This section sets out the conditions which must be satisfied for a firm to enter into or vary a regulated mortgage contract with a customer, or arrange such a transaction for a customer, without giving advice, or where the advice given by the firm has been rejected. If the interaction with the customer constitutes or includes advice or a recommendation (see PERG 4.6), then, unless the customer has rejected advice, the sale cannot be an execution-only sale, and the firm would need to comply with MCOB 4.7A (Advised sales). If a firm intends (where permitted under this section) to operate a business model under which it will not give advice to particular customers, it may wish to refer to PERG (particularly PERG 4.6) for guidance on the regulatory perimeter in relation to the regulated activities which constitute advising on home finance transactions.
MCOB 4.8A Execution-only sales
MCOB 4.8A Execution-only sales
Scope and application of this section
The customer’s best interests
Firms are reminded that MCOB 2.5A.1 R (The customer’s best interests) applies in all cases, including in relation to execution-only sales.
A firm must consider what procedures it is appropriate to establish to identify execution-onlycustomers for whom advice on suitability, or other customer support, may be necessary to avoid causing foreseeable harm in connection with entering into or varying a regulated mortgage contract.
A firm must not encourage a customer to opt out of receiving advice on regulated mortgage contracts from, or reject advice given by, it or any associate.
MCOB 2.5A.1R and MCOB 4.8A.5R (The customer’s best interests) mean that a firm should not steer the customer to elect to enter into an execution-only sale.
Firms will not be treated as having breached MCOB 2.5A.1R or MCOB 4.8A.5R merely because they market execution-only sales or apply different pricing to execution-only sales from that applied to advised sales, provided that they act in a manner consistent with their obligations under the regulatory system, including the requirements of this section.
Cases where execution-only sales are not permitted
A firm must not enter into or arrange an execution-only sale for a regulated mortgage contract if:
(1)
the customer is intending to use it to exercise a statutory “right to buy” the customer's home; or
(2)
the main purpose of the customer's entering into it is to raise funds for debt consolidation; or
(3)
[deleted]
(4)
the regulated mortgage contract is a shared equity credit agreement.
An attempt by the firm either to:
-
(1)
misdescribe the customer's purpose or characteristics; or
-
(2)
encourage the customer to tailor the amount he wishes to borrow;
- so that MCOB 4.8A.7R does not apply may be relied on as tending to show contravention of MCOB 2.5A.1R (The customer’s best interests).
Exception: high net worth mortgage customers
MCOB 4.8A.7R does not apply where the customer is a high net worth mortgage customer.
Exception: rate switches and other variations
(1)
MCOB 4.8A.7 R does not apply in the case of a variation of a regulated mortgage contract, provided that:
(a)
the variation would not involve the customer taking on additional borrowing beyond the amount currently outstanding under the existing regulated mortgage contract, other than to finance any product fee or arrangement fee for the proposed new or varied contract;
(b)
where the variation will (in whole or part) change from one interest rate to another, the firm has presented to the customer all products offered by it for which the customer is eligible; and
(2)
The reference to a variation in (1) (and in all other provisions which cross-refer to this rule) must be read as including any new regulated mortgage contract which would replace an existing regulated mortgage contract between the customer (or, where there are joint borrowers, at least one of them) and the firm (either as the original mortgage lender or as the transferee of the existing contract).
(3)
[deleted]
- (1)
The variation in MCOB 4.8A.10 R might involve: a transfer to a different property (“porting”); the addition or removal of a borrower for joint mortgages; an extension of the term; a change in payment method; or consent to let the property. This list is not exhaustive.
- (2)
Examples of rate changes in MCOB 4.8A.10R (1)(b) are: a transfer from a variable rate to a fixed rate; and a transfer from one fixed rate to another fixed rate.
- (3)
[deleted]
- (4)
Where a firm’s range of regulated mortgage contracts has changed, for example where a new regulated mortgage contract has been added since the firm presented its list of regulated mortgage contracts to the customer, the sale may proceed as an execution-only sale only if the firm re-presents the new list. For example, if the firm now offers a 3 year fixed deal where previously they only offered 2 year or 5 year fixed deals, the firm would need to re-present the new list. But where the firm no longer offers a particular regulated mortgage contract, the firm does not need to re-present the list for the purposes of MCOB 4.8A.10R(1).
- (5)
Firms are reminded of Principles 6 and 7: that is, that they must pay due regard to the best interests of their customers and treat them fairly; and that they must pay due regard to the information needs of their clients, and communicate information to them in a way which is clear, fair and not misleading. Where features of a product have changed in such a way that the product is in effect no longer recognisable as the same product, firms should re-present the new list of products. Similarly, firms should re-present the new list of products where there is any change to interest rates, fees or other charges which is likely to be material to the customer’s decision as to whether or how to vary a regulated mortgage contract.
Exception: rejected advice
MCOB 4.8A.7 R does not apply where the customer has rejected advice given by a firm and instead wishes to enter into a different regulated mortgage contract as an execution-only sale (see MCOB 4.8A.14 R).
