Implementation of the EU Benchmarks Regulation will mean a number of changes to the FCA Handbook. This includes proposed changes to MCOB which mortgage providers should be aware of.
In late June, the FCA published Consultation Paper CP 17/17 (CP), explaining changes to the Handbook it proposes to make after the UK implements the EU Benchmarks Regulation (BMR). Most of the proposed changes will apply from 1 January 2018 although mortgage providers who offer products linked to a benchmark rate will need to comply with a new customer disclosure requirement later next year, from 1 July 2018.
The BMR will apply to all indices that are used in financial instruments or in certain financial contracts (mortgages and consumer credit contracts), or that are used to measure the performance of investment funds. Its main aim is to ensure the accuracy, robustness and integrity of benchmarks and of the way benchmarks are determined. It seeks to achieve this by setting out rules for benchmark administrators, including a requirement for them to be approved by their national competent authority through authorisation or registration.
Eight 'specified benchmarks' are currently supervised by the FCA, including LIBOR, and changes are necessary to bring the UK's regime in line with the implementation of the BMR which has a wider reach than the current UK system for regulating benchmarks. The changes are relevant to benchmark administrators and firms that are already FCA supervised and who contribute input data to benchmarks as well as those who offer mortgages linked to a benchmark rate.
There are a number of changes to different parts of the Handbook, including MAR, SYSC, FEES, SUPP but for the purposes of this update, our focus is on the proposed MCOB changes.
Proposed MCOB changes
There are two changes to the Mortgage Conduct of Business Rules (MCOB) at 3B.1 (Provision of general information), as listed in Annex 1 of the CP. In summary, these are:
- A new disclosure requirement for lenders and tied credit intermediaries who offer any mortgage linked to a benchmark rate to make available the name of the benchmark, who administers it, and the potential implications for consumers. This comes into force on 1 July 2018. The FCA says firms can comply by disclosing this information on their websites.
- Implementation of one clause of Article 13 of the MCD (which the FCA discovered they had not transposed into the Handbook when they were preparing for the implementation of the BMR). All lenders and tied credit intermediaries must disclose a description of the conditions directly relating to early repayment. The FCA are using this opportunity to transpose the MCD clause at the same time and it applies to all MCOB regulated products, irrespective of whether they are linked to a benchmarked rate. This change comes into effect on 1 January 2018.
In the CP, the FCA state that the BMR amends the Consumer Credit Directive, but it also says that no Handbook changes are necessary.
Responses to the CP are due by 22 August 2017. The FCA plan to publish a Policy Statement in October.
Partner, Financial Regulation and Co-head of Financial Services Sector