Content Options:

Add to favourites

View Options:

More Resources:

External link Handbook Publications

You are viewing the version of the document as on 2024-01-26.

MCOB 4.8A Execution-only sales

Scope and application of this section

MCOB 4.8A.1GRP

1This 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. As explained in MCOB 4.7A.1 G, it does not prohibit the giving of pre-contract or preliminary information which does not amount to advice to the particular customer. 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.2GRP

Subject to certain limited exceptions, where the rules in MCOB 4.8A apply to a firm they restrict execution-only sales (which term is defined to include variations of existing contracts) to cases where:

  1. (1)

    there is no spoken or other interactive dialogue between the firm and the customer during the sale; or

  2. (2)

    if there is spoken or other interactive dialogue between the firm and the customer during the sale:

    1. (a)

      the customer is a high net worth mortgage customer; or

    2. (b)

      the customer is a professional customer; or

    3. (c)

      the loan is solely for a business purpose;

    and in each case the customer has positively elected to proceed with an execution-only sale and (in the case of a professional customer) identified the product he wishes to purchase; or

  3. (2A)

    if there is spoken or other interactive dialogue between the firm and the customer during the sale, the firm’s contribution to the dialogue is limited to:4

    1. (a)

      factual information about a regulated mortgage contract (provided that it is not personalised to the customer), the process of applying for one, or the processing of an application; the making of arrangements related to such matters;4

    2. (b)

      the provision of an European Standardised Information Sheet (ESIS) or an illustration; or4

    3. (c)

      an explanation of the information provided under MCOB 4.8A.14R(4) (that the firm has not assessed the suitability of the regulated mortgage contract); or4

  4. (3)

    the customer has rejected advice, identified the product he wishes to purchase and positively elected to proceed with an execution-only sale.

In each case certain requirements must be satisfied.

MCOB 4.8A.3GRP

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 wish4 to enter into, would not be engaging in interactive dialogue.4

The customer’s best interests

MCOB 4.8A.4GRP

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.

MCOB 4.8A.5RRP

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 4.8A.6GRP

Firms are not prohibited from entering into or arranging execution-only sales for regulated mortgage contracts for customers to whom they have provided product information (where otherwise permitted under this section), but MCOB 2.5A.1 R and MCOB 4.8A.5 R (The customer’s best interests) mean the information they provide should not steer the customer to elect to enter into an execution-only sale.

MCOB 4.8A.6AG

4Firms 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

MCOB 4.8A.7RRP

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

2
  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, except as described by MCOB 4.8A.7AR4; or2

  4. (4)

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

MCOB 4.8A.7AR

4The firm may carry on a spoken or other interactive dialogue with the customer, provided that the content of the firm’s contribution to the dialogue is limited to:

  1. (1)

    the provision of factual information to the customer about:

    1. (a)

      a regulated mortgage contract, provided that the information about the contract is not personalised to the customer; or

    2. (b)

      the process of applying for a regulated mortgage contract; or

    3. (c)

      the processing of an application for a regulated mortgage contract; or

  2. (2)

    the making of practical arrangements related to such matters; or

  3. (3)

    the provision of an illustration or an European Standardised Information Sheet (ESIS); or

  4. (4)

    an explanation of the information which the firm gives to the customer in accordance with MCOB 4.8A.14R(4).

MCOB 4.8A.7BG
  1. (1)

    4If the interaction with the customer constitutes or includes advice or a recommendation (see PERG 4.6), the sale cannot be an execution-only sale and the firm would need to comply with MCOB 4.7A (Advised sales).

  2. (2)

    MCOB 4.8A.7AR allows some interaction with a customer without the dialogue triggering the need for the firm to give advice in compliance with MCOB 4.7A.

  3. (3)

    MCOB 4.8A.7AR would, for example, permit a firm to provide generic information to a customer in response to a telephone query about the firm’s products, fees and charges, about processes and timescales, about how to complete an application, or about the progress of the application. But information about a regulated mortgage contract which is personalised to the customer is not permitted, for example giving an estimate of the monthly payment due in respect of the amount that the customer wishes to borrow under the product they wish to take: giving such information would mean the firm would need to comply with MCOB 4.7A. The firm may, however, issue an illustration or an European Standardised Information Sheet (ESIS) which contains information personalised to the customer without that action triggering the need for advice. The firm may also explain to the customer the information which the firm provides in accordance with MCOB 4.8A.14R(4) (in relation to the firm not assessing the suitability of the regulated mortgage contract).

  4. (4)

    Examples of spoken or other interactive dialogue which are or are not permitted under MCOB 4.8A.7AR include:

    Providing the customer with copies of product literature, or weblinks to such literature

    This would be permitted, if the provision is in response to a request from a customer who has identified the main features of the mortgage they want and is accompanied by an indication that the products described in the literature all have those features (see PERG 4.6.15G(6)).

    Listing the current fixed and variable rates on offer

    This would be permitted.

    Explaining the advantages and disadvantages of fixed rate and variable rate mortgages

    This would be permitted if done in purely generic terms, provided that the explanation does not itself constitute advice (see PERG 4.6.15G(2) and 4.6.16G) which would prevent the sale from proceeding as an execution-only sale.

