Related provisions for PERG 4.4.6

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MCOB 6.7.1RRP
(1) Where the regulated mortgage contract is for a business purpose, a firm may choose to provide a customer with a business offer document instead of the offer document referred to in MCOB 6.4.1 R.(2) If a firm provides a customer with a business offer document in accordance with (1), it must ensure that:(a) an updated business illustration, as required by MCOB 5.7 (Pre-application disclosure for business loans), forms part of the business offer document; and(b) subject to the
MCOB 6.7.1AGRP
1 Firms are reminded that in accordance with MCOB 1.2.3 R, they should either comply in full with MCOB or comply with all tailored provisions in MCOB that relate to business loans. Therefore, a firm may only follow the tailored provisions in MCOB 6.7 if it also follows all other tailored provisions in MCOB.
MCOB 7.5.1RRP
Subject to MCOB 7.5.2 R, a firm must provide the customer with a statement at least once a year (or, in relation to the first statement, within the first 13 months)2:(1) covering the regulated mortgage contract and any tied product purchased through the firm; and(2) giving information about the existence of any linked borrowing or linked deposits, or any other products purchased through the firm where the payments for those products are combined with the payments on the regulated
MCOB 7.5.3RRP
The statement required by MCOB 7.5.1 R must contain the following:(1) except in the case of mortgage credit cards, information on the type of regulated mortgage contract, including:(a) a clear statement of whether the regulated mortgage contract is an interest-only mortgage, or repayment mortgage, or a combination of both; and(b) a prominent reminder, where all of the regulated mortgage contract is an interest-only mortgage, that:(i) the customer's payments to the firm do not
MCOB 7.5.6GRP
Whether a firm is likely to provide the information set out in MCOB 7.5.3 R(2) more frequently than once a year will depend on the nature of the regulated mortgage contract. In determining how frequently to provide that information, a firm should take into account the need to keep the customer informed of any changes in the amount they owe, the customer's expectations and, where appropriate, the duration of the loan. For example, for a mortgage credit card the information might
DISP App 1.3.5GRP
21If the "new" mortgage is, in fact, arranged at a lower interest rate than the existing loan, the benefit to the complainant should usually be disregarded, as it is always open to complainants to change their underlying mortgage arrangements at any time.
DISP App 1.3.6GRP
12If the "new" mortgage is arranged at a higher interest rate than the existing loan, the increased payment should not normally be taken into account in calculating any payment to be made to the complainant.
DISP App 1.3.7GRP
12If the complainant takes the opportunity to increase his loan on the occasion of the remortgage, the expenses which a firm pays by way of compensation should be paid by reference to the capital sum due under the "old" loan.
DISP App 1.4.10GRP
12If a loan extending into retirement was on any basis not affordable, whether or not it is reconstructed to the retirement date, firms will need to consider whether, if proper advice had been given, the loan would have been taken out at all and, if not, consider what arrangements might now need to be made in order to reduce the amount of the complainant's borrowings.
DISP App 1.4.14GRP

12Example 8

Example 8

Term extends beyond retirement age and policy reconstruction

Background

45 year old male non-smoker, having taken out a £50,000 loan in 1998 for a term of 25 years. Unsuitable sale identified on the grounds of affordability and complaint raised on 12th policy anniversary.

It has always been the intention of the complainant to retire at State retirement age 65.

Term from date of sale to retirement is 20 years and the maturity date of the mortgage is 5 years after retirement.

Established facts

Established premium paid by investor on policy of original term (25 years):

£81.20

Premium that would have been payable on policy with term from sale to retirement (20 years):

£111.20

Actual policy value at time complaint assessed:

£12,500

Value of an equivalent 20-year policy at time complaint assessed:

£21,300

Difference in policy values at time complaint assessed:

£8,800

Difference in outgoings (20 year policy - 25 year policy):

£4,320

Basis of compensation

The policy is reconstructed as if it had been set up originally on a term to mature at retirement age, in this example, a term of 20 years. The difference in the current value of the policy actually sold to the complainant and the current value of the reconstructed policy, as if the premium on the reconstructed policy had been paid from outset, is calculated. The complainant has gained from lower outgoings (lower premiums) of the actual endowment policy to date. In calculating the redress, the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain.

