An important issue relating to FCA Connect

I reported recently that firms were receiving emails from the FCA  to inform them that the had been set up as a new user of Connect to replace the ONA system.

What I didn't realise until Friday was that, according the the Firms Contact Centre (FCC), only those firms registered with ONA were getting these emails.  This does not necessarily create a problem for limited companies and partnerships where the owners of the company have Controlled Functions  and can therefore register online for Connect via the FCA  link here.

However, if you are a sole trader and have not registered for ONA previously, you will have a problem. You cannot register with Connect using the Controlled Functions route as you don't have any Controlled Functions and you cannot use the other option specified on the FCA Connect website because you won't have been provided with a Registration Key.

I spoke with the FCA on Friday and was told that the only way around this was to register with ONA first and then this would provide the migration route. I am about to test this out today with a firm and so I will be  able to report back on this hopefully tomorrow and will explain what you have to do to sort this.

I don't want to be responsible for unnecessary calls to the FCC, particularly as firms who have entered the window for CCL registration will need to use Connect to do so and so I recommend that if you are reading this and are a sole trader who has never registered for ONA ( or who has not had an email about Connect from the FCA) and are concerned, that you look out over the next couple of days for an update to my blog.

Mortgage Credit Directive - The Proposals for Disclosure (KFIs)

This blog looks at the KFI verses the ESIS and the proposed changes that may come in from 2016 until 2019 when the ESIS must be put in place by member states.  It also looks at some of the changes affecting lenders offers.

The Mortgage Credit Directive (MCD) requires firms to move to the European Single Information Sheet (ESIS) by 21st March 2019  where there is an equivalent national disclosure document in place. The KFI goes a long way to achieving this but additional disclosures will be  required covering :-

• information on the new seven day right of reflection period the MCD introduces

•  where applicable, extra information for foreign currency loans, including an illustration of the impact of a 20% change in the exchange rate and new rights introduced for foreign currency borrowers because of the MCD 

• information for consumers on the potential impact of interest rate changes, describing both the APRC and monthly payments should interest rates rise to the highest level seen in the past 20 years

I will not discuss these specific points in this particular blog although the last point will make some interesting discussion in relation  to affordability and the impact of potentially show stopping rates.

The FCA is proposing, in relation to the KFI, that these additional three bits of information can be provided at the same time as the KFI but on a separate document expressed in terms that are similar to the ESIS requirements from 21st March 2016 until 21st March 2019 for first charge mortgages. However, the same will not apply to second charges as there is no comparable disclosure in place and so the ESIS will apply to Second Charge loans from 2016 under the current proposals.

The ESIS is in prescribed form with little option other than to add certain additional information.

The FCA  is proposing to keep the current triggers (before an application is made) for the issue of the ESIS ( or its equivalent until 2019) even though the MCD requirement allows for disclosure at the time of offer at the latest.

On 21st March 2016 the  MCD implements a binding offer that is not conditional, supported by an ESIS. Under the MCD lenders will not be  able to issue a final offer that is conditional upon certain factors. This is a variation on UK lenders approaches. At this point in time I am unsure what that might mean for undertakings  and retentions or indeed self-build mortgages.

The FCA comments as follows:-

The MCD focus on there being a binding offer supported by an ESIS will mean firms need to review their approach to loans made available in stages (typical examples being self-build mortgages or mortgages with retentions). One possibility might be to make a binding offer for the full anticipated amount. The alternative would be to treat each tranche as replacing the previous loan, requiring a new ESIS each time. We have added guidance (see MCOB 6A 3.7G) to explain how a firm might approach the new requirement. 

Finally, for today's blog, there will be  a cooling off period introduced with effect from 2016 .  The MCD does not cover how the notice should be  given  but lenders will need to ensure that they can evidence this. There are two options available and the  FCA proposes the following:-

The binding offer is also the starting point for a new requirement for consumers to have time to reflect on the offer. This period has to be of at least seven days from the making of the binding offer and can either be a reflection period before entering the contract or a right of withdrawal after the contract. Member states have to choose one of these two options. We propose to require a compulsory pre-sale seven day period of reflection as this will be much less disruptive for property sales. In line with the directive, our draft rules also set out that the consumer can accept the offer at any point during this reflection period. 

Mortgage Credit Directive - Types of loans covered

This first blog on the Mortgage Credit Directive (MCD) is focused on setting out no more than the types of loans that are covered by it and those that are not.

Those loans that are excluded from it are as follows:-

• Lifetime Mortgages, believe it or not, are outside the scope of the MCD although they will of course continue to remain regulated by the FCA. One difference is that the MCD defines lifetime mortgages as any loan where interest is rolled up and no payment is made, regardless of the age of the borrower. The FCA will have to build this into its own rules. The MCD also puts beyond doubt  the fact that equity release loans requiring regular repayments of capital are not lifetime mortgages.

• Bridging loans are generally exempted from the MCD although the MCD apples a narrower definition of bridging that recognised in the FCA handbook. Some loans therefore that are currently classed as bridging loans under FCA perimeter guidance will fall under MCD from 21 March 2016.

• Credit union mortgages – an MCD exemption for credit unions allows the FCA to avoid imposing new requirements, but credit unions will still have to meet FCA existing rules. 

• Overdrafts lasting less than one month – while there are likely to be very few loans of  this kind it might be a useful exemption for some specialist lending, such as for secured overdrafts for high net worth consumers.

• Business lending is largely excluded from the MCD and the FCA  is making no proposals for change here.

Loans that will come into the MCD and therefore FCA regulation  include second and subsequent charge mortgages which the FCA already regulates under transitional arrangements following the transfer of responsibility for Consumer credit earlier this year.

Where products are excluded from the MCD, the FCA wants firms to be able adopt the MCD requirements voluntarily although it makes one exception to this.  Lifetime Mortgages must continue to follow the MCOB requirements for example in disclosure where the existing KFI must be  used rather than the ESIS (European Single Information Sheet) as they believe that the Lifetime KFI serves the customer better than the ESIS.

I note that Sharia mortgages and home reversion schemes ( the latter technically not a mortgage) do not appear to be  referred to in the FCA document and perhaps further clarification might be forthcoming.

FCA Connect

From today the FCA has a new online notification system. It is called Connect and it will replace the ONA system with effect from 1st October (today). If you have any notifications in the ONA system, I understand that you will have until 1st December 2014 to process them but you should check this with the FCA Firms Contact Centre.

Most notifications and applications will need to be  submitted to the FCA by this system although some will require paper submissions ( see below).

You will have to use Connect to submit the following applications and notifications to the FCA:

• Approved persons
• Appointed representatives
• Variation of permissions
• Cancellations
• Standing data

Some applications will continue to be submitted on paper, such as:

• Waivers
• Change in control

You should be receiving a notification that you have been set up as a new user shortly. I know that some firms have already received their email. 

If you are one of my paid up clients, please let me know when you receive the email and I will assist you in registering if you require it.

NOTE: Those of you who are due to apply for variation of permission for Consumer Credit will be  using this system to do so.