MMR Some Initial Thoughts

 

Initial Disclosure Requirements

 

Please Note that this document is by way of a Heads Up. It is not intended to be  a definitive interpretation of the new MCOB requirements in relation to Initial Dislosures for mortgage sales. That will follow after further consideration.

OVERVIEW

The FSA has stated that other than for DMD there is no requirement to issue a written disclosure document to the client.  They will update the CIDD for those firms that wish to use it and firms can also use their own documents subject to the points set out below. Despite this, and given that we live in an increasingly complaining world, it would make sense to minimise the risk of exposure to miss-selling by documenting such disclosure and issuing it as well as  speaking it in F-2-F or telephone situations.

HOWEVER, IN ALL CASES:-

Firms MUST provide the customer with a statement that sets out:-

1.      Whether there are any limitations in the range of products that it will offer to the customer and if so, what they are.

2.      The basis upon which the firm will be remunerated.

There are additional rules for home reversion plans and lifetime mortgages (MCOB 4.10.3BR and MCOB 8.3.2BR) but these are not covered in this article.

This includes any limitations on RMCs within relevant market (Rm). If more than one Rm then yuo must describe each.

Rms for MCs that are not lifetime are:-

1.      Those for business purposes.

2.      Those that are not for business purposes.

 

RANGE OF SERVICE

Must be expressed in clear, simple terms that accurately reflect the business the firm undertakes. Need to monitor the firm’s performance against this. Examples below are from the Policy Statement (MCOB 4.4A6 G)  but are not prescriptive.

A. If firm doesn’t offer Direct Deals, this is not a limitation but it must tell the customer that it won’t consider Direct Deals as a part of this disclosure.

B. Exclusive deals that firm doesn’t have access to do not impose a limitation. (No requirement to disclose this).

C. If only offer products from one part of a Rm ( e.g. just Bridging Loans) then cannot be  unlimited

Sample text 4.4A. 6 G

B. “We are not limited in the range of mortgages we will consider for you.”

Or

A. “We offer a comprehensive range of mortgages from across the market, but not deals that you can only obtain by going direct to a lender.”

C. “We only sell bridging finance products from [name of lender(s)]. We do not offer products from across the mortgage market.”

“We only offer mortgages from [number] lender[s]. We can provide you with list of these.”

“We only offer mortgages from [name of lender(s)]”

“We only offer some, but not all, of the mortgages from [number] lenders(). We can provide you with a list of these.

“We only offer some, but not all, of the mortgages from [name of lender(s)].”

NOTES: Care with how firm is described. You cannot claim to be an ‘ independent mortgage adviser’ unless its product range across the Rm is unlimited.

Different services for different product types (Investments, Mortgages, Insurance) means you cannot claim one overall service type but must disclose that it offers different service types for different products.

 

BASIS OF REMUNERATION

NOTE: It is not permitted to add any fees that you or the lender or any other party charges, to the loan amount unless the customer POSITIVELY agrees to this action.

MUST include:-

a)      Fees which the firm will charge to the customer

b)      When such fees will be payable and , if applicable, reimbursable or refundable.

c)      Whether firm receives commission from third party and if applicable any arrangements for offsetting this against fees charged.

Amounts must be expressed as cash sums where possible and the following rules apply if not:-

a)      If a percentage of a value (e.g. loan amount) and this not yet known then as a percentage and as a realistic cash example.

b)      If arrange of possible cash fees then a description of the fee and a  max and min in cash terms together with the factors that determine where in the range the fee will be.

c)      If a composite of a) and b) then as b) using max and min as percentage and cash examples as well as factors in b).

d)      If you have an hourly rate then state the rate in cash terms and set out what factors determine how many hours it takes to provide the service – if not known.

There is no specific requirement to provide written (durable medium) documentation in providing the above. However, it does provide evidence!

If initial contact includes spoken interaction, then MUST be provided orally.

If initial contact does not include spoken interaction, the messages must appear separate from other messages in the communication.

a)      If electronic, the customer MUST NOT be permitted to progress to the next stage unless the information has been communicated to the customer. This means a specific screen or forced popup or layer that the customer must access (and preferably tick assent) as a part of the process.  A link or button or download on its own is not acceptable.

b)      If postal, a clear covering letter setting out the messages.

c)      If email, SMS or other means, clear nd prominent display early on in the body of the message.

d)      If face to face and spoken telephone contact, compliance by building the messages into the initial oral discussion or script.

Belt and braces for d) is follow up letter or terms of business or IDD once FSA/FCA has updated it. Obviously document control over any a) through d) so that management can demonstrate that the messages have been approved. Copy on Compliance / Governance File.

WHEN TO DISCLOSE

In vast majority of case this will (must) be during the course of the initial contact. Sometimes may be a discussion before which RMC is identified. In this case this is only required once possibility of RMC is identified.

Subject to Distance Marketing Directive (DMD) rules no need to provide initial disclosures when a client initial contact is to book an appointment. In such cases can be done when first meets with a view to carrying out firm’s services. However, need to ensure in good time (MCOB 4.5.3G(1)).

Disclosure need not be given where:-

a)      Already provided (previous meeting) and firm has reason to believe still accurate and up to date – care with this, I suggest if older than 6 months or possible changes, then repeat.

b)      If firm that first made contact has provided and subsequent firm making contact does not expect to change basis of information. (Care with this, it is only going to apply in specific circumstances).

Lender has to provide this information in a direct sale but does not have to do so where sale is through an intermediary ( traditional route – don’t think this infers an intermediary assisting with a direct deal).

ADDITIONAL INFORMATION WHEN CONTACT BY TELEPHONE

If initial contact by phone:

MUST give name of firm and commercial purpose of call before proceeding further ( if initiated by or on behalf of firm)

DISTANCE MARKETING REQUIREMENTS

If DMD applies then the information above MUST be  given in durable medium i.e.

·        Whether there are any limitations in the range of products that it will offer to the customer and if so, what they are.

·        The basis upon which the firm will be remunerated.

 

AND

·        Whether giving advice or not

·        Name, main business and  geographical address of firm at which it is established and any other address relevant to doing business with it

·        Appropriate statutory status disclosure (GEN4.3), a statement that the firm is on the FSA/FCA Register and its FRN.

·        Total prive to be paid by consumer to firm for the financial service, including all fes,charges ,expenbses, taxes paid through the firm – if no exact price , the basis for calculation.

·        Arrangements for payment and performance

·        How to complain to the firm, whether complaints may subsequently be referred to the FOS and if so method of access (address etc).  Details of any other complaints schemes applicable ( probably none in most cases).

·        Whether compensation is available from FSCS or any other scheme if firm cannot meet its liabilities (doesn’t ask for address to be  given)

·        Any other contractual terms and conditions of the distance contract.

(Outstanding to review and outside the scope of this document is to look at MCOB 4.5 and MCOB 4.6 for further details and MCOB 1.3.5G and MCOB 1.3.6G also for guidance)

It is not entirely clear from the rules that the CIDD will satisfy all the DMD requirements and the assumption should be that it does not. This is therefore a separate document

NOTE: APPOINTED REPRESENTATIVES

If a firm restricts the service that its ARs offer, care must be  taken to ensure that the restrictions are accurately communicated to the customer in the ARs disclosure. Copy of approved master documents on Compliance / Governance File

RECORD KEEPING

You need to keep client specific documents on client file. If a generic document then copy approved document on Compliance / Governance File.  Each time the document is updated I suggest you keep the previous copy even though the FSA normally states 12 months.