Redress generally if it is not unreasonable to take account of the whole of the gain from lower outgoings

Loss from current value of reconstructed policy less current value of actual policy:

(£8,800)

Gain from total lower outgoings under actual policy:

£4,320

Net loss:

(£4,480)

Therefore total redress is:

£4,480

Redress if it is unreasonable to take account of gain from lower outgoings

Loss from current value of reconstructed policy less current value of actual policy:

(£8,800)

Gain from total lower outgoings under actual policy:

Ignored

Therefore total redress is:

£8,800

Additional Information

If the policy is capable of reconstruction, the complainant must now fund the higher premiums himself for the remainder of the term of the shortened policy until maturity. In this example the higher premium could be £111.20. However the firm should provide the complainant with a reprojection letter based on the reconstructed policy such that the actual monthly payment required to achieve the target sum could be even higher, say £130. The reprojection letter should set out the range of options facing the complainant to deal with the projected shortfall, if any.

DISP App 1.4.15GRP

12Example 9

Example 9

Term extends beyond retirement age: example of failure to explain investment risks

Background

45 year old male non-smoker, having taken out a £50,000 loan in 1998 for a term of 25 years. Unsuitable sale identified on the grounds of affordability and complaint raised on 12th anniversary.

It has always been the intention of the complainant to retire at state retirement age 65.

Term from date of sale to retirement is 20 years and the maturity date of the mortgage is five years after retirement.

In addition, an endowment does not meet the complainant's attitude to investment risk and a repayment mortgage would have been taken out if properly advised.

Established facts

Surrender value (on the 25 year policy) at time complaint assessed:

£12,500

Capital repaid under repayment mortgage of term to retirement date (20 years):

£21,000

Surrender value less capital repaid:

(£8.500)

Difference in outgoings (repayment - endowment):

£5,400

Cost of converting from endowment mortgage to repayment mortgage:

£200

Basis of compensation:

The surrender value of the (25 year term) endowment policy is compared to the capital that would have been repaid to date under a repayment mortgage arranged to repay the loan at retirement age, in this example, a repayment mortgage for a term of 20 years. The complainant has gained from lower outgoings of the endowment mortgage to date. In calculating the redress, the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain. The conversion costs are also taken into account in calculating the redress.

Redress generally

Loss from surrender value less capital repaid:

(£8,500)

Gain from total lower outgoings under endowment mortgage:

£5,400

Cost of converting to a repayment mortgage:

(£200)

Net loss:

(£3,300)

Therefore total redress is:

£3,300

Redress if it is unreasonable to take account of gain from lower outgoings

Loss from surrender value less capital repaid:

(£8,500)

Gain from total lower outgoings under endowment mortgage:

Ignored

Cost of converting to a repayment mortgage:

(£8,700)

Therefore total redress is:

