The Mortgage Credit Directive Order 2015

Made: 25th March 2015

Coming into force in accordance with article 1

The Treasury are a government department designated for the purposes of section 2(2) of the European Communities Act 1972 in relation to financial services.

In the opinion of the Treasury, one of the effects of this Order is that an activity which is not a regulated activity, within the meaning of the Financial Services and Markets Act 2000 , will become a regulated activity.

This Order contains a provision restricting an exemption provided by an earlier Order made under section 38 of the Financial Services and Markets Act 2000.

A draft of this Order has been laid before and approved by a resolution of each House of Parliament in accordance with paragraphs 2 and 2A of Schedule 2 to the European Communities Act 1972 and section 429(3) of and paragraph 26(2) of Schedule 2 to the Financial Services and Markets Act 2000 .

The Treasury make this Order in exercise of the powers conferred on them by section 2(2) of, and paragraph 1A of Schedule 2 to, the European Communities Act 1972 and sections 21(9) and (15), 22(1) and (5), 38, 409 and 428(3) of the Financial Services and Markets Act 2000 .

PART 1 — Introductory Provisions

Citation and commencement

1

• (1) This Order may be cited as the Mortgage Credit Directive Order 2015.

• (2) Articles 2 (interpretation) and 32 (FCA power to direct timing of applications for permission and registration) come into force on 6th April 2015.

• (3) Article 3 (amendments to legislation) comes into force on 20th April 2015 in so far as it gives effect to paragraph 15 of Schedule 1 (amendments to the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2013).

• (4) The following provisions come into force on 21st September 2015—

• (a) article 3 in so far as it gives effect to paragraph 1(4) of Schedule 1 (amendments to section 137R of the Act); and

• (b) article 31 (transitional provision: person subject to the Consumer Credit Act 1974 who chooses to adopt new rules before 21st March 2016).

• (5) The other provisions of this Order come into force—

• (a) on 20th April 2015 for the purposes of enabling the making and determination of applications for —

• (i) a Part 4A permission, or a variation of a Part 4A permission, in relation to an activity of the kind specified by article 36A (credit broking), 53A (advising on regulated mortgage contracts) or 60B (regulated credit agreements) of the Regulated Activities Order, article 25A (arranging regulated mortgage contracts) or 61 (entering into and administering regulated mortgage contracts) of the Regulated Activities Order as amended by this Order, or article 53DA (advising on regulated credit agreements for the acquisition of land) of the Regulated Activities Order as inserted by this Order; or

• (ii) entry on the register of consumer buy-to-let mortgage firms under article 8 of this Order (register of consumer buy-to-let mortgage firms);

• (b) on 21st December 2015 for the purposes of—

• (i) enabling the appropriate regulator to treat a consent notice referred to in paragraph 13(1)(a) or a regulator's notice referred to in paragraph 14(1)(b) of Schedule 3 to the Act (as amended by this Order) given on or after that date by an EEA firm falling within paragraph 5(i) of Schedule 3 to the Act (as amended by this Order) as effective for the purposes of paragraph 13(1) or 14(1) (as the case may be) ; and

• (ii) enabling the appropriate regulator to treat a notice of intention referred to in paragraph 19(2) or 20(1) of Schedule 3 to the Act (as amended by this Order) given on or after that date by a UK firm wishing to exercise an EEA right under the mortgages directive as effective for the purposes of paragraph 19(2) or 20(1) (as the case may be); and

• (c) for all other purposes, on 21st March 2016.

• (6) Nothing in paragraph (5)(b) gives a person an EEA right to carry on, before 21st March 2016, any of the activities set out in sub-paragraphs (a) to (c) of Article 4(5) of the mortgages directive or to provide advisory services (as defined in Article 4(21) of that directive).

Interpretation

2

• (1) In this Order—

• “the Act” means the Financial Services and Markets Act 2000;

• “appropriate regulator” means—in relation to a firm which is a PRA-authorised person, the PRA;in any other case, the FCA;

• “borrower” has the meaning given by article 61(3)(a)(i) of the Regulated Activities Order;

• “consumer credit back book mortgage contract” means a contract which—is entered into before 21st March 2016,immediately before 21st March 2016 is a regulated credit agreement within the meaning of article 60B(3) of the Regulated Activities Order, ... would not be an exempt agreement within the meaning of article 60B(3) of the Regulated Activities Order by virtue of article 60D of that Order (exempt agreements: exemption relating to the purchase of land for non-residential purposes) if it were entered into immediately before 21st March 2016, and ...would be a regulated mortgage contract if it were entered into on or after 21st March 2016; oris entered into on or after 21st March 2016 in the circumstances described in article 28,would be a regulated credit agreement within the meaning of article 60B(3) of the Regulated Activities Order if it had been entered into immediately before 21st March 2016, andis a regulated mortgage contract immediately after it is entered into.

