MCOB: mortgages and home finance conduct of business
The UK mortgages and home finance industry has seen significant shifts since the pandemic, notably with interest rates rising and new AI developments for affordability decision-making.
Written by a human
However, these shifts have also changed public sentiment, with 83% of UK mortgage consumers distrusting AI in this setting.
Over the next few years, we’re likely to see companies continue to rely on MCOB, the home finance rulebook, to navigate customer ethics and maintain high standards as the technology continues to evolve.
What is MCOB?
MCOB refers to the conduct of business rules for mortgages and home finance organizations. It’s a business sourcebook from the wider FCA Handbook which regulates financial institutions and their activities in the United Kingdom.
It’s one of a group of sourcebooks, which define the rules for individual sectors like CONC (Consumer Credit Sourcebook) and CASS (Client Assets Sourcebook).
The purpose of MCOB is to promote industry fairness, prevent harm to both customers and markets, and encourage healthy competition, in alignment with the FCA’s wider values. It governs products like a regulated mortgage contract, lending and disclosure rules and other regulated activity in the home finance industry.
MCOB was first issued in 2003, but has evolved with time since the Financial Services Authority was converted into the Financial Conduct Authority. The most recent update happened in November 2024.
Who does the rule apply to?
MCOB applies to firms that carry out any sort of ‘home finance activity’, like banks, credit unions, debt counselling providers, and suitability assessors. It applies to firms that communicate or approve financial promotions around any of the qualified home finance activities.
In some cases, additional disclosure MCOB rules will also apply to third parties that process information with regards to these activities.
Home finance activities are defined as any of the following activities:
- Regulated mortgage contracts
- Equity release transactions
- Home purchase plans
- Sale and rent back agreements
- Lifetime mortgages
- Home renovation plans
There are four types of firms that are regulated and approved to complete these activities; lenders/providers, administrators, arrangers and advisors.
Key requirements
There are lots of requirements of MCOB, but here are some of the most important:
- Fair value
- Accessibility of information
- Record-keeping rules
Fair Value
MCOB’s Fair Value principles put customer interests at the heart of all firm decisions. As a general rule of thumb, firms must act honestly, fairly and professionally, in line with Consumer Duty rules.
One example of a violation is enabling a customer to commit to a mortgage without seeing an illustration and offer document. Instead, firms are encouraged to present new customers with all of the documents in one sitting, so that customers have the right information to make a fair assessment. By signing the mortgage deed at the same time, firms can avoid poor practices and ensure the customer feels confident in their decision, since they have all the facts.
Similarly, a 14-day cooling off period exists for the pre-sale disclosure in order to provide fairness if a customer changes their mind.
Firms must also communicate clearly to avoid misinformation, or misleading the customer into false impressions. Terms like ‘special offer’ must therefore be avoided unless it is truly not available after a certain date.
Accessibility of Information
Firms must make the following information widely accessible to all potential customers:
- Firm name
- Office and headquarters address
- Communication details, including email addresses and telephone numbers
- Statutory status disclosure agreement and reference number for the Financial Services Register
- Professional body, title and reference if the firm is associated with one
- VAT number, if applicable
Moreover, a firm is not allowed to supply a service to a consumer without a direct request from that consumer, where payment is involved. Instead, all product information should be made available to the customer, in order for them to make an informed financial decision.
Record Keeping
MCOB records must be kept for inspection and made readily available within two days of any FCA request. There is no stipulation for the exact records storage methods, so long as this rule is met.
The regulators accept that many firms will choose to maintain their MCOB records electronically, and in this case, firms should take extra care to ensure that the records:
- Accurately reflect the original information (maintaining the accuracy of records)
- Have not been subject to unauthorized or accidental alteration (maintaining the integrity of records)
One example of the record-keeping principles of MCOB is that firms must make an adequate reporting record every time it promotes a regulated sale and rent back agreement. As per financial promotions rules, these advertisements must be kept for at least one year to ensure that the firm is in compliance with MCOB’s promotions rules and has not misled customers.
MCOB Enforcement Actions: learn from the mistakes
Lack of due diligence
In 2007, Council Homebuyers Ltd was fined £10,500 for failing to treat customers fairly and comply with the principles of MCOB.
Across two years, from October 2004 to 2006, the company failed to exercise adequate control over its sales process, which led to some advisors taking advantage. One key failing was the lack of customer financial information to make an affordability assessment before the customer was offered a mortgage. Another included the lack of Key Facts Illustrations, meaning that some customers were not fully informed before they took on these loans.
The regulators fined this firm because they concluded that there was too much reliance on the advisors’ knowledge of the customers’ finances, and not the data itself, therefore increasing the risk of defaulting.
Failure to treat customers fairly
In 2024, HSBC was fined over £6 million for collective failings in MCOB, CONC and several FCA Principles.
With reference to MCOB in particular, the failings revolved around the principle of treating customers fairly. For example, HSBC failed to create a policy for treating customers in financial difficulty to prevent them from defaulting. Moreover, there was a lack of background checking which meant that advisors didn’t have all the facts when recommending products, and inconsistently applied fees and charges.
The FCA concluded that many of these failings were due to poor training, leading to key personnel failing to complete their roles effectively. In particular, it was front lines collections employees whose lack of training led to:
- The inability to properly explain forbearance options
- The ultimate increase in loan defaulting
Upholding standards in the home finance industry
The MCOB rulebook exists to enforce and uphold high standards for professionals in the home financing industry and compliance is key. In fact, with the FCA vowing to ‘name and shame’ upcoming violations, it’s more important than ever.
Global Relay facilitates proactive supervision and risk management, enabling fully integrated communications surveillance. Escalate queries with ease and create AI-assisted audit reports to comply with MCOB’s rules.