£8,700
COLL 5.5.4RRP
(1) The ICVC or trustee (on the instructions of the manager) may, in accordance with this rule and COLL 5.5.5 R (Borrowing limits), borrow money for the use of the authorised fund on terms that the borrowing is to be repayable out of the scheme property.(2) Paragraph (1) is subject to the obligation of the authorised fund to comply with any restriction in the instrument constituting the scheme.(3) The ICVC or trustee may borrow under (1) only from an eligible institution or an
COLL 5.5.5RRP
(1) The authorised fund manager must ensure that the authorised fund's borrowing does not, on any day, exceed 10% of the value of the scheme property.(2) This rule does not apply to "back to back" borrowing under COLL 5.3.5 R (2)(Borrowing).(3) In this rule, borrowing includes, as well as borrowing in a conventional manner, any other arrangement (including a combination of derivatives) designed to achieve a temporary injection of money into the scheme property in the expectation
DISP App 3.7.4ERP
Additionally, where a single premium was added to a loan:(1) for live policies:(a) subject to DISP App 3.7.5 E, where there remains an outstanding loan balance, the firm should, where possible, arrange for the loan to be restructured (without charge to the complainant but using any applicable cancellation value) with the effect of:(i) removing amounts relating to the payment protection contract (including any interest and charges); and(ii) ensuring the number and amounts of any
DISP App 3.7.12ERP
Additionally, where a single premium was added to a loan, DISP App 3.7.4 E applies except that in respect of DISP App 3.7.4 E (1)(a) the cancellation value should only be used if the complainant expressly wishes to cancel the policy.
DISP App 3.7.13ERP
The firm should, for the purposes of redressing the complaint, use the value of £9 per £100 of benefits payable as the monthly price of the alternative regular premium payment protection contract. For example, if the monthly repayment amount in relation to the loan only is to be £200, the price of the alternative regular premium payment protection contract will be £18.
BIPRU 12.6.6RRP
The first condition is that:(1) no less than 75% of the firm's total liabilities are accounted for by retail deposits and:2(a) 2the firm's total assets do not exceed 250 million; or (b) 2the firms total assets do not exceed 1 billion and no less than 70% of those assets are accounted for by:(i) assets of the kind that fall into BIPRU 12.7.2 R and which the firm counts towards its simplified buffer requirement; and(ii) retail loans; or(c) 2no less than 70% of the firm's total assets
BIPRU 12.6.6ARRP
2For the purpose of BIPRU 12.6.6 R, a firm must calculate:(1) its total assets by reference to its most recent FSA001 data item; and (2) its retail loans as the total of its lending to the retail sector recorded in cell 11A in its most recent FSA015 data item.
BIPRU 12.6.15RRP
The credit pipeline component is the sum represented by 25% of a firm's credit facilities offered to its retail customers but which are yet to be drawn down, including:(1) offers to make loans secured on residential property;(2) overdraft facilities; and(3) credit card facilities.
FEES 4.4.9DRP
3To the extent that an authorised payment institution or an EEA authorised payment institution has provided the information required by FEES 4.4.7 D to the FSA as part of its compliance with another provision of the Handbook, it is deemed to have complied with the provisions of this section.
MCOB 9.3.1AGRP
3The provisions in this sourcebook that apply to home reversion plans should be read in a purposive way. This means that firms should substitute equivalent home reversion terminology for lifetime mortgage terminology, where appropriate. Examples of terms and expressions that must be replaced are 'loan' or 'amount borrowed', which should be replaced with 'amount released' or 'amount to be released', as appropriate, and 'mortgage lender' and 'mortgage intermediary' which should
MCOB 9.3.2RRP

Table of modified cross-references to other rules.

This table belongs to MCOB 9.3.1 R.

Subject

Rule or guidance

Reference in rule or guidance

To be read as a reference to:

Variations

MCOB 5.1.3R(2)

MCOB 7

MCOB 7 as modified by MCOB 9

Part of loan not an equity release transaction2

2

MCOB 5.1.9G

MCOB 5.6.6R(2)

MCOB 9.4.6R(2)

Waiver of provisions

MCOB 5.1.10G

MCOB 5.6

MCOB 9.4.

Purpose

MCOB 5.2.1G

MCOB 5

MCOB 5 as modified by MCOB 9

Applying for a lifetime mortgage2

2

MCOB 5.3.2G

MCOB 5.6.26R and MCOB 5.6.27R

MCOB 9.4.26R and MCOB 9.4.27R

Tied products

MCOB 5.4.24G

MCOB 5.6.74R

MCOB 9.4.73R or MCOB 9.4.160R3

Issue of offer document in place of illustration

MCOB 5.5.3G

MCOB 6.4 and MCOB 6.6

MCOB 6.4 and MCOB 6.6 as modified by MCOB 9

Customer's credit record

MCOB 5.5.16R

MCOB 5.5.15R(4)

MCOB 9.3.12R(3)
MCOB 9.3.4RRP

Table of rules in MCOB 5 which do not apply to MCOB 9: This table belongs to MCOB 9.3.1R.

