The regulator said the proposed changes to the final rules outlined in PS15/9 were necessary to make sure MCOB, the Mortgages and Home Finance: Conduct of Business sourcebook, reflected its original objectives.
Lenders have been given the option to continue to use the Key Facts Illustration (KFI) document after the rules are implemented on 21 March 2016 instead of the European Standardised Information Sheet (ESIS), up until 2019. But to make sure they are complying with the new laws on disclosure requirements they must provide top-up information within the KFI to bring it up to standard.
A second cost of finance calculation, the annual percentage rate of charge (APRC), must be included which provides an illustration of the cost of the mortgage if interest rates rose to their highest level in the last 20 years.
Initially the FCA said that this second calculation must be worked out using the MCD method and not the current MCOB method. This would mean that lenders would be using the MCOB calculation for the APR and the MCD calculation for the APRC.
The regulator is now proposing a change which will allow lenders to use the MCOB calculation for the APRC during the transitional period to give lenders more time to change their IT systems to cope with Europe’s requirements.
Further proposed changes are to the knowledge and competency requirements and to the application of MCOB rules to second charges advanced before 21 March 2016.
Originally the FCA said that all firms carrying out activities regulated under the MCD would be allowed an extra year to comply with the revised 11 standards of knowledge competence, giving them until 21 March 2017.
The regulator said it was not its intention to offer this extension to all firms and is proposing to restrict this transitional privilege to only those which were involved in these activities before 20 March 2014.
The regulator has also proposed a change to its rule about the application of sections of MCOB to second charge loans issued before the March 2016 launch date.
The final rules quoted three chapters which would be applicable to pre-MCD secured loans. The regulator said this was not intended to be taken as an exhaustive list which feedback from stakeholders had revealed to be the case. It said the three chapters were only examples. To correct this assumption the FCA has proposed to change rule MCOB 1.2.20R by making it guidance rather than a rule and to make it clear that the listed sections are not exhaustive. It wants firms to consider the implications of each of MCOB’s chapters.
Firms wishing to respond to the consultation have until 5 July 2015.
