facts logo on other documents (MCOB 2.2.4 R and MCOB 3.6.9R(3)).

Changes to disclosure requirements when your firm carries on regulated mortgage activities for another authorised firm or an AR.

MOGI 1.1.19G

A waiver and modification by consent has been in force for firms - third party processors (TPPs) - who undertake regulated activities on behalf of another authorised firm. This waiver and modification affected MCOB 1.2.1 R, ICOB 1.2.1 R and GEN 4.3.1 R. This has now been replaced by permanent rule amendments, which came into force on 1 June 2005. See The Third Party Processors Instrument 2005 (2005/25)

The rule amendments allow a TPP (Firm A) undertaking regulated mortgage activities (or insurance mediation activities in relation to non-investment insurance contracts) on behalf of another authorised firm (Firm B) under an outsourcing contract, to disclose to customers that it is B where our rules would otherwise require A to disclose its real identity. The outsourcing agreement between the two firms must acknowledge that the firm outsourcing the activities (B) accepts responsibility for the activities carried on by the other firm (A) on its behalf. Changes have also been made to DISP and SUP as a result of the amendments made to MCOB and GEN.

MOGI 1.1.20G

The rules also cater for cases where an AR acts as TPP for its principal, or where an authorised firm acts as TPP for an AR. The amended rules also allow an authorised firm at the end of a 'chain' of outsourcing contracts (Firm C) to represent itself as the main firm (Firm B in the above example), providing Firm B accepts responsibility for the authorised firm (Firm C) when it carries on outsourced activities.