Subject

Rule(s)

Illustrations for repayment mortgages and interest-only mortgages

MCOB 5.5.13R

Business loans

MCOB 5.7
BIPRU 7.2.4RRP

Table: Instruments which result in notional positions

This table belongs to BIPRU 7.2.3R(2)

Instrument

See

Futures, forwards or synthetic futures on debt securities

BIPRU 7.2.13 R

Futures, forwards or synthetic futures on debt indices or baskets

BIPRU 7.2.14R

Interest rate futures or forward rate agreements (FRAs)

BIPRU 7.2.18 R

Interest rate swaps or foreign currencyswaps

BIPRU 7.2.21R

Deferred start interest rate swaps or foreign currencyswaps

BIPRU 7.2.24R

The interest rate leg of an equityswap (unless the firm calculates the interest rate PRR on the instrument using the basic interest rate PRR calculation in BIPRU 7.3 (Equity PRR and basic interest rate PRR for equity derivatives))

BIPRU 7.2.27R

The cash leg of a repurchase agreement or a reverse repurchase agreement

BIPRU 7.2.30R

Cash borrowings or deposits

BIPRU 7.2.31 R

Options on a debt security, a basket of debt securities, a debt security index, an interest rate or an interest rate future or swap (including an option on a future on a debt security) (unless the firm calculates a PRR on the option under BIPRU 7.6 (Option PRR))

BIPRU 7.2.32R

Dual currency bonds

BIPRU 7.2.33R

Foreign currency futures or forwards

BIPRU 7.2.34R

Gold futures or forwards

BIPRU 7.2.34R

Forwards, futures or options (except cliquets) on an equity, basket of equities or equity index (unless the firm calculates the interest rate PRR on the instrument using the basic interest rate PRR calculation in BIPRU 7.3)

BIPRU 7.2.34R

Credit derivatives

BIPRU 7.11

A warrant must be treated in the same way as an option
BIPRU 7.2.19RRP

Table: Interest rate futures and FRAs

This table belongs to BIPRU 7.2.18R

A short position in a zero coupon zero-specific-risk security

A long position in a zero coupon zero-specific-risk security

Where the firm buys an interest rate future or sells an FRA

Maturity equals the expiry date of the future (or settlement date of the FRA)

Maturity equals the expiry date of the future (or settlement date of the FRA) plus the maturity of the notional borrowing/deposit

Where the firm sells an interest rate future or buys an FRA

Maturity equals the expiry date of the future (or settlement date of the FRA) plus the maturity of the notional borrowing/deposit

