MCOB 1.2 General application: who? what?
- (1)
This sourcebook3 applies to every firm that:1
13- (a)
carries on a home finance activity3 (subject to 31the business loan application provisions3); or
3 - (b)
communicates or approves a financial promotion of qualifying credit, of a home purchase plan,6of a home reversion plan3or of a regulated sale and rent back agreement.6
36
- (a)
- (2)
Where a firm has outsourced activities to a third party processor, any rule in MCOB which requires the third party processor, when acting as such, to disclose its identity to a customer must be read as requiring disclosure of the identity of the firm (or appointed representative, as appropriate) which is taking responsibility for the acts and omissions of the third party processor when carrying on the outsourced activities.1
1
1Firms which outsource regulated activities are reminded of the guidance on outsourcing in SYSC 3.2.4 G and SYSC 84.
Firm types and the 3home finance 3activities
- (1)
This sourcebook applies to activities carried out in respect of four5 types of product: regulated mortgage contracts (which includes lifetime mortgages), home purchase plans, home reversion plans and regulated sale and rent back agreements.5 Together, these products are referred to as home finance transactions.3
55 - (2)
Lifetime mortgages and home reversion plans are together referred to as equity release transactions.3
- (3)
The application of most of this sourcebook is expressed by reference to four types of firm: lenders/providers, administrators, arrangers, and advisers. Arrangers and advisers are together referred to as intermediaries. This includes those firms that provide business loans to customers under a regulated mortgage contracts (see MCOB 1.2.3 R to MCOB 1.2.9 G). A single firm may fall into more than one of these types. PERG 4 contains detailed guidance on regulated mortgage activities and PERG 14 contains detailed guidance on home purchase activities,6reversion activities3and regulated sale and rent back activities.6
66
Business loans: application of MCOB
In relation to a regulated mortgage contract for a business purpose
- (1)
MCOB applies if the customer is not a large business customer; and
- (2)
if MCOB applies, a firm must either:
- (a)
comply with MCOB in full (disregarding the tailored provisions for regulated mortgage contracts for a business purpose in the remainder of MCOB); or
- (b)
comply with MCOB taking account of those tailored provisions, including MCOB 1.2.7 R.
- (a)
- (1)
In order for a loan to fall within the definition of a regulated mortgage contract, at least 40% of the total of the land to be given as security must be used as or in connection with a dwelling. Therefore, the variation in approach provided for in MCOB 1.2.3 R(2) can only apply where the loan being used for a business purpose is secured against a property at least 40 per cent of which is used as a dwelling. It cannot apply to a loan secured on property that is used solely for a business purpose.
- (2)
Whether a regulated mortgage contract is for a business purpose will be a matter of fact to be determined by a firm depending on the individual circumstances of each case. In the FCA's opinion, a regulated mortgage contract secured, for example, on the borrower's own home, but used to finance the purchase of a single buy-to-let property will not be for a business purpose.
In determining whether a customer is a large business customer for the purposes of MCOB 1.2.3 R(1), a firm will need to have regard to the figure given for the customer's annual turnover in the customer's annual report and accounts or business plan. In addition, a firm may rely on information provided by the customer about the annual turnover, unless, taking a common-sense view of this information, it has reason to doubt it.
Business loans: additional requirements if tailored route is used
In relation to a regulated mortgage contract for a business purpose, if a firm has opted for the tailored route, it must adopt the following modifications to the sourcebook:3
33- (1)
(except in relation to sections 6 and 8 of any initial disclosure document3 or sections 5 and 8 of any combined initial disclosure document3) substitute an alternative description of the facility provided under the regulated mortgage contract for 'mortgage' where that term is used in any disclosure;
33 - (2)
substitute the term 'illustration' for 'key facts illustration' when opting to use the tailored business loans rules in MCOB 4.9, MCOB 5.7, MCOB 6.7 or MCOB 7.7; and
- (3)
limit disclosure to facilities provided under the regulated mortgage contract.
- (1)
Firms are reminded of the requirement in MCOB 2.2.6 R that any communication should be clear, fair and not misleading when substituting an alternative for the term 'mortgage' in accordance with MCOB 1.2.7 R(1).
- (2)
Possible alternatives to the term 'mortgage' include, for example, 'secured business overdraft', 'secured loan' or 'secured business credit'.
The disclosure rules in MCOB place particular emphasis on the description of borrowing. Where the regulated mortgage contract is for a business purpose, a firm should reflect this emphasis in any disclosure by first describing any borrowing before addressing the other facilities provided under the regulated mortgage contract.
Home purchase plans3
For detail of the tailored provisions applying to home purchase plans, see the section on 'home purchase plans' set out in each relevant chapter.
Authorised professional firms
MCOB does not apply to an authorised professional firm with respect to its non-mainstream regulated activities except for:
Authorised professional firms should be aware of the following:
- (1)
PROF 5 (Non-mainstream regulated activities); and
- (2)
MCOB 3.1.9 R (Authorised professional firms) and the exception in article 55 of the Financial Promotion Order (Communications by members of the professions) which applies in relation to financial promotion of qualifying credit or of a home reversion plan3 of authorised professional firms under MCOB 3.2.5 R(3) (Exemptions).
3
Pre-contractual arrangements by a 3home finance provider3
In MCOB the activities of a home finance provider which would be arranging but for article 28A of the Regulated Activities Order (Arranging contracts or plans 3to which the arranger is a party), are to be treated as arranging and therefore also as home finance activities.3
3The effect of article 28A of the Regulated Activities Order would normally mean that arrangements made by a party to a home finance transaction3 would not fall within the home finance activity3 of arranging. So in a direct sale, a home finance provider3 would not be carrying on the regulated activity of arranging but, where the transaction proceeds to completion, would instead be involved in a regulated activity comprising entering into a home finance transaction3. However, the provisions in MCOB on arranging home finance transactions3 are applied to pre-contractual arrangements by a home finance provider3.
333333