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Do you have an MMR plan in place to be compliant with the new rules, which come into force on the 26th April 2014? We are receiving enquiries from firms requiring support to get them MMR ready, making sure they have a good understanding of the requirements and providing MMR compliant documentation, if you are still unsure on the rules and don’t have a full plan in place please read on.
As most brokers are aware a large part of the MMR rule changes apply to lenders but some key changes apply for brokers. This is a summary of the main rules which apply, for help with implementing any changes as well as MMR compliant documents – please contact us.
The main points from the MMR for intermediaries include:
- Disclosure, changes to how it is provided, the format and the content.
- Affordability, a lender requirement but you will still be required to verify against lender criteria.
- Fees, ensuring positive election by the customer on how broker and lender fees are paid.
- Further advances
- KFI issuing requirements
- Advice giving
- Interest only, lender expectations and broker responsibilities
- Execution only sales
- Record keeping
It will no longer be a requirement to issue a written copy IDD for non distance contracts such as face to face sales, you will have to give the “key messages” verbally and document on the file that disclosure has been given. The FCA will expect to see some form of evidence that this disclosure has been given, and state this could be via rules within T&C training files, in sales process documents or prompts on the file.
From the 26th April you will no longer be able to use your existing IDD/CIDD, you can continue to use the same format of document but some of the content will require changing. The FCA have stated a new IDD template will be made available on the FCA website in time for April. Changes to the way the service is described will be needed, and firms will need to provide details of any limitations to their service. Those working from a panel will need to stipulate the number of providers they use or the names of the lenders they have on the panel.
If you use a CIDD you can continue with this format, but will need to alter the wording regarding mortgages not only to remove the non-advised option but also as noted above state any limitations in your service - such as not offering direct only deals.
If you use a mortgage only IDD then you will need to remove the key facts logo and wording regarding the document being made a requirement to issue by the FCA.
One main area of change will be affordability; this will be the lenders responsibility. The broker is required to ensure the customers meet the lenders affordability criteria, and that’s all. Whilst the full affordability breakdown and calculation will not be required, information will still need to be collected from the customer to establish which lenders criteria they meet, and eventual input on the application form.
The customer MUST positively elect to any fees being added to the mortgage before an application is completed. A record of the customer’s decision needs to be recorded. The advisor needs to make the customer aware of the disadvantages of rolling up the fees, and should also ensure it is appropriate to either add the fees to the loan or pay them upfront. A record of this could be made during the fact find, and further confirmed in the suitability letter.
Where the customer is looking to increase the borrowing secured on the property which is the subject of an existing regulated mortgage contract, unless you know that the existing lender will not make a further advance to the customer, you must inform the customer, either orally or in writing, that it may be possible, and more appropriate, to do so rather than to enter into a regulated mortgage contract with another lender. You are not under any obligation to explore whether a further advance with the existing lender is, in fact, more appropriate for the customer.
We have designed a fact find specifically for mortgage brokers which is MMR compliant and covers the above points, most of our clients have switched from Tri-gold or the in-house version they had been using to ours, finding it speeds up the sales process and takes care of some key compliance points often overlooked on third party fact finds. We also have the ability to tailor and change the fact find at any time to suit. Please contact us to buy your copy.
The trigger points for KFI issue are:
- Before the customer submits an application;
- When advice is given;
- If the customer requests one;
- During an execution-only sale when the product is known.
You must ensure that the customer is aware that they will have to demonstrate to the mortgage lender that they will have in place a clearly understood and credible repayment strategy
Some interest only reasons will not be accepted by the lender such as:
- Reliance on house price increases
- An expected, but uncertain, inheritance to repay the capital borrowed
- Sale of property in certain circumstances
Execution Only Sales
A firm which intends to transact execution-only sales in regulated mortgage contracts must have in place a record which sets out the amount of business the firm reasonably expects to transact by way of execution-only sales and the steps to be taken by the firm if that business exceeds the expected level set out its processes and procedures for ensuring compliance with the rules.
You must show how you will ensure in every case that, before proceeding with an execution-only sale you have obtained (where required) a voluntary and informed positive election from the customer in order to comply with the rules. You must also show how you have identified whether a customer meets the definition of a high net worth mortgage customer or professional customer.
During the sales process it’s possible that the customer will reject your advice, it’s often rare as the advice given is based on the customers responses to the needs and preferences which you base the advice on. Sometimes an alternative product is preferred by the customer and usually you can continue on the advice route if the mortgage the customer has told you about is also suitable and you can demonstrate this.
Execution only sales (including rejected advice) do not apply to sale and rent back. In order to proceed on an execution only basis, information needs to be provided by the customer and certain disclosures provided to confirm the customer will not benefit from the protection of the MCOB rules on assessing suitability. A written record of the above disclosure and information provided by the customer should be retained on file.
If you need execution only template documents to comply with the rules please contact us and we can provide these at.
To provide unsupervised advice to customers you must be CeMAP qualified and competent. Trainees will be allowed to provide supervised advice whilst they obtain CeMAP which they have 30 months to do. For training and competency support from full monitoring to one off competency test purchases please get in touch.
Other than the additional documents and records that must be kept for execution-only sales, other documents and record keeping requirements remain the same.
Most firms use a suitability letter, if not this is highly recommended as a means of evidencing suitability. It allows the adviser to confirm the advice given, the terms and conditions of the product sold as well as covering any key discussions, and warnings. We can provide a suitability letter template if required.
Firms should ensure they have a very detailed business register to help in providing effective management information. Execution only sales should be included on the register to allow you to monitor volumes for compliance monitoring. An in-depth excel business register allowing easy MI reporting is available if you need one.
You should continue to retain records of ongoing competency, evidence of file checks, management information and gap analysis audits. If you require support in any of these areas please check out our services page for more information.
What to do now
Whilst the deadline is several weeks a way, you should have a plan in place, including the relevant compliant file documents to use following the 26th April. A good understanding of the requirements (this is only a summary of the some key elements of the MMR), and an appropriate compliance monitoring program in place. If you are unsure on what compliance monitoring you should be doing or need help carrying out the monitoring such as file checks please contact us and we would be happy to help.