Maturity equals the expiry date of the future (or settlement date of the FRA)
BIPRU 7.2.31RRP
A cash borrowing or deposit must be treated as a notional position in a zero coupon zero-specific-risk security which:(1) is a short position in the case of a borrowing and a long position in the case of a deposit;(2) has a value equal to the market value of the borrowing or deposit;(3) has a maturity equal to that of the borrowing or deposit, or the next date the interest rate is reset (if earlier); and(4) has a coupon equal to:(a) zero, if the next interest payment date coincides
BIPRU 4.3.47RRP
The criteria referred to in BIPRU 4.3.43 R must also be consistent with the firm's internal lending standards and its policies for handling troubled obligors and facilities.[Note:BCD Annex VII Part 4 point 17 (part)]
BIPRU 4.3.68GRP
(1) If an obligor approach is being taken with respect to retail exposures (that is, the application of the definition of default at an obligor level rather than at a facility level as set out in BIPRU 4.6.21 R,) a firm should ensure that the PD associated with unsecured exposures is not understated as a result of the presence of any collateralised exposures. A firm should be able to explain to the FSA, if asked, how it has ensured that its estimate of PD is appropriate for both
BIPRU 4.3.85RRP
The population of exposures represented in the data used for estimation, the lending standards used when the data was generated and other relevant characteristics must be comparable with those of a firm'sexposures and standards. A firm must also be able to demonstrate to the FSA that the economic or market conditions that underlie the data are relevant to current and foreseeable conditions. The number of exposures in the sample and the data period used for quantification must
BIPRU 4.3.132GRP
(1) This paragraph contains guidance about the interpretation of the requirements relating to comparability in BIPRU 4.3.85 R. It is also relevant to the requirement for representative data in BIPRU 4.3.51 R (5), to the references to comparability in the additional guidance in BIPRU 4.3.53 G (7)(b) and to the requirements for similarity in BIPRU 4.3.92 R.(2) In general, comparability should be based on analyses of the population of exposures represented in the data, the lending
DISP App 3.1.1GRP
(1) 1This appendix sets out how a firm should handle complaints relating to the sale of a payment protection contract by the firm which express dissatisfaction about the sale, or matters related to the sale, including where there is a rejection of claims on the grounds of ineligibility or exclusion (but not matters unrelated to the sale, such as delays in claims handling).(2) It relates to the sale of any payment protection contract whenever the sale took place and irrespective
DISP App 3.1.5GRP
In this appendix:(1) "historic interest" means the interest the complainant paid to the firm because a single premium payment protection contract was added to a loan or credit product;(2) "simple interest" means a non-compound rate of 8% per annum; and(3) "claim" means a claim by a complainant seeking to rely upon the policy under the payment protection contract that is the subject of the complaint.
MCOB 7.7.1AGRP
2Firms are reminded that in accordance with MCOB 1.2.3 R, they should eithercomply in full with MCOB or comply with all tailored provisions in MCOB that relate to business loans. Therefore, a firm may only follow the tailored provisions in MCOB 7.7 if it also follows all other tailored provisions in MCOB.
MCOB 7.7.3RRP
Where a customer applies for a further advance that is a regulated mortgage contract for a business purpose and MCOB 7.7.1 R does not apply:(1) the business illustration must be based upon the total borrowing; and(2) MCOB 7.6.9 R to MCOB 7.6.10 G and MCOB 7.6.12 G do not apply.
PERG 4.17.4GRP
Unsecured loans, as well as loans secured on second charges on property, are not subject to the article 90 carve-out. Many of these loans are currently covered by the CCA and the position will not change.
MCOB 7.4.1RRP
(Subject to MCOB 7.7.5 R) a firm that enters into a regulated mortgage contract with a customer must provide the customer with the following information before the customer makes the first payment under that regulated mortgage contract:1(1) the amount of the first payment required;(2) the amount of the subsequent payment(s) if different from the first payment;(3) the method by which the payment will be collected (for example, by direct debit) and the date of collection of the
MCOB 7.4.3GRP
In the case of a regulated mortgage contract under which the loan is advanced to the customer in separate tranches, the amount required under MCOB 7.4.1 R(1) will be the repayment relating to the first tranche. The amount(s) required under MCOB 7.4.1 R(2) will need to reflect the fact that when each subsequent tranche is advanced, the payment that the customer will need to make will change.
COLL 5.3.5RRP
(1) Cash obtained from borrowing, and borrowing which the authorised fund manager reasonably regards an eligible institution or an approved bank to be committed to provide, is not available for cover under COLL 5.3.3 R (Cover for transactions in derivatives and forward transactions), except if (2) applies.(2) Where, for the purposes of this section, the ICVC or the trustee for the account of the AUT on the instructions of the manager:(a) borrows an amount of currency from an eligible
MCOB 9.8.1RRP
The statement required by MCOB 7.5.1 R must contain the following information:(1) except in the case of mortgage credit cards, information on the type oflifetime mortgage,3 (for example, fixed rate or variable rate) including a clear statement of how the firm expects the capital, or capital and interest (whichever is applicable) to be repaid (for example, from the proceeds of the sale of the property);3(2) details of the following transactions and information on the lifetime
MCOB 9.8.5RRP
The illustration provided in accordance with MCOB 7.6.7 R must;(1) be based on the amount of the further advance only;(2) use the term 'additional borrowing' in place of the term 'lifetime mortgage' where appropriate throughout the titles and text of the illustration;(3) include an additional section headed: 'Total borrowing' and numbered '9' after Section 8, (with subsequent sections of the illustration renumbered accordingly) including the following text:(a) "This section gives
BIPRU 5.2.10RRP
Notwithstanding the presence of credit risk mitigation taken into account for the purposes of calculating risk weighted exposure amounts and as relevant expected loss amounts, a firm must continue to undertake full credit risk assessment of the underlying exposure and must be in a position to demonstrate to the FSA the fulfilment of this requirement. In the case of repurchase transactions and/or securities or commodities lending or borrowing transactions the underlying exposure
BIPRU 5.2.15RRP
Cash, securities or commodities purchased, borrowed or received under a repurchase transaction or securities or commodities lending or borrowing transaction must be treated as collateral.[Note: BCD Annex VIII Part 3 point 2]
PERG 2.6.11CGRP
The arrangements which grant rights under an alternative debenture arise where:(1) the arrangements provide for a person (the bond-holder) to pay a sum of money (the capital) to another (the bond-issuer);(2) the arrangements identify assets, or a class of assets, which the bond-issuer will acquire for the purpose of generating income or gains directly or indirectly (the bond assets);(3) the arrangements specify a period at the end of which they cease to have effect (the bond term);(4)
PERG 2.6.11HGRP
  1. (1)