• “the mortgages directive” means Directive 2014/17/EU of the European Parliament and of the Council of 4th February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010 ;

• “the Regulated Activities Order” means the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 .

• (2) Unless otherwise defined—

• (a) subject to paragraph (3), any expression used in this Order which is used in the mortgages directive has the same meaning as in that directive; and

• (b) any other expression used in this Order which is defined for the purposes of the Act has the meaning given by the Act.

• (3) In this Order the expressions set out in paragraph (4) have the same meaning as in the mortgages directive subject to the modification made in paragraph (5).

• (4) The expressions are—

• (a) “ancillary service” (in Article 4(4) of the mortgages directive);

• (b) “bridging loan” (in Article 4(23) of the mortgages directive);

• (c) “contingent liability or guarantee” (in Article 4(24) of the mortgages directive);

• (d) “creditworthiness assessment” (in Article 4(17) of the mortgages directive).

• (5) The modification is that each reference in the expression concerned to “credit agreement” is to be read as if there were substituted a reference to “buy-to-let mortgage contract” (as defined in this Order).

PART 2 — Amendments to legislation

Amendments to legislation

3

Schedule 1, which contains amendments to primary and secondary legislation, has effect.

PART 3 — Consumer buy-to-let mortgages

Interpretation of this Part

4

• (1) In this Part—

• “advisory services” has the meaning given by article 6;

• “annual percentage rate of charge” has the meaning given by paragraph 9(6) of Schedule 2;

• “buy-to-let mortgage contract” means a contract that—at the time it is entered into—meets the conditions in paragraphs (i) to (iii) of article 61(3)(a) of the Regulated Activities Order (regulated mortgage contracts); andprovides that the land subject to the mortgage cannot at any time be occupied as a dwelling by the borrower or by a related person, and is to be occupied as a dwelling on the basis of a rental agreement; oris a regulated credit agreement within the meaning of article 60B of the Regulated Activities Order which— falls within section 423A(2)(b) of the Act, and provides that the land, or existing or projected building, to which it relates cannot at any time be occupied as a dwelling by the borrower or by a related person, and is to be occupied as a dwelling on the basis of a rental agreement;

• “consumer” means a person acting for purposes which are outside that person's trade, business or profession;

• “consumer buy-to-let mortgage business” means one or more of the following activities—acting as a creditor;acting as a credit intermediary; orproviding advisory services;

• “consumer buy-to-let mortgage contract” means a buy-to-let mortgage contract which is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower;

• “consumer buy-to-let mortgage firm” means a person carrying on consumer buy-to-let mortgage business;

• “credit intermediary” has the meaning given by article 5;

• “creditor” means a person who, in the course of a trade, business or profession—enters into, or promises to enter into, a consumer buy-to-let mortgage contract under which the person is to provide credit, oradministers a consumer buy-to-let mortgage contract,and for the purposes of paragraph (b) a person administers a consumer buy-to-let mortgage contract if the person carries on the regulated activity specified by article 61(2) of the Regulated Activities Order (regulated mortgage contracts) in respect of the contract, or would carry on that regulated activity in respect of the contract but for the exclusion in article 72I of that Order (registered consumer buy-to-let mortgage firms) ;

• “decision notice” means a notice that complies with the requirements of section 388 of the Act (decision notices) ;

• “durable medium” means any instrument which enables a consumer to store information which is addressed personally to the consumer in a way accessible for future reference for a period of time adequate for the purposes for which the information is provided and which allows the unchanged reproduction of the information stored;

• “foreign currency loan” means a consumer buy-to-let mortgage contract where the credit is denominated in a currency other than that in which the borrower receives the income or holds the assets from which the credit is to be repaid;

• “register” means the register kept by the FCA under article 8(1);

• “registered consumer buy-to-let mortgage firm” means a person who is included in the register;

• “related person” has the meaning set out in article 61A of the Regulated Activities Order (mortgage contracts which are not regulated mortgage contracts) ; ...

• “staff” means—any individual working for a creditor or credit intermediary who—is directly engaged in consumer buy-to-let mortgage business, orhas contacts with consumers in the course of consumer buy-to-let mortgage business,any individual working for a relevant person (see paragraph (1A)) who has contacts with consumers in the course of consumer buy-to-let mortgage business, orany individual directly managing or supervising any individual falling within paragraph (a) or (b);

• “warning notice” means a notice that complies with the requirements of section 387 of the Act (warning notices) .

• (1A) A “relevant person” is a person who, acting on behalf of and under the full and unconditional responsibility of only one credit intermediary, carries on one or more of the activities referred to in article 5(2) to (4).

