Mortgage Credit Directive

The FCA recently released Policy Statement 15/9 ‘Implementing the Mortgage Credit Directive and the new regime for second charge mortgages’. This paper looks at the main points which second charge brokers need to focus their attention on as part of their preparation for authorisation and in order to meet the MCOB rulebook.

Training and Competence – Most businesses are aware that they will need to ensure that their Advisers gain a professional qualification and that they will have a two year extension (March 2019) to gain this, but they must also consider how they evidence that their staff meet the minimum levels of competence from March 2016. The minimum levels are:

– knowledge of MCD credit agreements and any ancillary services offered by the firm with them.
– knowledge of the laws relating to MCD credit agreements for consumers (in particular, consumer protection).
– knowledge and understanding of the property purchasing process.
– knowledge of security valuation.
– knowledge of the organisation and functioning of land registers.
– knowledge of the market.
– knowledge of business ethics standards.
– knowledge of the process of assessing a consumer’s creditworthiness.
– level of financial and economic competency.
Advising and Selling standards – The MCOB rulebooks have been updated to include the MCD requirements:

Disclosure- Customers must receive relevant disclosures from the outset, and before any intermediation activity has been carried out, these must include:

– Any fees payable and if refundable.
– Any commissions received and whether third parties receive commission payments.
– The exact amount of commission.
– Access to the market.
– Limitation of service (if limited to only first or second charge).
– Other disclosure should also be made at the outset, FOS, FSCS, Regulatory status, – complaints procedure.
– Alternative Finance Options- Secured second charge firms must make customers aware that there may be alternative options, such as a further advance or remortgage which may be more appropriate for their circumstances.

Adequate Explanation- A business must make available clear and comprehensible information about MCD regulated mortgage contracts. This must be on paper or another durable medium or in electronic format to help customers understand the items relating to the transaction. PS 15/9 provides more information on these requirements.

Suitability – The requirement is to provide and maintain a written statement for customer suitability. This must be provided in a durable medium.

Option to pay fees- Customers must be provided with the option to pay fees separate to the mortgage payment.

European Standardised Information Sheet (ESIS)- A firm must provide the customer with an ESIS for a MCD regulated mortgage contract before the consumer submits an application to a mortgage lender. The ESIS is a standard format and must be provided with all the relevant sections complete. PS 15/9 provides the requirements.

Approved Persons- A business must appoint a person performing a governing function to take responsibility for MCD credit intermediation activity. Meaning that an Approved Persons must be apportioned with MCD against their name of the Financial Services Register and that they are accountable for implementation of the MCD requirements in their business.

Remuneration – An MCD mortgage credit intermediary must not remunerate its members of staff or appointed representatives in a way that impedes the MCD mortgage credit intermediary from complying with the rules.

Professional Indemnity Insurance – Any firm which is advising on or arranging second charge regulated mortgage contracts is exempt from the requirement to hold PII. Any business that transacts MCD mortgage credit intermediation and regulated mortgage contract will fall under the requirements to have PII in place. See PS 15/9 for the relevant levels

Financial Services Compensation Scheme – The FSCS was not applicable under consumer credit legislation but will be under the MCD. This will be included in the annual fees payable by regulated firms and will require relevant customer disclosures at the outset.

Retail Mediation Activities Report – The RMAR regulatory reporting requirements for secured second charge intermediation will be for training & competence and profit & loss disclosures only.

Financial Promotions – New rules require that promotions must identify that the business is either a lender or a broker and a firm must make an adequate record of each non-real time financial promotion of qualifying credit, which it has confirmed as complying with the rules in chapter 3. The record must be retained for a year from the date at which the financial promotion was last communicated.

The Mortgage Credit Directive has broad implications for many regulated firms, this post is intended to assist second charge brokers understand the key changes that they will need to incorporate into their day to day activities.

If you require further information on the Mortgage Credit Directive please contact Gordon Docherty at Internal Control Ltd on 07597 386728. or visit the website www.internalcontrol.co.uk