MCOB 4.8A Execution-only sales

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.

A firm must not enter into or arrange an execution-only sale for a regulated mortgage contract2 if:

1. (1)

   the customer is intending to use it to exercise a statutory “right to buy” the customer's home; or

2. (2)

   the main purpose of the customer's entering into it is to raise funds for debt consolidation; or

3. (3)

   there is spoken or other interactive dialogue between the firm and the customer at any point during the sale; or2

4. (4)

   the regulated mortgage contract is a shared equity credit agreement.2

1. (1)

   MCOB 4.8A.7 R does not apply where the customer is a high net worth mortgage customer.

2. (2)

   MCOB 4.8A.7R (3) does not apply where the customer is a professional customer or the loan is solely for a business purpose.

1. (1)

   MCOB 4.8A.7 R does not apply in the case of a variation of a regulated mortgage contract, provided that:

   1. (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; and

   2. (b)

      where the variation will (in whole or part) change from one interest rate to another, the firm has presented to the customer, using only a non-interactive channel, all products offered by it for which the customer is eligible, whether or not the customer then selects from those products using an interactive channel.

2. (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).

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).

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.15 R:

1. (1)

   for a new regulated mortgage contract not falling within MCOB 4.8A.10 R, the customer has identified the regulated mortgage contract he wishes to purchase, specifying to the firm at least the following information:

   1. (a)

      the name of the mortgage lender;

   2. (b)

      the rate of interest;

   3. (c)

      the interest rate type (that is, whether fixed, variable or some other type);

   4. (d)

      the price or value of the property on which the regulated mortgage contract would be secured (estimated where necessary);

   5. (e)

      the length of the term required by the customer;

   6. (f)

      the sum the customer wishes to borrow; and

   7. (g)

      whether the customer wants an interest-only mortgage or a repayment mortgage;

2. (2)

   for a contract variation not falling within MCOB 4.8A.10 R (but permitted by MCOB 4.8A.7 R), the customer has specified at least the following information, where applicable to the variation he wishes to enter into:

   1. (a)

      the price or value of the property;

   2. (b)

      the length of term required (or confirmation that this should remain unchanged); and

   3. (c)

      the amount the customer wishes to borrow;

3. (3)

   for a contract variation falling within MCOB 4.8A.10 R, the customer has specified the variation he wishes to enter into;

4. (4)

   the customer has been informed, clearly and prominently and in a durable medium (after providing the information in (1), (2), or (3), where that is required):

   1. (a)

      in any case falling within MCOB 4.7A.24 R (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

   2. (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 also provide this information orally; and

5. (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, he has confirmed, in writing, to the firm that he is aware of the consequences of losing the protections of the rules on assessing suitability and is making a positive election to proceed with an execution-only sale. The written confirmation must be in the same document as the information in durable medium in (4), which must be separate from any other information or contractual documentation.

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.

A firm which intends to transact execution-only sales in regulated mortgage contracts must have in place and operate in accordance with a clearly defined policy which:

1. (1)

   sets out the amount of business the firm reasonably expects to transact by way of execution-only sales and the steps to be taken by the firm if that business exceeds the expected levels; and

2. (2)

   sets out its processes and procedures for ensuring compliance with the rules in MCOB 4.8A; in particular:

   1. (a)

      how it will ensure in every case that, before proceeding with an execution-only sale it has obtained (where required) a voluntary and informed positive election from the customer in order to comply with MCOB 4.8A.14R (5);

   2. (b)

      how it will ensure in every case that it acts in compliance with MCOB 2.5A.1 R and MCOB 4.8A.5 R (The customer’s best interests), including not encouraging a customer to enter into a regulated mortgage contract (or variation) as an execution-only sale; and

   3. (c)

      how it will identify whether a customer meets the definition of high net worth mortgage customer or professional customer, if it will offer execution-only sales to those customers; and

3. (3)

   includes the arrangements for monitoring and auditing compliance with the policy, processes and procedures.

1. (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:

   1. (a)

      the information provided by the customer which satisfies MCOB 4.8A.14R (1), (2) or (3);

   2. (b)

      the information in durable medium in MCOB 4.8A.14R (4);

   3. (c)

      (where applicable) the confirmation by the customer in MCOB 4.8A.14R (5); and

   4. (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.

2. (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. (3)

   A firm must keep an adequate and up-to-date record of the policy in MCOB 4.8A.17 R, where such policy is required by that rule. When the policy is changed, a record of the previous policy must be retained for one year from the date of change.

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.