FSCS Interim Levy

Some firms may have already received notification from the FSCS of an interim levy that is payable. Letters and emails were sent out  from 18th March this year as a part of a process to collect an additional levy for general insurance of £16 million.

There does not appear to be  a huge amount of information available on the web. The FSCS have a page buried deep in their web site that gives FAQs about the levy  here, and the FSA have a Q and A page about it also here.

What does it mean for firms?

As far as I can make out, it means that firms who fall within the General Insurance activity for the FSCS - which appears to be all those firms who fall into the FSA GI category (A19 fee component) will be  expected to fund the levy. The actual amount payable is based on the eligible turnover in the insurance category and I believe  that it is calculated as £17 per £10,000 of eligible business. THERE APPEARS TO BE A CUT-OFF OF £50 PAYABLE BELOW WHICH THE FSCS ARE NOT INVOICING FIRMS.

[EDIT - I am not entirely sure that there is a £50 cut off for the insurance levy so watch out. I know of at least four firms who have had invoices for less than £30 that relate specifically to the insurance interim levy.]

By my calculations (but my only source of  data on this  is a Mortgage Solutions article) this means that if you have earned more than £29k in eligible income, you are likely to be  billed, or more precisely, if your levy contribution is calculated at under £50, you may not be invoiced. [EDIT - Caution here, see my Edit note above]

However, there is a further issue. If you don't pay the invoice within 30 days you will be  charged a further £250 fine ( plus interest I believe).  This fee will be  administered by the FSA (FCA) and so as well as damaging your pocket, it is also at risk of damaging your ratings with the FCA. A good introduction to your new regulator!

What you need to do.

Have a look at the links I have provided above and see if you are eligible ( based on the levy calculation against eligible income) . If you are and if you have  not yet received either an email ( check spam folders!!) or a letter then I would suggest that you contact the FSCS and find out exactly if you are up for the levy and if so, how much.

If you are up for it then you need to pay it before 30 days are out ( from the date of invoice I presume) otherwise you may find yourselves with a  £250 fine to pay  as well.

Mortgage Fraud Checkpoint

The following may be a statement of the blindingly obvious, but I am going to make it anyway.

Even though the regulatory responsibility for checking affordability  transfers to the lenders from 26th April next year  there still remains the matter of fiduciary responsibility and fraud. This means that mortgage brokers cannot getaway from the issue.

Of course, the lenders will continue to rely upon intermediaries to provide income data to them as well.

With this in mind we should give a bit of thought to client payslips, now there is an interesting one in terms of fraud. Most of those presented to firms look pretty genuine on the face of it but how can you gather some additional comfort.

There are obvious ones:

• Maths errors in the documents; spelling errors or discrepancies with the names of individuals, the firm and so on. The latter point - spelling-  doesn't automatically make it a fraudulent payslip - after all genuine firms make genuine mistakes in typing sometimes . However, most mathematical errors should be  treated with extreme caution!
• Variation in the look and feel of the consecutive payslips - yes the employer may have changed the layout/ supplier but nonetheless such changes put you on alert for possible fraud.
• Incorrect format of payslip - missing information - either in the pre printed text or in the calculations

There are equally obvious ones that require checking elsewhere to discover:-

• Tax computation errors. You can check this by using HMRC's Tax calculator
• Company names that don't exist. You can check Companies House. Don't forget - and I know that it is a statement of the obvious - but Company names must be unique and if the company isn't listed then it doesn't exist.
• Non-company ( sole traders and partnerships) that don't exist. Every trade or trader these days is likely to have a presence on the internet. If it doesn't Google, then maybe soemthing is wrong.
• Addresses or otehr details that differ from those provided by the client

Some checks can give a greater sense of comfort but don't prove that a payslip is genuine. The most  obvious is that of income-fed bank statements. Yes if the amount and the date etc  matches the bank statement provided, then there is a greater likelihood that the thing is genuine but there are also a great many fraudsters who can produce matching payslips and bank statements - it is not rocket science.

