Firstly, and I say this because I have noticed that a few people seem a little unsure, MMR has no bearing on the insurance(ICOBS) ( or for that matter, investment) rules. For insurances you are still required to issue an IDD or a suitably worded terms (ICOBS guidance on this) of business letter. You will already recall that oral disclosure was introduced some while ago when ICOB was revised and updated as ICOBS.
Secondly, it is worth pointing out that non-advised sales are extinct from tonight. The only options for mortgage sales are on an advised basis or on an execution-only basis and all staff selling mortgage products must be appropriately qualified or under supervision. In so far as execution only sales are concerned, the FCA have made it quite clear that they expect these to be the exception rather than the rule so any firms out there with only execution-only business models will need to think again (and before tomorrow).
Affordability of the mortgage by the borrowers passes , de jure, from intermediary to lender at midnight tonight although , de facto, this has pretty much been the case since the downturn. However, do not underestimate the convolutions that some lenders may go to in order to satisfy the requirements now that they have to sign off on this point. If you have not planned for increased processing times for mortgage applications then a) you obviously haven't transacted any business over the past three months and b) you had better plan for it now.
Of course, whilst responsibility for affordability passes to lenders under MCOB, there are a couple of obvious and niggling points to consider. Firstly there is Principle 6 and TCF. If you recommend a mortgage ( or even if you allow a client to choose their own mortgage) and they cannot afford it, it is a pretty fair point that you have not treated them fairly and you will be in trouble. Then of course there is simple negligence law. You have a duty of care in your dealing with your client and notwithstanding the fact of MCOB rules, you would be in breach of that duty if a client, placing reliance upon you (even in the simple fact of processing it on an execution-only basis ) could not afford their mortgage then invariably they would suffer loss ( in arrears charges if not actually the loss of their home) and you could be held liable for negligence. There are of course possible implications under the Mortgage Credit Directive when it comes in in 2016 but I don't think I'll go there today.
There is a risk that a blog on this subject could run on for ever and so I will for the sake of brevity, suggest what you should have in place for tomorrow so that hopefully you can check these off.
1. Have you got the disclosure script prepared? You know, the one that says what access to market you have ( unlimited , all but not direct to lenders, panel and so on) and explains how you are remunerated ( i.e your fees and the fact that you get paid commission by the lender). Is it documented and does everyone involved already trained in it?
2. Have you changed your CIDD to reflect the new requirements or do you have a terms of business letter to issue. Two points here:
- You don't have to issue a mortgage IDD anymore or any other such document for mortgages
- if you don't issue one, how will you satisfy Distance Marketing Requirements (DMD) if they apply to your firm and how will you make your clients aware of their right regarding complaints, the Ombudsman and the FSCS - this last point is not a requirement of MCOB but is surely part of TCF.
I confess that I have not managed to find a definitive copy of a new CIDD on the FCA site although I recall that a new version was promised after 25th April. In fact the one that I have found on their site still has the Services word in it.(If you know better about an update, please let me know because I feel a little frustrated over it)
3. Have you prepared your texts for inclusion where you issue product specific documentation to clients prior to the issue of a KFI, as you will now be entitled to do? I have suggested to my own clients that one catch all position is to include it in your footer of all your emails.
4. Have you taken action to ensure that you record a positive election by the client to add fees to the loan? To me this can only be a specific letter or declaration signed by each client and setting out the costs and implications of such action and their reason for the election. I personally do not believe that the FCA intended this to be included in the general series of questions in a fact find. Don't forget that you have to keep a record of this for a minimum of three years.
5. Of yes, don't forget that by definition minimum record keeping for mortgages is three years and not 12 months (for those of you hitherto doing non advised sales only).
6.Are you recording the appropriateness of your recommendation to the client under the categories set out by the FCA in their roadshows - they issued a single sheet document setting the questions for you at the roadshows) AND have you added to that the importance of assessing the possibility of a further advance(FA) and the reason for non-take up of said FA. This is a key record. If you use suitability letters either of your own or from software, make sure that as a minimum, these 9 or 10 points are covered.
(DON'T KNOW WHAT THEY ARE? Talk to me.)
7. For those of you who plan to offer direct to lender mortgages as well and where you can't issue a KFI, have you got a structure for a reasons why letter ( because for these cases -where no KFI is issued) such a document is mandatory!
8.If you really plan to do Execution only mortgages, have you got all the documentation in place and do you have a documented policy on execution only that includes KPIs on the level of business expected - I suggest over 2 standard deviations below the norm.
9. Have you updated your mortgage procedures? And don't forget to keep updated standard documents for a minimum of 12 months.
10. Have you trained your staff and is this recorded somewhere in their T&C file?
11. What about your advertising. Have you checked that to make sure that you have not got any obsolete statements about levels of service or scope of products ( not to mention any vestigial Financial Services Authority or FSA statements - I've seen a few recently - if in doubt have a look at the small print - you know the stuff at the bottom of the screen that only compliance consultants and the FCA will look at!)
OK that's enough I think for this blog ... one of my wordier but it is important. Please note that it is not meant to be all inclusive and it is only a blog. You need to check these things out against the FCA requirements to ensure that you are complying.
As always you are always welcome to contact me via the blog but on this occasion, given that tomorrow is the day, I should warn you that I will be off the internet from around midday today until about 17.00 tomorrow.
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