FCA Handbook - MCOB 2.3 Inducements: regulated mortgage contracts, home reversion plans and regulated sale and rent back agreements

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MCOB 2.3 Inducements: regulated mortgage contracts, home reversion plans and regulated sale and rent back agreements

Purpose

The purpose of MCOB 2.3 is to ensure, in accordance with Principles 1, 6, 8 and the Consumer Duty (as applicable), that a firm does not conduct business under arrangements that might give rise to a conflict with its duty to customers, to unfair treatment of them or to the delivery of outcomes that are not good for them.

Prohibition of inducements

A firm must take reasonable steps to ensure that it, and any person acting on its behalf, does not:

(1)
offer, give, solicit or accept an inducement; or
(2)
direct or refer any actual or potential business in relation to a regulated mortgage contract, home reversion plan or regulated sale and rent back agreement to another person on its own initiative or on the instructions of an associate;

if it is likely to conflict to a material extent with any duty that the firm owes to its customers in connection with such a home finance transaction or any duty which such a recipient firm owes to its customers in connection with such a home finance transaction.

An inducement is a benefit offered with a view to bringing about a particular course of action.

The purpose of MCOB 2.3.2 R(2) is to prevent the requirement in MCOB 2.3.2 R(1) being circumvented by an inducement being given or received by an unregulated associate. There may be circumstances, however, where a firm is able to demonstrate that it could not reasonably have knowledge of an associate giving or receiving an inducement. It should not, however, direct business to another person on the instruction of an associate if this is likely to conflict with the interests of its customers.

MCOB 2.3.2 R does not prevent a firm:

(1)
assisting a home finance intermediary so that the quality of the home finance intermediary's service to customers is enhanced; or
(2)
giving or receiving indirect benefits (such as gifts, hospitality and promotional competition prizes);

providing in either case this is not likely to give rise to a conflict with the duties that the recipient owes to the customer. In particular, such benefits should not be of a kind or value that is likely to impair the ability of a firm to act in compliance with any rule in MCOB, for example the suitability requirements in MCOB 4.7 (Advised sales).

(1)
A firm must not operate a system of giving or offering inducements to a mortgage intermediary, reversion intermediary, SRB intermediary or any other third party whereby the value of the inducement increases if the intermediary or third party, such as a packager, exceeds a target set for the amount of business referred (for example, a volume override).
(2)
A firm must not solicit or accept an inducement whereby the value of the inducement increases if the firm exceeds a target set for the amount of business referred.

Quantification of inducements

(1)
A mortgage lender, reversion provider or SRB agreement provider must quantify, in cash terms, any material inducement it offers to a mortgage intermediary, reversion intermediary, SRB intermediary or a third party.
(2)
In quantifying the value of the material inducement, the firm must include any subsequent payments (such as a trail fee) made where the customer continues with the samehome finance transaction.

(1)
Quantification of any material inducement offered by the mortgage lender or reversion provider supports the disclosure requirements elsewhere in MCOB. Further guidance on the disclosure of any inducement in cash terms is provided in MCOB 5.6.118 G for regulated mortgage contracts other than lifetime mortgages, MCOB 9.4.124 G for lifetime mortgages and MCOB 9.4.173 G for home reversion plans.
(1A)
Quantification of any material inducement offered by a SRB agreement provider in connection with the conclusion of a regulated sale and rent back agreement must be included in the disclosures made to the potential SRB agreement seller under MCOB 5.9.1R (1A)(c).
(2)
A payment made to a third party unconnected with thehome finance intermediary, where that payment only reflects the cost of outsourcing work relating to the processing of mortgage applications, would not be considered an inducement for these purposes.