Please don't take these comments as the definitive approach to verifying payslips becasue it is not. These are merely pointers to  some levels of checking. They are not intended to be  comprehensive or foolproof. Even if you carry out all the checks you can think of, the fraudster may still get past you. After all the clever ones will have covered many of the options. However, the less smart ones won't have. AND, and it is a big AND, if you have carried out these kinds of checks you have something to argue with both the lender, when they advise you that you have been removed from their panel ( ok don't get your hopes up becasue frankly its usually immovable) or the FSA/ FCA when they ask you to explain how you mitigate the risk of your firm being used for financial fraud.

Regardless of 26th April 2014, you still have  a responsibility ( to yourself as well as others) to satisfy yourself that the client has provided bona fide documentation to you.

Mortgages and Europe

A little something for the medium range scanners...

There have been mutterings about European Mortgage Legislation for more years than some of us can remember. Certainly there was talk about it back in the days of the Mortgage Code and when  the UK Governement was still thrashing out who would take responsibility for the regulation of mortgages in the UK. Even when the FSA put forward its final Mortgage Conduct of Business rules in 2004 it paid attention to what was then and still is termed the European Single Information Sheet (ESIS). This is why the KFI can be issued with or without the amortisation table at the end of it. The amortisation table was an ESIS requirement.

However, that is not to say that such legislation has gone away becasue it has not.  Now that we have  got the MRR coming in on 26th April 2014, we can also consider the Mortgage Credit Directive (MCD) which is currently, at least as far as it can be gathered, being thrashed out under the auspices of the Irish EU Presidency. It is expected that, if it is going to happen in any realistic timeframe, an agreement on what EU Mortgage legislation should be achieved  by the end of May this year. Normally that would give the member states two years to implement and so we could see possible changes to Mortgage Regulation rules in a little over two years. That would be  mid 201.

So what possible issues are in MCD that could affect the UK mortgage market?

The first one that comes to my mind is that of Buy To Let mortgages. Initially, European concerns about irresponsible lending gavce rise to a focus of the MCD on all sectors of the market and its various niches. More recently in discussions it would appear that the focus may have shifted to more mainstream products and this could possibly exclude BTLs. However, unless something has already been decided this is still on the table and we could see the fact of BTls being brought into regulation and thus under the FCA remit. Much of the industry and possibly even the government is against this but I guess the FCA will not have a problem with it. In favour of it not happening, there is the traditional issue of definition. If BTLs are brought into regulation then unless there is a particularly clever formula proposed, it will also bring in all other commercial loans across a range of business uses. That surely is not going to happen.

The second issue involves the Standard Variable Rate and its use. Arguments put forward within the MCD could, if accepted result in a level of restriction on product design and development that would limit the flexibility of the market to innovate. Now whether this is seen as a good thing or a bad thing - in the light of experience over the past 10 years - the promise of legislation to limit the innovations of entrepreneur has never been a selling point in general elections. Even the FSA shied away from a more intrusive approach to product design and innovation in their review of responsible lending under MMR.

Other areas where the MCD can and will probably exert influence are as follows:

• pre-contractual disclosure of information by lenders and mortgage intermediaries – to be done at several stages, from advertising through to the proposal of a credit agreement
• giving 'adequate explanations' to the consumer;
• assessment of the consumer’s creditworthiness and the suitability of products;
• advised sales standards and the range of products that must feature in the consideration of such advice;
• authorisation and supervision of credit intermediaries, coupled with provisions on professional requirements and ‘passporting’.

However, all these  points are very familiar and don't seem to be a great distance from where we are now and will be  by the time MMR takes effect. Whether the last point will place any extra influence on individual registration remains to be  seen.

Buy to Let Fact Find Supplement

THIS IS  THE PROPOSED FINAL DOCUMENT FOLLOWING DISCUSSION  

PLEASE READ THE BLOG TITLE BUY TO LET RISKS, PUBLISHED PREVIOUSLY , BEFORE LOOKING AT THIS

Supplementary Questions For BTL Properties

The following questions are for consideration when taking applications for BTL mortgages. These are intended to minimise the risk of the firm being used for fraudulent or misleading applications by clients.