Execution-only sales: guidance
- (1)
If a firm wishes to be able to apply the exception in MCOB 4.8A.9 R for a high net worth mortgage customer, it should first consider the provision in MCOB 1.2.9C R (Requirement for evidence before treating a loan as being solely for business purposes, or a customer as a high net worth mortgage customer or a professional customer).
- (2)
Where a firm's business model is such that it does not offer advice on regulated mortgage contracts to particular customers, it should ensure that it does not enter into or arrange regulated mortgage contracts for customers in breach of MCOB 4.8A.7 R. Such a firm may wish to use filtering questions which the customer is required to answer before he is able to proceed, in order to establish whether any of the exceptions to MCOB 4.8A.7 R apply.
Requirements for execution-only sales
A firm must not enter into or arrange an execution-only sale for a regulated mortgage contract unless, except as provided in MCOB 4.8A.15R:
(1)
for a new regulated mortgage contract not falling within MCOB 4.8A.10R, the customer has identified the regulated mortgage contract they wish to purchase, specifying to the firm at least the following information:
(a)
the name of the mortgage lender;
(b)
the rate of interest;
(c)
the interest rate type (that is, whether fixed, variable or some other type);
(d)
the price or value of the property on which the regulated mortgage contract would be secured (estimated where necessary);
(e)
the length of the term required by the customer;
(f)
the sum the customer wishes to borrow; and
(g)
whether the customer wants an interest-only mortgage or a repayment mortgage;
(2)
for a contract variation not falling within MCOB 4.8A.10R (but permitted by MCOB 4.8A.7R), the customer has specified at least the following information, where applicable to the variation they wish to enter into:
(a)
the price or value of the property;
(b)
the length of term required (or confirmation that this should remain unchanged); and
(c)
the amount the customer wishes to borrow;
(3)
for a contract variation falling within MCOB 4.8A.10R, the customer has specified the variation they wish to enter into;
(4)
the customer has been informed, either clearly and prominently and in a durable medium or in an oral statement that is audio or video recorded (after providing the information in (1), (2), or (3), where that is required), and with the information required by this paragraph being separate from any other information or contractual documentation):
(a)
in any case falling within MCOB 4.7A.24R (Rejected advice) where the firm has advised the customer that the regulated mortgage contract (or variation) is unsuitable for the customer, that that is the case; or
(b)
in any other case, that in the provision of its services for the execution-only sale the firm is not required to assess the suitability of that regulated mortgage contract (or variation);
- and in either case that the customer will not benefit from the protection of the rules (in MCOB 4.7A) on assessing suitability. In any case where there is spoken dialogue between the firm and the customer at any point during the sale, the firm must provide this information orally (even if it also provides it in a durable medium); and
(5)
once the customer has been provided with the information in (4), in any case where there is spoken or other interactive dialogue between the firm and the customer at any point during the sale, the customer has confirmed in writing to the firm, or has confirmed orally to the firm (and that confirmation is audio or video recorded), that they are aware of the consequences of losing the protections of the rules on assessing suitability and are making a positive election to proceed with an execution-only sale.
The requirements in MCOB 4.8A.14R (1) to (3) do not apply if the customer is a high net worth mortgage customer or entering into the regulated mortgage contract solely for a business purpose.
Where the information in MCOB 4.8A.14R (4) is given by electronic means, the firm should ensure that the customer cannot progress to the next stage of the sale unless the information has been communicated to the customer.
The confirmation required by MCOB 4.8A.14R(5) need not be in the same document or recording as the information required by MCOB 4.8A.14R(4).
Interactive dialogue includes SMS, mobile instant messaging, email and communication via social media sites; this list is not exhaustive. Where a sale is carried out entirely on the internet, a firm merely permitting the customer to input details about the matters specified in MCOB 4.8A.14R(1), (2) or (3) in order to select from the firm's product range the regulated mortgage contract they wish to purchase, or the variation they wish to enter into, would not be engaging in interactive dialogue.
Record keeping
- (1)
Whenever a firm enters into or arranges an execution-only sale for a regulated mortgage contract, it must make and maintain a record of:
- (a)
the information provided by the customer which satisfies MCOB 4.8A.14R (1), (2) or (3);
- (b)
the provision of the information in MCOB 4.8A.14R (4);
- (c)
(where applicable) the confirmation by the customer in MCOB 4.8A.14R (5); and
- (d)
any advice from the firm which the customer rejected, including the reasons why it was rejected, before deciding to enter into an execution-only sale.
- (a)
- (2)
The record in (1) must be retained for a minimum of three years from the date on which the regulated mortgage contract was entered into or arranged (or the variation was entered into or arranged).
- (3)
[deleted]
Forbearance
MCOB 4.8A does not apply to any variation which is made solely for the purposes of forbearance where the customer has a payment shortfall, or in order to avoid a payment shortfall.