    The main provision within the definition of alternative debenture arrangements that seeks to ensure that only instruments that display the characteristics of a debt security can be alternative debentures is set out at PERG 2.6.11CG (5). It provides that the amount of additional payments under the arrangements must not exceed an amount which would, at the time the bond is issued, be a reasonable commercial return on a loan of capital. Where the return is not fixed at the outset, it is the maximum possible amount of the additional payments that must be considered in deciding this question. The following example demonstrates how this condition should be approached.

    2. Example

    ABC Ltd is a property development company. It wishes to increase its portfolio on a short-term basis. It issues 5-year sukuk to investors and uses the proceeds to buy the head lease of a commercial property. The rental income from the lease is distributed to investors in proportion to their holdings without a cap on the level of return. After 5 years, the head lease is sold on at a profit and the proceeds shared between investors.

    In this example, the investors participate directly in the success or failure of the underlying property business. The sakk is not really in the nature of a debt instrument. It is unlikely to be an alternative debenture as:

    • additional payments under the arrangements would exceed a reasonable commercial return on a loan of the capital.

      Further, where the return is not fixed at the outset, it is the maximum possible amount of the additional payments that must be considered. Here, the issue terms of the sukuk impose no upper limit on the amount of the periodic distributions: a sakk holder subscribing 1,000 may, in a year, get back 200 or 2,000 or nothing depending on the rental market. The maximum potential return is clearly in excess of a reasonable commercial return on a loan of 1,000; and

    • the arrangements have not been admitted to an official list or admitted to trading on a regulated market or recognised investment exchange (see PERG 2.6.11CG (6)).
  2. (2)

    If, in the above example, investors returns were capped at 500 per sakk per year, then this is the amount that must be considered in deciding whether the return exceeds a reasonable commercial return on a loan, even where the amounts actually received turn out to be far lower.

  3. (3)

    In applying the reasonable commercial return test, the sakk should be compared to a hypothetical loan to the issuer on similar terms and carrying similar risks. For example, a conventional security convertible into shares will normally carry a lower rate of interest because the conversion right has a value. The return on an exchangeable or convertible sakk should be measured against the return on an equivalent exchangeable or convertible debt security.

  4. (4)

    The risk to investors in sukuk may vary slightly from that of a conventional bond in some instances. This may be due to the fact that sukuk holders only have recourse to the bond assets or some other structural feature which results in the risk profile being higher. In such instances it may be justifiable for the rate of return to be slightly higher than that of a conventional loan.

  5. (5)

    As with any financial instrument, the pricing of sukuk will depend on the issuers view of the market at the time of issue and reasonable commercial return may vary depending on the issuer and the economic circumstances prevalent at the time of issue.

PERG 2.6.27GRP
In accordance with article 61(3)(a) of the Regulated Activities Order, a regulated mortgage contract is a contract which, at the time it is entered into, satisfies the following conditions:(1) the contract is one where the lender provides credit to an individual or trustees (the "borrower");(2) the obligation of the borrower to repay is secured by a first legal charge on land (other than timeshare accommodation) in the United Kingdom; and(3) at least 40% of that land is used,