Mortgage Credit Directive (MCD) for Intermediaries

This blog is the first of a number of blogs on the MCD. The purpose is to help you prepare fpor the implementation of the MCD from 21st March 2016.

The first thing to pint out is that you are perfectly at liberty to commence these activities at any time now  until 21st March 2016. There would be  some benefit in doing this a couple of months before because there are no transition arrangements in the MCD and so pipeline cases going through might be technically incomplete after 21st March 23016. That being said, there isn't really a lot for mortgage intermediaries to do.

In processing or  compliance terms , the MCD will not in any way be as onerous as the changes at MMR. 

Disclosure

There are some pre-contract (KFI stage) disclosures that will need to be addressed. The KFI will be  replaced by the ESIS (European Single Information Sheet) and this has to be  done no later than 21st March 2019. However, I get the impression that lenders are looking to deliver this sooner and we may actually get the ESIS from 21st March 2016 ( day-one as it were) if not even possibly sooner (it can be implemented from 21st September 2015). If they don’t have it in place for 21st March 2016, we will need to include some additional information with the KFI until replaced by the ESIS. This information is :

• the 7-day right of reflection;
• where the rate is variable, information on the  Annual Percentage Rate of Charge (APRC) and the borrowing rate (including warnings about the variability of these rates)
• where the mortgage is a foreign currency mortgage, additional information including an illustration of the impact of a 20% change in the exchange rate.

On the last point I think we are not going to see many foreign currency loans as there are serious exposures to lenders as a result of new consumer rights.

Lenders and the sourcing systems are going to have to address these issues before 21st March and so this is should be  a non-issue for intermediaries in the same way that we rely on KFIs at the moment to be  produced correctly by lenders and sourcing systems. This will be  the subject of a future blog in the next couple of weeks.

Adequate Explanations

The terminology used by the FCA in this is note particularly helpful. 

Firms will need to provide adequate explanation of the products and services provided. Just exactly how this is done is down to individual firm and circumstances. Firms will have to provide an adequate explanation of the proposed mortgage contract and any ancillary services, and the explanation must include the pre-contract information(KFI  / ESIS), the essential features of the product, and the potential impact on the consumer (including the consequence of default). This sounds a bit like a talk through the KFI or ESIS plus but I will expand on this in a future blog.

Remuneration

Sales personnel (including ARs etc) cannot be paid on the basis of sales targets from 21st March 2016 but few if any firms that I deal with still operate on this basis, as the writing has been on the wall for years.

Procuration Fee Disclosure

We already have proc. fees includedc in s13 of the KFI at the present time . From 21st March,  where firms receive proc. fees you must tell consumers that they have the right to ask for information on the commissions paid by different lenders, and ensure that you have access to relevant market data to allow them to respond to such a request. This will be more a pain than anything else and might mitigate in favour of using a Terms of Business Letter rather than a mortgage IDD to ensure that this is covered from 21st March. Again I will be  publishing proposals over the next couple of months.

Second Charges and Consumer BTLs

Second charge mortgages come under mortgage regulation from 21st March 2016. This means that the MCOB handbook applies to second charges from 21st March 2016. ESIS comes in at that date for second charges as there is no provision for a 3-year delay. 

The same applies to Consumer BTLs. You will need to apply for a Variartion of  Permission for CBTL before 20th March 2016. It is done through Connect and costs £100 application fee to FCA. It is very straightforward to do.

Regarding  second charges, I understand  from the FCA web site that the FCA will contact firms after Christmas and I suspect the same approach will be adopted. I.e. VOP through Connect.

Alternatives to Mortgages

Since MMR there has been an obligation for firms to ensure that the client has looked at the possibility of a further advance from an existing lender where additional borrowing is required. (Oh yes there has!) From 21st March 2016, this obligation will extend to looking at the possibility of second charges as well in the same circumstances ( i.e where further borrowing is required). I expect that this obligation will only apply if your firm has extended its permission to include second charges but we will need to see what the FCA says in the early new year (2016) about this before being clear.