NOTE: In addition to getting the client to sign this document, one thought is to send a copy on to the lender with the application form. The lender doesn't ask for such a document and may indeed not use it but, if you send it, you have advised the lender of the extent of your research and have demonstrated a certain level of due diligence. Of course there is a risk associated with this in that the lender might claim that it placed reasonable reliance upon the information.. And of course they may then uncover issues that might imply duplicity... and so the matter goes on. This thought, only occured to me as I wrote the introductory Blog to the subject, and it requires a lot more careful consideration before anyone even thinks about implementing it!!

PROPOSED QUESTIONS....

1.	Neither I/We nor any of my/our immediate family will be living in the property whilst it is in mortgage to the lender.
2.	The proposed mortgage is to be arranged on the basis that the property will be let out to tenants on a commercial basis with an approximate monthly rental income of £.......................
3.	IF A PURCHASE I/We have no prior ownership, interest or charge on the property that I  am/ we are proposing for mortgage
4.	IF A REMORTGAGE I/We  own the property and have an existing mortgage on the property which I/we am looking to replace.
5.	The purchase price of £................................ is the exact amount that I am/ we are paying  the vendor for the property and I/we have no arrangements  in place to pay a different sum to the vendor or, if appropriate, the builder nor any discounts or other incentives.
6.	FOR SINGLE OCCUPANCY BTL The property is to be let to a single tenant or family group of a size commensurate with the property’s limitations of occupancy.
7.	FOR HMOs The property is to be let to multiple tenants or family or other groups (for example students or professional persons), not exceeding ..................... and that this number is commensurate with the property’s limitations of occupancy.
8.	I/We do not have now and have never had any relationship or any other association with the vendor other than a business relationship as a purchaser. (This includes  for example, such matters as directorships of companies or any relationship as a business partner as well as vendor/purchaser/supplier relationships in respect of any goods or services either now or in the past)

SIGNED............................................................................................DATE.........................

TO BE SIGNED BY ALL APPLICANTS

IF ANY OF THESE STATEMENTS RAISE QUESTIONS THEN DETAILS MUST BE OBTAINED FROM THE CLIENT AND SET OUT BELOW AND THOSE DETAILS MUST BE SIGNED FOR AND DATED BY THEM AT THE END OF THE STATEMENT. These details should include names and addresses for possible contact and/or verification. It is suggested that one issue is recorded on a page and signed for and that where there are multiple issues, there are multiple copies of this second page, all of which must be signed and dated by all the applicants.

The client’s by signing below confirm that the statements given by them  above are accurate and true to the best of their knowledge and belief and that by signing at the foot of this page, they authorise the firm to contact the other party in order to verify these matters.

SIGNED...........................................................................................................

DATED.........................................

Buy to Let Risks

SOME OF THE RISKS ASSOCIATED WITH BUY-TO-LET MORTGAGES

On the face of it and up to now, BTLs have appeared to offer two things to mortgage brokers.

a) a good income stream in the absence of a viable first-time buyer market ( and for some of the time in the absence of any form of viable residential market).

b) a relatively compliance free sales process ( at least free from the potential constaints and possible burdens of FSA compliance)

HOWEVER, things have  been changing over the past couple of years.

It probably began in a quiet manner  several years ago, when Professional Indemnity insurers put various clauses into their proposal forms requiring firms to undertake non-regulated business on the same basis ( or whatever specific words were used) as regulated. Obviously that DIDN'T mean issuing an IDD on BTLs  - though I have seen cases where firms have done this - but it did mean exercising the same duty of care and diligence as that applied to regulated cases.

Then the phrase 'manipulation of schemes' appeared a few years ago. It was just about enough time after the market crash for mortgage fraudsters to work out the next opportunity to get mortgages by covert means. This particular issue crystalised further once the FSA had 'outlawed' self-certification of mortgages.

Of course, the standard basic level frauds of identity theft , not to mention the more complex ones involving fraudulent charges and non-existent properties have always been with us and, in all fairness, will continue to be so.

More recently, I have seen potential fraud - or at least activity to the lender that appears to be so - popping up in a number of different guises.

It doesn't really matter, in one sense, if certain actions by your clients are not actually fraudulent and are done for very good ( and legitimate) reasons. Whta does matter is what the ledner thinks about you and your firm if they find a case that , on the face of it, doesn't appear to stack up.

