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.