That is pretty much it in terms of high level issues. There are a number of market issues to think about as well as some knock on effects for processing . For example do I use an IDD or a Terms of Businessbut I will cover these matters at a later date.

The Recent FCA Survey Email

A number of you have received emails from the FCA inviting you to complete a feedback survey for them. I haven't actually seen the content of these but I would make a couple of points about them.

Although the surveys apparently take about 20 minutes, I would argue that it would be  a good idea to complete. There are two reasons for this.

Firstly,presumably it is a chance to have a say about the FCA and make any points of annoyance etc if they give you the opportunity.

Questions that come to mind are:

1. Why am I paying an FSCS levy now for the failures in investment sales when I have never sold investment products?

2. Why is there a constant stream of Variations of permission required for existing regulated firms (with costs) when, with a little planning these could have been covered under one VOP application?

But perhaps I am being a bit unreasonable?

Secondly, you notice that this survey response is to the FCA and not to some outside organisation.  Given that under the FCA regime, contact with firms is more hands off, I would suggest that every possible contact with the FCA gives the opportunity to demonstrate that you have engaged with them.

You will recall this word from the round of visits from the FSA on TCF and the like. There is nothing that a regulator likes more than to see that the firms that it regulates engage with them. This is an example. After all, on your file at the FCA however it looks there will be a simple entry of some kind I imagine. It will say something like.

FCA survey October 2015. Response received or response not received.

Which looks netter to a regulator when assessing your risk to regulation?

Cookie Law

This is just a thought  on the rules and requirements for Cookies on web sites. It is not a usual area of compliance that I focus on but I think it is important enough for focus!

I have seen a number of web sites recently where there is no explicit request for confirmation by the user to assent to the use of cookies. This is now a key part of EU Data Protection and failure to comply does render a firm or an individual liable to enforcement and potentially a fine  from the Information Commissioner.

As an aside, if you monetise your website using  Google Adsense you are also at risk of being struck off by them for failure to comply. Compliance here is not an FCA matter directly but obviously if you are in breach of data protection requirements then this could be  of interest to them.

Basically what you need is a popup message when a person first accesses you website that explains a bit about cookies and how you use data. You should also refer them to a privacy policy which should be  somewhere on your site.If you do not have these, you need to take action now because you are in breach of legal requirements.

There are a number of free facilities available on the internet and I am happy to refer  you to these if you need them, if you let me know. I can also provide you with an example of a  privacy statement if you so wish. Obviously privacy statements can be  as varied as firms can be different.

This is an action to take now rather than later becasue the originbal legislation came in some time ago.

CBTL Registration

Further to my comments last week and the blog issued then, here is an update that I think sheds light on the process required for registration for authorised firms.

In order to register for Consumer Buy to Let selling, an authorised firm uses the Connect system.

Log in to Connect on the FCA page here. You will probably be asked to change your password if you haven't used the system yet.

You need to choose the Start New Application button and you will be presented with a  menu of choices with radio buttons. Select Consumer Buy to Let Registration and proceed to the next page.

You will be  presented with three forms to complete.

The first requires address details and provides you the opportunity to validate your standing details.

The second is the registration form which asks if you want to register for CBTL and then on a second page asks what  you are, (Select Acting as CBTL advisor unless you plan to do other things.)

The third form is a declaration.  As with the Consumer Credit Licence,you will need to confirm that you have printed off and signed the declaration, so don't forget to do so!

You are then ready to submit and once you get into that you will be  asked to pay £100 by card as part of the submission process.

Pay, submit, get confirmation that you are registered and the job is done.

The next blog will be an attempt to define CBTL in English with examples!

Consumer BTL and on and on,,,

The Nationwide notice today has prompted me to say a bit about Consumer BTL and what has to happen in firms if they think their is a risk that they may be  advising on them.