In order to avoid the dreaded letter for the lender - you know or can imagine the kind of thing - that basically says they don't like your business and don't want to deal with you anymore ( and by the way the FSA have also been advised), we are going to have to be more cautious about this hitherto more casual market niche.

So, what can we do?

Well one thing that we can do is to start to ask the right questions of our BTL customers. A number of cases of problem, if not necessarily fraud, that I have seen recently would have been resolved if a number of questions had been asked of the client. Admittedly,  the client could quite happily lie about the answers and that always leaves an exposure, but at least the questions would have been asked and at least the client's falsehood is documented ( and preferably signed for).

In order to take this a step further, the suggestion is to include a questionnaire for BTLs that attempts to trap any of the possible or likely risks. Such a questionnaire is set out on the following Blog. I hgave already issued it to my own clients and other associates for theri feedback and comment and I am looking to introduyce a revised version to my clients in the next week. In the meantime, any feedback would be  most welcome.

Prudential & Conduct Classifications

IMPORTANT CHANGES TO THE WAY THAT YOU WILL BE SUPERVISED

A SECOND Heads Up for Clients by David Payne, Mortgagecoply.com ltd

You may have had, or will be receiving in the near future, a letter from the FSA relating to what are termed new Prudential and new Conduct Classifications for firms that will be introduced for firms one the FCA is in place. You should have received such a letter or email by the end of March. If you have  not received such a letter by early April ( the FSA instructs) you should contact the Firms Contact Centre and advise them that you have  not received your new Prudential and Conduct Classification letter.  The  Firms’ Contact Centre telephone number is unchanged as 0845 606 9966.

Most of you should have been given a Prudential Classification of P3 and a Conduct Classification of C4 and this compliance note is aimed at those classifications. If you have received a different classification then please let me know and I will advise you on what it means for your firm.

Prudential Classification

The Prudential classification sets out how much of a risk your firm is as far as the FCA is concerned. Their approach is to focus on the impact of failure (in the firm) on consumers and the market and firms have been rated on their likely impact. A small broker firm dealing with less than a few hundred customers is going to have less impact on  both customer base and the market if , for example, it goes into liquidation or if it deliberately and persistently miss-sells a product than for example, the Northern Rock or any other lenders failing their capital adequacy ( as happened with Northern Rock for example ) or lending irresponsibly  on high income multiples without evidence of income to disadvantaged customers such e.g. RTB or adverse ( as happened pretty much across the market a few years back). We have all felt the repercussions of The Rock’s failure but who has heard about the failure of John Smith Mortgage Broker in Anytown , Somewhereshire other than friends and family and maybe some of his customers? The Rock will be a P1 – highest category of risk (probably along with most other lenders) and John Smith, if he were still trading would be a P3. (P4 is for firms that require specialist approach for example firms in insolvency or administration or firms with ‘special supervisory regimes’. These are unlikely to be any of those of you reading this document.

It is likely that the main input to this means of review for P3 firms will be the RMAR through GABRIEL, or any future returns as amended – we already know that they will be modified by 26^th April 2014 to reflect the MMR. Didn’t know that already? Watch out for future compliance updates.

The FSA states that the FCA will rely upon firms own assessment of their prudential position ( through the returns for example) and will look for inconsistency or issues arising from these ( e.g. inadequate capital resource). This sounds very much like what happens already but I am sure that it will be  ramped up a bit more. There will also be  cross-sector reviews carried out from time to time where firms will be ‘invited’ to participate (e.g. a cross-firm review of capital and liquidity.)

Conduct Classification

The Conduct classification sets out how the FCA is going to transact with you under their role as your supervisor. It is based on information that the FSA already has about your firms conduct & performance in contacts, visits, thematics , surveys and workshops to date together with RMAR and any other intelligence acquired and the number of retail customers that your firm has . (How do they know that? The lender provides data on brokers and customers on a case by case , customer by customer, basis of course.)

C1 and C2 firms will have  a dedicated supervisor – an individual at the FCA with a team (this level of supervision is referred to as a Fixed portfolio) and will be subject to review that  cycles over 1 (C1) or 2 (C2) years, respectively. I would not expect any of you to be in this category but if for any reason you have been placed in these, please let me know as a matter of urgency.