• (2) For the purposes of this Part, if an agreement includes a declaration which—

• (a) is made by the borrower, and

• (b) includes—

• (i) a statement that the agreement is entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower;

• (ii) a statement that the borrower understands that the borrower will not have the benefit of the protection and remedies that would be available to the borrower under this Order if the agreement were a consumer buy-to-let mortgage contract under this Order; and

• (iii) a statement that the borrower is aware that if the borrower is in any doubt as to the consequences of the agreement not being regulated by this Order, then the borrower should seek independent legal advice,

the agreement is to be presumed to have been entered into by the borrower wholly or predominantly for the purposes specified in sub-paragraph (b)(i), unless paragraph (3) applies.

• (3) This paragraph applies if, when the agreement is entered into—

• (a) the creditor (or, if there is more than one creditor, any of the creditors), or

• (b) any person who has acted on behalf of the creditor (or, if there is more than one creditor, any of the creditors) in connection with the entering into of the agreement,

knows or has reasonable cause to suspect that the agreement is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower.

• (4) For the purposes of this Part, a borrower is to be regarded as entering into an agreement for the purposes of a business carried on, or intended to be carried on, by the borrower if the agreement is a buy-to-let mortgage contract and—

• (a)

• (i) the borrower previously purchased, or is entering into the contract in order to finance the purchase by the borrower of, the land to which the agreement relates;

• (ii) at the time of the purchase the borrower intended that the land would be occupied as a dwelling on the basis of a rental agreement and would not at any time be occupied as a dwelling by the borrower or by a related person, or where the borrower has not yet purchased the land the borrower has such an intention at the time of entering into the contract; and

• (iii) where the borrower has purchased the land, since the time of the purchase the land has not at any time been occupied as a dwelling by the borrower or by a related person; or

• (b) the borrower is the owner of land, other than the land to which the agreement relates, which is—

• (i) occupied as a dwelling on the basis of a rental agreement and is not occupied as a dwelling by the borrower or by a related person; or

• (ii) subject to a mortgage under a buy-to-let mortgage contract.

Meaning of credit intermediary

5

• (1) A person acts as a credit intermediary if the person—

• (a) is not a creditor;

• (b) is not merely introducing, either directly or indirectly, a consumer to a creditor or credit intermediary;

• (c) is acting in the course of the person's trade, business or profession, for remuneration, which may take a pecuniary form or any other agreed form of financial consideration; and

• (d) meets one or more of conditions A to C.

• (2) Condition A is that the person presents or offers consumer buy-to-let mortgage contracts to consumers.

• (3) Condition B is that the person assists consumers by undertaking preparatory work or other pre-contractual administration in respect of consumer buy-to-let mortgage contracts other than as referred to in Condition A.

• (4) Condition C is that the person concludes consumer buy-to-let mortgage contracts with consumers on behalf of the creditor.

Meaning of advisory services

6

• (1) A person provides advisory services if, in the course of that person's trade, business or profession, the person provides personal recommendations to a consumer in respect of one or more transactions relating to consumer buy-to-let mortgage contracts.

• (2) A person who provides personal recommendations to a consumer in respect of one or more transactions relating to consumer buy-to-let mortgage contracts is not providing advisory services if the recommendations are provided—

• (a) in an incidental manner in the course of a professional activity and that activity is regulated by legal or regulatory provisions or a code of ethics governing the profession which do not exclude the making of those recommendations; or

• (b) in the context of managing existing debt as an insolvency practitioner where that activity is regulated by legal or regulatory provisions or as part of public or voluntary debt advisory services which do not operate on a commercial basis.

Limitation on permission to carry on regulated activities

7

If a person has a Part 4A permission to carry on an activity of the kind specified by article 25A, 36A, 53A, 53DA, 60B or 61 of the Regulated Activities Order, that person's Part 4A permission is subject to a requirement that the person does not carry on any activity that would constitute consumer buy-to-let mortgage business unless the person is a registered consumer buy-to-let mortgage firm.

Register of consumer buy-to-let mortgage firms

8

• (1) The FCA must keep a register of consumer buy-to-let mortgage firms and must enter a person on the register if the conditions in paragraph (2) or (3) are met.

• (2) The conditions in this paragraph are that—

• (a) the person carries on, or is seeking to carry on, consumer buy-to-let mortgage business;

• (b) the person—

• (i) has a Part 4A permission to carry on one or more regulated activities; or

• (ii) is treated as having an interim permission to carry on one or more regulated activities under article 56 of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2013 ;

• (c) the person applies to the FCA in a manner that complies with the requirements of, and any requirements imposed under, article 9 for entry on the register; and

• (d) the FCA has not previously revoked the registration of the person under article 13.

• (3) The conditions in this paragraph are that—

• (a) the person carries on, or is seeking to carry on, consumer buy-to-let mortgage business;

• (b) the person's head office, registered office or place of residence, as the case may be, is in the United Kingdom;

• (c) none of the individuals responsible for the management or operation of the person's consumer buy-to-let mortgage business—