With effect from 21st March next year some BTLs, consumer BTLs will become regulated. The FCA has indicated that it requires firms to register if they wish to operate in  this market and have recently provided the following flow chart to assist :

The document is a bit small here but the link to it is on this page. However , to save time the following applies if you are already authorised for regulated mortgages.

If you already have Part IV permissions (and if you are a mortgage broker you will have) so if you think that you might need permission to sell CBTL mortgages then you will need to register this via a form on Connect ( and pay £100 at the time of application), That is more or less all you will have to do. This is the basis behind the Nationwide comment about registering for the right permission.

The question then comes down to whether you think you might sell CBTL mortgages. I think that it is highly likely that if you do BTLs at some point within the year you are going to be facing at least 1 CBTL, Besides, even if you think the applicant does not fall into the CBTL category it is going to be up to the lender to decide which path they choose and if you don't have the permission you could lose a case.

In a word, pay the £100 and register and then the matter is sorted for you whatever the FCA and the lenders throw at you. I haven't looked on Connect as I am not a user but I would imagine that the form is one there right now or will soon be. It was promised at the end of summer and I guess from the dismal rain we have had recently, that is about now.

In the next blog I'll explain a bit about what is and what is not CBTL as far as has been publicised recent;y.

Lifetime Mortgages and the Mortgage Credit Directive

I have received a number of questions recently about Lifetime mortgages and how they will fit into or be exempted from the Mortgage Credit Directive. This short blog is intended to provide a little advice on the matter.

Lifetime mortgages will generally be exempt from the MCD but because the FCA definition of a Lifetime mortgage is broader than the MCD definition, there may be circumstances where a Lifetime Mortgage (defined by the FCA) will fall under MCD rules. An example of such a product would be one where capital might be required to be repaid during the term of the mortgage. Such a product would fall under MCD rules and an ESIS (European Single Information Sheet) will have to be issued instead of an FCA tailored Lifetime KFI (as current). HOWEVER. even in such circumstances where the product is under MCD the FCA will insist that the additional safeguards ( qualification and enhanced advice) continue to apply ( over and above the MCD) . The FCA will also require additional disclosure over and above the ESIS to fulfil the UK regulatory requirements for all Lifetime Mortgages. This document would explain the risks associated with such mortgages as this is missing from the ESIS.

What does that all mean then?

1. Current Lifetime Mortgage Products which satisfy both the FCA and MCD definition of Lifetime will be exempt from MCD so that the usual Lifetime KFI can be issued etc. rather than the ESIS.

2. It is foreseeable that products may be designed in the future that will satisfy the definition of FCA Lifetime but fall outside that of the MCD. These products will be covered by the MCD and require an ESIS to be issued rather than a KFI. However, in such circumstances the FCA will expect firms to provide additional information to ensure that clients have received all the information set pout in the Lifetime KFI, albeit in the form of an ESIS and another document.

3. The FCA has decided not to bring its definition in line with MCD based on feedback by providers on the complexity of the UK products.

We have a good six months to go so no doubt it the mud will clear by then!

High End Property Prices Kept Up By Mortgage Fraud

At the weekend I heard a report on Radio 4 that the National Crime Agency (NCA) had reported that property prices on more expensive homes was being kept artificially high as a result of mortgage fraud involving overseas firms and individuals. Unfortunately since then  I haven't been able to find anything on the web to support this. However it does raise an important point in the mortgage brokers exposure to financial crime. Mortgage fraud covers the whole range of the mortgage market from impoverished-looking first time buyers through to the high net worth client.

For those firms who deal with high net worth clients ( and I don't mean high net with by MCOB definitions, I simply mean clients who are better heeled than most) there is an additional level of vigilance required.

Often the high net worth client can have a bewildering collection of  income sources and income types as well as a complex array of assets. Even if the facts as presented to you are genuine, you will need to pick your way carefully through them to identify what is good income that is acceptable to the lender and what is not acceptable. Even more reason therefore to be on the alert for potentially fraudulent income.