    Where the explanation is couched in the terms of the customer’s circumstances, it is personalised to the customer. As such, the interaction is not of a sort permitted by MCOB 4.8A.7AR, the sale cannot be an execution-only sale and the firm would need to comply with MCOB 4.7A.

    Giving the customer an indication of the monthly cost of a regulated mortgage contract

    This would be permitted, if it were in the form of a generic example, including by way of comparison of two mortgages.

    But this would not be permitted if it were an indication personalised to the customer, for example where the indication is of the monthly cost in respect of the amount which the customer wishes to borrow over the term for which the customer wishes to borrow it; such an interaction will trigger the need for advice and the firm would need to comply with MCOB 4.7A.

    Talking the customer through a decision tree

    This would not be permitted. Although the question of whether decision trees constitute advice is discussed at PERG 4.6.15G, the act of talking the customer through such a decision-making process is likely to involve doing more than merely providing the customer with factual information; as that interaction is not of a sort permitted by MCOB 4.8A.7AR, the sale cannot be an execution-only sale and the firm would need to comply with MCOB 4.7A.

    Responding to a query about how to fill out an application form (for example: telling a customer what supporting documents are acceptable as proof of address or identity and how to supply them, or how to calculate and report their income or expenditure)

    This would be permitted, as it is information about the process of applying for a mortgage and the making of arrangements (how to supply supporting evidence) related to that process.

    Discussing the use of panel solicitors

    This would be permitted, provided such discussions are limited to factual information about, for example, whether or not a particular firm of solicitors is on the lender’s panel and what legal fees are or are not included in the mortgage offer.

    Taking credit card details by phone to cover payment of a required valuation

    This would be permitted, as it is about the making of practical arrangements related to the processing of an application for a regulated mortgage contract.

    Rescheduling a property valuation

    This would be permitted because the interaction is about the making of arrangements related to the processing of the application.

    Calling the customer to tell them that an application for a regulated mortgage contract needs to be submitted in the next two days if a new (higher) interest rate is not to apply

    This would be permitted, if it were in the form of a generic communication about the firm planning to change its product offering or interest rates in the near future, and indicating the deadline for applying for the current product.

    However, a communication about a particular regulated mortgage contract that the firm knows or reasonably suspects the customer may wish to apply for, and the product it will be replaced with or the rate that will apply if an application for such a product is received after a particular date, would not be permitted as this is information which is personalised to the customer.

MCOB 4.8A.8ERP

An attempt by the firm either to:

  1. (1)

    misdescribe the customer's purpose or characteristics; or

  2. (2)

    encourage the customer to tailor the amount he wishes to borrow;

    so that MCOB 4.8A.7 R does not apply may be relied on as tending to show contravention of MCOB 2.5A.1 R (The customer’s best interests).

Exceptions: high net worth mortgage customers, professional customers and loans solely for a business purpose

MCOB 4.8A.9RRP
  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.

Exception: rate switches and other variations

MCOB 4.8A.10RRP
  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;4

    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; and4

  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).

  3. (3)

    Where a customer informs their existing mortgage lender that they are considering redeeming their regulated mortgage contract by refinancing it with a regulated mortgage contract through another mortgage lender, MCOB 4.8A.7R(3) does not apply to the existing mortgage lender provided that: 4

    1. (a)

      the customer specifies to the existing mortgage lender at least the following information in relation to the replacement regulated mortgage contract:4

      1. (i)

        the rate of interest;4

      2. (ii)

        the interest rate type (that is, whether fixed, variable or some other type);4

      3. (iii)

        the length of the term required by the customer;4

      4. (iv)

        the sum the customer wishes to borrow; and4

      5. (v)

        whether the customer wants an interest-only mortgage or a repayment mortgage; and4

    2. (b)

      the existing mortgage lender presents to the customer, in a durable medium, those of its products for which the customer is eligible and which match the features the customer specifies.4

MCOB 4.8A.11GRP
  1. (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. (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. (3)

    [deleted]4

    3
  4. (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).4

  5. (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. 4

Exception: rejected advice

MCOB 4.8A.12RRP

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

MCOB 4.8A.13GRP
  1. (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. (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

MCOB 4.8A.14RRP

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, either4 clearly and prominently and in a durable medium or in an oral statement that is audio or video recorded4 (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)4:

    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, other than dialogue of a sort permitted by MCOB 4.8A.7AR,4 the firm must provide this information orally (even if it also provides it in a durable medium)4; 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, the customer4 has confirmed in writing to the firm, or has confirmed orally to the firm (and that confirmation is audio or video recorded), that they are4 aware of the consequences of losing the protections of the rules on assessing suitability and are4 making a positive election to proceed with an execution-only sale.4

MCOB 4.8A.15RRP

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.

MCOB 4.8A.16GRP

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.

MCOB 4.8A.16AG

4The 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).

Managing execution-only sales

MCOB 4.8A.17RRP

[deleted]4

Record keeping

MCOB 4.8A.18RRP
  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 provision of the information4 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)

    [deleted]4

Forbearance

MCOB 4.8A.19RRP

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.