C3 firms, which should be the majority of small firms, will be subject to a 4 year cycle and will have no dedicated supervisor (this is referred to as a Flexible portfolio). The FSA have stated that they will be looking at the firm’s business model ( how it operates) and will be looking more  at firms that stand out from the crowd (‘are outliers compared to their peers’) , presumably in how they operate or in the type of markets they serve or products and provide. An obvious example under the new regime would be firms with a higher than normal level of Execution Only cases. The  cycle of review will be  on a 4-year basis but interim reviews will occur if the firm pops up on the radar, as it were.

C4 firms, and this should be  the majority of you reading this document, will also be  based on a 4-year cycle. There will be no dedicated supervisor and supervision will be  carried out by a team of sector specialists . Contact will be based on a ‘touch point’ at some time in the 4-year cycle. This may be by any of the means available to them including workshops/ roadshows, telephone interview, questionnaires & online interaction or a combination of both. Your first experience of this is the MMR Engagement programmes. If you didn’t go to the workshop / roadshow for example... Visits are not mentioned but you should not rule these out.  It will be  a lighter form of assessment than for C3 but make no mistake, there is nothing ‘light’ about your communication and interaction with your regulator. The FCA will be looking to see how firms deal with and mitigate the risks posed to their business. Firm’s that raise issues ( demonstrate sufficient risk to the FCA’s objectives) will be  subject to further intervention and of course , ultimately, enforcement let’s not forget!

Next steps

Firms are going to be moved onto the new framework on a phased basis from May to December 2013. The FCA are unclear about C4 firms but this certainly applies to C1-C3. I would imagine that although C4 is by default all the rest , and  would assume that you could move across from day 1, it is more likely that you will also have a phased move across to coincide with the scheduling of  the FCA review cycles. We will have to wait on this but I suggest that from 1^st April, as far as the FCA is concerned, you are what you have been allocated and you should act and plan accordingly.

The Future of Regulation & You

 

THE FUTURE OF REGULATION AND YOU

A Heads Up for Clients by David Payne, Mortgagecoply.com ltd

You may have seen from the somewhat limited coverage in the trade press that there is quite a bit going on in the world of regulation at the moment and planned over the course of the next year or so. The purpose of this document is to provide you with a Heads Up on it so that you can start to prepare.

The main issues that we need to be thinking about right now are:-

1.      Legal cutover – the term used by the FSA to explain the hand over of responsibility by the FSA to the Financial Conduct Authority when it comes into being on 1st April this year.

2.      The Mortgage Market Review(MMR) and the planned changes that are to take place with effect from 26^th April 2014. This may be next year but action is expected of you as regulated firms, right now.

3.      Your Consumer Credit License. The FSA take on responsibility for the Consumer Credit Licensing from 1^st April 2014. This means that there are changes that affect your firm directly and, even if the CCL is for 5 years or not and even if you have paid a so called  lifetime fee when you renewed your license last time, you will have to do something about the changes.

Finally by way of an advance heads up, activity in European Legislation may well have an impact on  regulated loans in the UK and one particular impact that may arise is that Buy to Let mortgages could come within the remit of the Financial Conduct Authority as it will be  from 1^st April. It is unlikely that this will occur before 2016 but there is a distinct and not necessarily remote probability that it will occur.

Legal Cutover

Although this has a direct bearing on who your regulator is and therefore the manner and impact of involvement with your firm, it is difficult to determine the extent of this at this point in time. We have already heard that the FCA intends to get involved with firms on a regular basis, albeit most likely on a remote (internet or telephone basis) and that it intends to work on thematic reviews. However, until they commence activity we cannot prepare for that. However, one immediate impact that we must be aware of is that with effect from the 1^st April next month, firms will be AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY and their letterheads, stationery and web pages , adverts etc, will have to make this statement. In point of fact we have a six month transitional window that allows firms until 30^th September 2013 to make sure that all their regulatory statements (referred to by me and others as GEN 4.3 statements as this is the source in the FSA Handbook)

So your first action is to change the word services to conduct in your regulatory statements as soon as possible from 1^st April 2013 and no later than 30^th  September 2013.