Another important factor to consider and guard against is the source of funds that are going into the purchase. Many high net worth mortgages will be lower loan to value and this means that large tranches of money will be  put down by the client. Where has it come from? The lender is certainly going to want to know  (and if they don't, they should). Even if they don't want to know, you should. If you process a fraudulent transaction you could be  prosecuted.

The issue doesn't only apply to  purchases. Re-mortgages, especially where there is capital raising could be  seen as an opportunity to get funds back out of the property. Such funds may have been invested there several years ago when their was less  focus on financial crime by brokers, lenders and regulators. Just recall for a moment the amount of checks you carried out against financial crime and source of funds back in say 2005?

What do you do if you spot or suspect something? If you do nothing else SAR it.

Mortgage Fraudster Loses Properties

In an attempt to widen the scope of items posted in this blog, I would like to draw your attention to the case of a mortgage broker operating in North London who was convicted of mortgage fraud. The reason for blogging this here is to offer a warning about introducers in particular but also to point out the kind of frauds that are taking place in the market.

This broker was accused and convicted of mortgage fraud. He helped several clients obtain mortgages  by providing false  employment details and the usual documents and he also created several different false identities  including bank accounts in order to acquire properties totalling about £4 million  in the North London area in his own right,

The article here provides the facts as published by the NCA, including the addresses of the properties seized by the authorities. There are a number of articles out there about it in the media.

What learning can we take from this?

There are two points really. Firstly, that there is fraud out there and it takes on many forms. If someone contacts your firm with a view to introduce business to you, you need to be  extra careful.  No longer is it just a case of getting an introducer agreement signed, you need to carry out significant due diligence on the individuals and firms involved. Obvious BUT NOT EXHAUSTIVE matters include whether they have ever  been FSA or FCA authorised and if so whether they have ever had any matters of disciplinary enforcement or have been struck off. Don't just take their word for it, check on the Financial Services Register. Are they really who they say they are? There is a focus on knowing your customer but it needs to be  translated to knowing where your business is coming from and who is involved in it along the way. Have they ever had or do they currently have any active any financial issues? Bankruptcy, IVA , Financial Servic es industry debts or  general credit issues tend to focus the mind and may give rise to opportunist views on business generation ( i.e. fraud). I have a standard form for due diligence on individuals  who want to be  introducers if you want to contact me.

The second point is to point out how committed fraudsters can be. This chap has a number of aliases including active bank accounts in the names of people who were not him. He must also have had fraudulent passports. There is big money in fraud and  this means that it is worth investing the time to make the fraud more plausible. Be vigilant!

Finally, if you suspect fraud, don't forget to SAR.

Addendum to CR008 (The previous Blog)

I have been asked whether a nil return can be  provided if you have already reported a domain name.

My reading of the rules says that this is not correct.

The requirement is as follows:-

CCR008 Credit broking websites 

For each domain name used or owned by the firm during the reporting period:

Thus you are required to report even if they remain the same as last time.

Current Consumer Credit Reporting

Many firms are getting an email from the FCA at the moment telling them that they have a new report to complete on GABRIEL. This is the quarterly report on domain names required under Consumer Credit Rules.

It is fairly straightforward. There are three boxes in the return,

Left: to record the domain name in the format  http://www.domainname.whatever
Middle: to record the date of acquisition of the domain name if it was during the period of the report
Right: to record the date of disposal of the domain name if it was during the period of the report

The period of the report is recorded a bit above the line of these boxes .

If you have more than one domain name you can add extra by clicking on the Add box and then you repeat for the rest.

If you have had the domain name for ages ( then all you will record isthe full domain name in the box on the left.

I have to confess my understanding was that you only had to report a domain name if you charged a fee but i have seen two firms notified where no fee is charged and there is no option to specify that no fee is charged.

What you should do :-


Safest option is to log into GABRIEL ( username and password NOT email address and password as this is not the CONNECT system) and check that you don't have  a return waiting. if you have  one, complete it before the deadline even if you don't charge a fee. The deadline for completion I believe is 11th August 2015 but don't take my word for that.

