Still struggling with rules for advertising first charge, residential mortgages in force since the sector became regulated by the Financial Services Authority in October 2004? Help is at hand with marketinglaw’s “MCOB” Q&A.
Q: Where can I find the new rules?
A: For the new rules?
A: For the most part these are contained in the Financial Services Authority's "Mortgage Conduct of Business" ("MCOB") Source Book. For the uninitiated, the entirety of the FSA's regulations as they apply to financial services is described as "the FSA Handbook", whilst the individual sections of that handbook are either "source books" such as "MCOB" or "ICOB" or "manuals" such as the authorisation manual delightfully called "AUTH". Along with MCOB, various other parts of the Handbook will also apply and there are other relevant delights lurking in instruments such as the Financial Services & Markets Act 2000 (Regulated Activities) Order 2001.
Q: Who is going to enforce all these new rules?
A: The Financial Services Authority.
Q: When do the new rules come into force?
A: The new rules apply to all regulated mortgage activity from 31 October 2004, although there are some exceptions in the marketing arena. For example there will be a brief transition period of three months in the case of TV advertising. During this time material aired before 31 October will still be acceptable so long as it would have been compliant under the terms of the Consumer Credit Act 1974, which up until 31 October 2004 was the relevant principal source of regulation here.
Q: So what types of mortgage product do I have to be advertising to be worried about the new FSA rules?
A: After 31 October 2004 the FSA will regulate all advertising and marketing activity in respect of new mortgages where the borrower is an individual or trustee, where the lender takes the first legal charge over property in the UK and where the property is at least 40% occupied by the borrower or by a member of his immediate family. The FSA's shorthand for this is "qualifying credit promotion" ("QCP")
Q: So what broadly is the effect of the new regulatory regime for QCPs?
A: All QCPs will have to have either been produced by a person who has been authorised for that purpose by the FSA or authorised by such an authorised person. All those authorising QCPs will have to ensure that they comply with the general "fair, clear and not misleading" requirement. They must also ensure that the content complies with the detailed rules contained in MCOB. For the most part these are contained in MCOB Section 3.6, which should be the starting point for all those looking for an idea of how the regulatory scheme works
Q: How do I set about getting authorisation?
A: Full guidance is available from the Financial Services Authority, including a helpful information pack. The process is not an overnight one so all those who believe they may have to be authorised should move quickly now if they have not done so already.
Q: No doubt the rules are lengthy and complex, but are there any particular features you would like to emphasise here?
A: As ever, it is a question of where do you start, but one area worth mentioning perhaps is the telephone sales aspect, or as the FSA calls it "real time qualifying credit promotions". Here the scheme in essence is a complete ban on cold calls promoting mortgages. Calls may only be made either if consumers have expressly requested such calls ("opt in") or where the consumer "envisages" receiving them. The DMA regards calls as "envisaged" if an individual is told they will be made unless he opts out and he fails to tick the appropriate box.
Q: What about marketing companies who collect consumer data with a view to passing it to financial services companies to enable them to conduct mortgage telesales?
A: Clearly extreme care is now going to be needed here. For instance, where a lifestyle questionnaire is being used, the consumer will ideally need to have ticked a prominently shown tick box which is situated close to where the questionnaire has to be signed by the consumer. This should clearly state that by ticking the box the consumer is requesting information from the named company to be communicated by telephone.
Q: What if I'm collecting information about a consumer's financial circumstances and borrowing needs with a view to introducing the individual as a new business lead to an authorised mortgage provider?
A: There is a very narrow line between "mortgage arranging" which by and large will need to be done by an authorised person and mortgage "introducing" which may not be. For instance the introducer must be careful not to make a QCP if unauthorised. It may find it is publishing a QCP if more than a very limited amount of information is given to the individual
Also, even if introducers avoid publishing QCPs , they will still need authorisation unless they pass through various hoops that are set out in relevant regulations, mostly the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. One hoop is to ensure that the introduction is made to a firm which will provide independent advice on the right choice of mortgage for the consumer and is of course properly authorised itself.
If the introducer wants to pass leads on to an authorised firm, which is not going to offer independent advice, then it must comply with various further requirements.
In a questionnaire in which it is collecting financial information, for instance, it needs to state if the "introducee" company is part of the same group as the "introducee". It must also disclose details of any payment it will receive from the introducee. If it is not possible to indicate the exact payment then it would be sufficient to disclose the method of calculating it. Also, if there is any other reward or advantage, which the introducer receives, such as reciprocal business arrangements, training, or office space this too must be disclosed.
Q: For how long can I rely on an express request to receive calls providing information about mortgage products?
A: According to the FSA the passage of time will eventually cancel out an express request. As ever, the exact period is not stated, but the FSA indicates that it would normally expect express requests gained through market research and lifestyle questionnaires to be cancelled in a "short time".
Q: Do advertisements aimed at mortgage intermediaries have to comply with the QCP regime?
A: Normally an unauthorised person cannot "communicate an invitation or inducement to engage an investment activity" without prior approval from an authorised person. This will not apply, however, where a communication is to an investment professional or to a person reasonably believed to be such a person. However, the communication must clearly state that it is directed at investment professionals and the investment activity to which it relates is only available to those professionals.
Q: What about becoming an "appointed representative" ("AR") as opposed to seeking full authorisation?
A: This is clearly an option which marketing services providers may wish to consider. An AR is permitted to carry on certain regulated activities on behalf of an authorised firm pursuant to a written contract, but the authorised firm remains responsible to the FSA for the AR's compliance. Whether AR status should be sought in any particular case or whether authorisation is preferable depends on each particular case and advice should be taken.
Q: Presumably there are extensive disclosure requirements that apply to all mortgage promotional communications?
A: Absolutely right. For example, except in the area of broadcast advertising there are required risk statements. There are also a variety of requirements as to the APR etc, which are not terribly dissimilar to those contained in the new Consumer Credit Advertisements Regulations covered elsewhere in this article. There are also detailed rules as to comparative claims, although these are no great departure from the existing legal controls on comparative advertising, which apply courtesy of the Control of Misleading Advertisements Regulations as amended.
Other content requirements include a rule that firms take reasonable steps to ensure that they do not omit any matters, the omission of which causes the promotion not to be clear, fair and not misleading. There must also be no false indication as to a firm's independence, its resources and scale of activities or the scarcity of any qualifying credit and the design, content or format of the communication must not in any way disguise, obscure or diminish the significance of any statement, warning or other matter which the promotion is required by MCOB to include.
Q: Are there extensive record keeping and compliance confirmation requirements?
A: Yes indeed there are. For instance 3.9 of MCOB makes it clear that before publishing a QCP that is non real time a firm must arrange for a prescribed "confirmation exercise" to be carried out to confirm compliance. Apart from the specific letter of the rules it is also clearly good practice on the part of for instance introducers to keep a full record of all their communications with their prospective leads. They will undoubtedly be approached for confirmation of this process by authorised firms to which they pass their leads and having the relevant back-up systems to enable them to comply with these requests promptly will be essential if they are going to be able to continue their relationship with the referee.
Q: Presumably there is an awful lot more and these Q&As only give us a snapshot of the entire mortgage regulatory regime?
A: You have it in one. But hopefully this gives something of a flavour of how the regulatory regime works.