You should not that your Firm Reference Number or FRN will remain the same but if you call it your FSA Number then you will need to change this as well. It is not prescriptive so you could call it FCA number if you wanted (but not keep it as FSA Number) but my recommendation is that you call it what it is. Firm Reference Number or FRN.

So,  typical regulatory statements should read something along the lines of:

 “Full  Registered Firm Name is authorised and regulated by the Financial Conduct Authority. FRN 345678”

Or

“Full  Registered Firm Name is authorised and regulated by the Financial Conduct Authority for mortgage and non-investment insurance business. FRN 345678”

Or, if you have a trading name,

“Trading Name is a trading style of Full Registered Firm Name. Full Registered Firm Name  is authorised and regulated by the Financial Conduct Authority. FRN 345678”

Or,

“Trading Name is a trading style of Full Registered Firm Name. Full Registered Firm Name is authorised and regulated by the Financial Conduct Authority for mortgage and non-investment insurance business. FRN 345678”

 

The Mortgage Market Review

In January this year the FSA held a number of road shows to explain the MMR and its impact on firms. They did not necessarily make it clear to all at the time of the invite, that this was an important workshop and that it would form a part of their MMR Engagement Programme.

Many of you have been on the workshop and so have heard the details. You will therefore know that the next stage in the process will be some form of questionnaire that you will be given about how your firm is preparing for MMR. This questionnaire, which may be online or by telephone - I am not certain at the moment – will occur, according to the FSA in Quarter 2 this year. The FCA will then publish the results and run a second workshop in Quarter 3 this year – I think they refer to it as “Further firm MMR engagement and tailored workshops”. I think that this will be remedial work and I am sure that this is not necessarily a good thing for firms as it may mean that they are not doing what the FSA ( FCA) want. . In Quarter 1 2014, the FCA will reissue the Readiness Tracking Questionnaire and publish the results of that a few weeks later. MMR goes live 26^th April 2014.

Have  no doubt in all this that where firms cannot demonstrate satisfactory progress towards preparation, the FCA will exercise their authority, possibly with enforcements or variation of permission.

So, if you did attend the workshops, you should start to think about how MMR will affect you and wait for me to issue a proposed Preparation Plan which I hope to get out to subscribing clients later this week, or early next. If you didn’t attend the workshop, let me know on david.c.payne1@btinternet.com of through LinkedIn if you are on there, and I will send you a copy of the details that I have. Or even post to this blog if needs be...

 

Consumer Credit License

The FCA will become responsible for the authorisation and regulation of firms who undertake activity that falls within the Consumer Credit Act from 1^st April 2014. This means that if you wish to deal in consumer credit loans or second charges or indeed if you want to be  able to advise clients on whether to repay consumer credit regulated loans (which most of you do in some form or another) then you will need to apply for ‘Interim Authorisation’ for this  if you want ot be able to carry on these activities after 31^st March 2014. We don’t yet have full details yet but the document issued last week by the FSA referred to as ‘Autumn’ as the time when applications can be made and that there will be  a fee to pay ( as yet unspecified). I’ll make no comment about the fee aspect but I will point out that it doesn’t matter at the moment whether your license has 5 years to run or 12 months, you will still have to apply for authorisation. For existing firms I presume that the change will be by way of an extension to your existing permissions. Once approved, you will be able to continue with CCA activities from1^st April 2014. From 1^st April 2014 to 2016 an interim regime will operate. I think this broadly means that the same basic rules will apply as currently (allowing for FSA conduct o business and principles. I have not yet read in full the 6^th March issued document). From 2016 a new regime will be in place, no doubt we will hear more in the months and  years to come.

You have to take action on this one, too.

So, in autumn this year you will need to apply for interim permission to undertake Consumer Credit activities and pay a fee. I will build this into the MMR Preparation Plan and issue as set out above.

 

More documents to follow from me over the next few weeks, including:-

·        The FINANCIAL CONDUCT AUTHORITY – ADDITIONAL POWERS

·        MMR PREPARATION PLAN & GAP ANALYSIS

·        WHAT DOES THE MMR REALLY MEAN FOR MY FIRM?

·        THE CONSUMER CREDIT REGIME CHANGE

 

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.