The fine system of £250 applies as far as I am aware for non completion.

Consumer BTL Mortgages Current Position

Under the Mortgage Credit Directive, firms wishing to lend, administer, intermediate, arrange or provide advisory services in relation to Consumer BTL from 21 March 2016 will need to be registered by the FCA to do so. The FCA will start accepting applications later this summer.  HOWEVER, if you are already authorised the following will apply.

Firstly, you cannot do nothing. If you take no actiomn then a limitation will be  placed on your permissions that will prevent you from doing Consumer BTL mortgages. The FCA states,

As set out in legislation and CP15/3, the streamlined application process will only be available to those firms holding Part 4A permissions or interim permissions for consumer credit, and where a previous CBTL registration has not been revoked. This streamlined online process will only require firms to confirm that they wish to register (whether as a lender, administrator, adviser or arranger) and pay the relevant fee. When we begin accepting registrations, firms holding Part 4A permissions will be able to follow this process using a standalone online form through Connect. 


For clarity, if you are an existing mortgage broker you will hold part 4 permissions and so the streamlined applictaion process will apply to you. You wil lbe  able to make this application later this summer (their words not mine) through the Connect system and yes, it looks like you will have to pay a fee.


Please note: this applies to consumer BTL mortgages and not to commercial. However, I suspect that it will be  difficult in certain circumstances to prove that a BTL is not a CBTL and so I don't think that firms have much option but to register.

The good news however is that advising on BTLs and CBTLs will be taken out of Credit Broking under Consumer Credit Act  from 21st March 2016 and thus commercial BTLs will remain unregulated.

Action required of you: Watch this Blog and look out for FCA emails about this towards the ends of summer. Start saving for the fee!

A Note about Co Operating with your regulator

In the regulation round up issued in June there is a section of co-operation with the regulator. The FCA makes the point that , in its own words from Principle 11

a firm must deal with its regulators in an open and co-operative way, and must disclose to the appropriate regulator anything relating to the firm of which the regulator would reasonably expect notice.

This means that it is incumbent upon a firm to notify the regulator of any matters arising in the firm that could cause concern. So firms should notify the FCA at  the earliest opportunity if they identify any potential or actual misconduct, significant risks, or anything that might affect their ability to comply with FCA rules and regulations.

This reminded me of a a compliance visit carried out on a firm a few months ago now where it came to light that a firm had been struck off a lender panel. The FCA view was that, notwithstanding the fact that the lender will have reported this already to the FCA, the firm should have also reported it.

That is some thing to consider if any firms out there have been struck off by a ledner and have  not yet advised the FCA. This is something that should be  done. in these cases, better late than never.

New Reporting Requirements Consumer Credit

A number of emails are arriving in inboxes at the moment headed up something like:-

Financial Conduct Authority Survey - CCR008 Requirement to provide web domain names

Of course you are wondering what this is all about. The request seems so odd that you might even wonder if it is a scam. Well it is not and most firms will probably have to take action. As a minimum please read the highlighted text as it explains what you have to do!

If you charge a fee for BTLs or any other aspect of Consumer Credit activity you need to report your domain names to the FCA every quarter . The first one must be done by 15/05/02105 (1st April 2015) and subsequent returns will be via GABRIEL each Quarter. The information required is:-

If you are doing this by email, post, fax or by hand 

firm name / FRN :
the domain name, ;
the date acquired  (if in the reporting period) and,
the date disposed of ( again if in the reporting period).

A suggested layout is:

Subject: Firm Name and FRN: CCR008 Requirement to provide web domain names

Domain name	Acquired in period	Disposed of in period
www.mortgagecomply.com	n/a	n/a
www.collectoroftales.co.uk	21/03/2105	n/a
www.dowecheethamandhow.com	n/a	15/02/2015

There is no indication of an address in the email so I suggest the published contact point of firm.queries@fca.org.uk. I have looked on Connect and cannot see any clear facility there to report it but perhaps there is somewhere!

