1: Regulatory Framework

Question 1

The Financial Services Act 2012 created 3 new bodies in 2013

Answer 1

Financial policy committee (FPC)
Prudential regulation authority (PRA)
Financial conduct authority (FCA)

Question 2

What is the main aim of the FPC?

Answer 2

Identify, monitor and take action to remove systemic risks to the stability of the financial system

Question 3

What is the main aim of the PRA?

Answer 3

Regulation of firms including banks, building societies, credit unions, insurers etc..

Question 4

What is the main aim of the FCA?

Answer 4

Main objectives include:

Consumer protection - protection for customers

Integrity - enhancing integrity of UK financial system

Competition - effective competition in the interest of customers

Question 5

What are the principles for business?

Answer 5

Statement of minimum standards expected of all financial service providers

Question 6

List the principles of businesses

Answer 6

Integrity

Skill, care and diligence

Management and control

Financial prudence

Market conduct

Consumers interests

Communications with clients

Conflicts of interest

Customers relationships of trust

Clients assets

Relations with regulators

Consumer duty

Question 7

What is the role of an authorised person?

Answer 7

Someone who carries out regulated activities such as: mortgage lending etc..

Question 8

What is an appointed representative?

Answer 8

Firms that are tied to a particular product provider

Question 9

Senior managers and certification regime (SM&CR)

Answer 9

Senior managers regime - rules made by PRA&FCA relating to senior roles in a firm.

Certificate regime - applies to roles (not senior) that can cause harm to the business/customers

Question 10

Who does the MCOB rules apply to?

Answer 10

MCOB 1 rules apply to:

Mortgage lenders
Mortgage advisors
Mortgage arrangers
Mortgage administrators

Question 11

What is the Mortgages and Home Finance: Conduct of Business Sourcebook Rules (MCOB)

Answer 11

It governs the relationship between mortgage lenders and borrowers.

Question 12

What criteria must be met for a mortgage contract to be regulated: as defined my the MCOB

Answer 12

• The lender must provide credit to the individual or trustees (borrower)
• The repayment by borrower must be secured by a mortgage on land
• Cannot be a loan to a company or a loan to purchase commercial property

Question 13

What is a higher lending charge

Answer 13

Charge made by the lender when LTV exceeds threshold. Can be referred to as a mortgage indemnity guarantee (MIG)

Question 14

What is a lifetime mortgage

Answer 14

Product restricted to older customers and won’t seek repayment until customer dies.

Question 15

What is a home reversion plan

Answer 15

Where an older homeowner sells part or all of their property to a financial provider and become a tenant for life or until property is sold.

Question 16

What must a European Standardised information sheet (ESIS) include?

Answer 16

• Key features of the mortgage contract
• Price customer will pay including fees
• Any other products such as insurance

Question 17

What is outlined in MCOB 6 - Disclosure at the offer stage

Answer 17

Once lender has accepted application. It must send the customer an offer document alongside a mortgage illustration/ESIS

Question 18

What is outlined in MCOB 7 - Disclosure at the start of the contract and after sale

Answer 18

Reconfirming information once the contract has started, it includes:

• Amount of first payment
• confirmation of any other insurances
• Payment collection
• What happens if they fall into arrears

Question 19

What is outlined in MCOB 8 &9 - Equity release

Answer 19

Rules relation to equity release products which generally related to Lifetime mortgages and home reversion plans.

Question 20

What is outlined in MCOB 10 - Annual percentage rate (APR)

Answer 20

The APR is a total cost of borrowing for a year. It’s used to compare similar lending products for personal loans, credit cards and HP agreements

Question 21

What is outlined in MCOB 11 - Responsible lending

Answer 21

Before granting or increasing a mortgage loan lenders must prove they have taken account customers ability to repay it via affordability

Question 22

What is outlined in MCOB 12 - Charges

Answer 22

Firms must not impose excessive charges on customers.

• ERC must be disclosed prior
• Arrear charges must be reasonable

Question 23

What is outlined in MCOB 13 - Arrears and possessions

Answer 23

A firm must deal with customers who fall into arrears fairly, which means:

• Fair approach to repayment of arrears
• Changing customers payment dates
• Liaising with any 3rd party creditors
• Only repossessing iff all else fails

Question 24

What’s covered in the Training and Competence (T&C) rules

Answer 24

• Recruitment - competence of potential employee
• Training - should be up-to date and role related

Question 25

What is professional indemnity insurance (PI)

Answer 25

Protects you against claims for loss or damage made by clients as a result of the impact of negligent services you provided.

Question 26

What are the client money rules?

Answer 26

Any money received or held from a client must be:

• Held in a separate bank account
• Banked within 1 day of receiving
• Interest belongs to client