As always with any regulatory changes, there is a focus on what individual advisory firms must do internally to ensure compliance and these will obviously be the key focus of any ongoing activity. With the Mortgage Credit Directive (MCD) just weeks away I hope that firms are fully in control of the systems and process changes that they will need to introduce on 21 March.
This internal activity needs to be backed up with external research and understanding of what others in the sector, notably lenders, are up to. This is because the way external stakeholders approach the MCD-required changes will impact on the advisory firm’s own ability to ensure its compliance, and (rather importantly) the way in which the firm communicates its services to customers.
So, for example, in key areas such as the delivery of second charge mortgage advice, there will need to be an understanding, of the changes to sourcing systems such as Mortgage Brain and Trigold on second charge research.
If the firm is going to refer second-charge advice to a master broker, they must have carried out due diligence to ensure that all of their second charge lending panel are MCD-compliant. Whether choosing to refer a client to a third party or carrying out the advice in-house, the firm will always need to ensure they have made the client aware there may be alternative financial options which could be more suitable in their disclosures.
In a very real sense, you have to familiarise yourself with each lender’s own preparation for MCD, which means knowing exactly what documentation each lender is going to be providing post-21 March. At its most base level, you have to ask whether the lender is MCD-compliant at all, and if not, then you certainly shouldn’t be dealing with them in the new environment.
Documentation of course is a key change from the old to the new regulatory structure. In particular, firms should understand the changes to the annual percentage rate of charge (APRC) allowing them to anticipate any queries on this from clients. On top of this, the MCD has a requirement for all advisory firms to produce a list of all the lenders they use and the commissions paid. If a customer requests this information, firms must be able to provide it in a ‘durable format’.
Finally, think about any knock-on effects to different product sectors that might be introduced by the MCD. For example, establish if any of the firm’s business may be affected by the changes to clients paid in foreign currency – there will be a need to review the firm’s business registers and understand if they will be impacted by lenders pulling out of these markets. Will there be any risk to the business? Also in other business areas such as equity release and bridging finance, the same risk-assessment approach should be adopted. For example, if the firm describes its services as ‘independent’ for lifetime mortgages, then it will need to offer advice on home reversion plans as well.
There is still much to consider, not just within the firm but also across the industry as a whole.