If you are using the Survey Tool supplied in the email sent to you

the domain name, ;
the date acquired  (if in the reporting period) and,
the date disposed of ( again if in the reporting period).

I assume there are fines for non-compliance.

More Details about this

The Consumer Credit rules require firms to notify the FCA of their domain names every QUARTER where they charge a fee for Consumer Credit Activity. What the FCA are looking to do is to identify existing domain names used by firms, new domain names and domain names that have ceased to be  used. This is to assist them in effective monitoring of online activity given that a lot of consumer credit activity may be carried out online. It makes sense of course in the fast moving world of unsecured loans and the like but for the more sedate (!) world of mortgages it may seem a little overkill.

It probably is but unfortunately those are the rules and so you will have to submit these notifications every Quarter within 30 days of the quarter end.

Do you charge a fee?

If you are a mortgage broker ( and you probably won't be reading this if you are not) then you don't necessarily charge a see for discussing consumer credit details with your clients. HOWEVER, you may charge a fee for Buy To Let Mortgages. If you do, then you are charging a fee for CREDIT BROKING of these products and this means that the reporting requirement applies to you.You have  to act on this.

At the moment where applicable, firms are being asked to confirm these details by 15th May, being 30  working days after the quarter end date 31st March.

What is required?

The information requirements are not onerous in that for each domain name owned during that period, firms are required to report:

the domain name, ;
the date acquired  (if in the reporting period) and,
the date disposed of ( again if in the reporting period).

You are required to provide this information either by email, fax, post or by hand. You can also use a survey tool that they have set up for the purpose.

In terms of format, other than the survey tool which appears to be columnar , you are required to provide a row of information for each domain name used.

Below is an example:-

www.dcpltd.uk.com	n/a	n/a
www.collectoroftales.co.uk	21/03/2105	n/a
www.dowecheethamandhow.com	n/a	15/02/2015

In this example the first domain name had been around prior to the quarter ending 31st march 2015; the second was acquired during the period and the third was cancelled in the period.

The survey tool simply asks for how many domain names you want to report and then gives you a column with 3 text boxes for entering the details for each one in sequence.

What is a domain name?

This is more complex than it looks. In the example above, www.dcpltd.uk.com is the principal domain name purchased and www.collectoroftales.co.uk is also a purchased domain name that sits on the same server at the first. www.dowecheethamandhow.com is made up but the point about this one is that the firm ceased to own that domain name  on 15/02/2015  and not ceased to use it.

I have no idea if the FCa checks domain names to registers of domain names ( I don't see that as likely) but you have to be accurate in your reporting. If you stop using a domain name but still have  ownership of it, my interpretation at the present time is that you must report it.

The Survey Tool

The email that you may have received  is unique to you and so if you click on it it will record the details for your firm.

Next Steps

The FCA have indicated that they are going to add this requirement into GABRIEL in June and so from the next reporting period so you will have to report quarterly through that instead for the future.

Firms with interim permission still must still report using any of the methods above.

Fleet Mortgages

A number of my clients have  been receiving requests for Compliance Plans , Money Laundering Policy and IDDs from Fleet Mortgages where you are seeking to place business with them. Just to remind you that if you are using the MI system, then your IDDs and disclosure documents and mortgage procedures post MMR are available at HOME/LIBRARY/MORTGAGES.

Your AML Policy and Procedure which complies with the Joint Steering Committee on Money Laundering is available at HOME/LIBRARY/FRAUD. You will also notice when you are on that page that the HM Treasury Sanctions list is displayed from the Treasury web site ( and so is always up to date) and that you can access the National Crime Agency web site directly from the page - HOME/LIBRARY/FRAUD/NCA -  if you need to make a Suspicious Activity Report.

I  have escalated the update of the Business Plan and Compliance Plan on the MI System and this will be  in place before the end of the week., If you require  a bespoke plan prior to then , please contact me on david.c.payne1@btinternet.com