Buy-to-let mortgages – implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules

Financial Conduct Authority
Policy Statement PS15/11
Buy-to-let mortgages – implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules June 2015

Financial Conduct Authority June 2015 1
PS15/11 Buy-to-let mortgages - implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules Abbreviations used in this paper 3 1 Overview 5 2 Registration 9 3 Aggregate data reporting by CBTL lenders 11 4 Complaints and redress 13 5 Proposed handbook changes 14 6 Cost benefit analysis 17
Annex
1 List of non-confidential respondents 19
Appendix
1 Made rules (legal instrument) 20
Contents

In this Policy Statement we report on the main issues arising from Consultation Paper 15/3 Buy-to-let mortgages – implementing the Mortgage Credit Directive Order 2015 and publish the final rules. Please send any comments or enquiries to:
Mortgage Policy Team
Banking, Lending & Protection Department
Strategy & Competition Division
Financial Conduct Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
Telephone: 020 7066 9388
Email: cp15-03@fca.org.uk
All our publications are available to download from www.fca.org.uk. If you would like to receive this paper in an alternative format, please call 020 706 60790 or email publications_graphics @fca.org.uk or write to Editorial and Digital Department, Financial Conduct Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS

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PS15/11 Buy-to-let mortgages - implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules Abbreviations used in this paper CBA cost benefit analysis CBTL consumer buy-to-let CJ Compulsory Jurisdiction DEPP Decision Procedures and Penalties Manual DISP Dispute Resolution: Complaints EG Enforcement Guide FCA Financial Conduct Authority FEES Fees Manual FSMA Financial Services and Markets Act MCD Mortgage Credit Directive PERG Perimeter Guidance Manual SUP Supervision Manual

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PS15/11 Buy-to-let mortgages - implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules 1. Overview Introduction
1.1 In February 2015, we outlined our proposed approach to implementing the government’s
legislative framework for consumer buy-to-let (CBTL) mortgages set out in the Mortgage Credit Directive Order 2015 (”the legislation”).1 In this Policy Statement, we summarise the feedback we received and our response, indicating where we have adjusted our approach to take respondents’ views into account. We are also publishing final Handbook rules and guidance, effective from 21 March 2016. Who does this affect?
1.2 This Policy Statement will interest affected lenders, administrators, intermediaries and
consumers in the buy-to-let mortgage market.
Is this of interest to consumers?
1.3 This Policy Statement will interest consumers who may wish to take out a buy-to-let mortgage
after the government’s CBTL framework comes into effect. However, not every individual applying for a buy-to-let mortgage will be defined as a consumer under the legislation. Context
1.4 In our consultation we explained that the Government had decided to take advantage of an
exemption in the Mortgage Credit Directive (MCD) that allows Member States not to apply the Directive to buy-to-let activity if they have an appropriate framework for regulating it. The Government set out such a framework in Part 3 of the legislation2 which establishes conduct standards, based on the MCD, that will apply to a firm conducting broking, advisory or lending activity with a buy-to-let consumer. These standards come into effect from 21 March 2016 and do not apply to a buy-to-let customer acting for business purposes.
1.5 The legislation does not give us general rule-making powers, such as the ability to modify the
conduct standards. It does give us powers to register, supervise and – where appropriate – take 1 www.fca.org.uk/static/documents/consultation-papers/cp15-03.pdf 2 www.legislation.gov.uk/uksi/2015/910/pdfs/uksi_20150910_en.pdf

6 June 2015 Financial Conduct Authority
PS15/11 Buy-to-let mortgages - implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules action against firms carrying out CBTL activity. In CP15/3, we put forward a set of proposals designed to give effect to those powers. Summary of feedback and our response
1.6 In general, respondents recognised that the scope of this consultation was in line with the
powers conferred on us by legislation.
1.7 There was broad support for our proposed approach across each of the four main areas on
which we consulted.

• Registration – respondents welcomed our intention to replicate the registration processes
  set out in legislation. Some firms requested early sight of the application forms. We are issuing the specimen application form for unauthorised firms alongside this Policy Statement to aid their planning. See our response to question 1, below, for more detail.
• Aggregated data reporting – our proposals were seen as a proportionate way of
  monitoring CBTL lending volumes and informing our supervisory approach. We are clarifying some aspects in the accompanying guidance in light of consultation feedback and also adjusting the timing of reporting. See our response to question 2.
• Complaints handling rules – our proposal to apply the majority of our complaints handling
  rules (set out in the Dispute Resolution section in the FCA Handbook – DISP) to firms’ CBTL activity was broadly supported. Some firms that are already subject to the requirements in DISP for other regulated activities suggested that all of the DISP rules should apply to CBTL activity, including complaints publication rules. Our rules would not prevent firms from publishing their own CBTL complaints data, but we do not think it would be proportionate to change our proposals to mandate this. See our response to question 3.
• Modifications to other Handbook modules to incorporate CBTL – we received limited
  feedback on our changes that will effect the implementation and oversight of the CBTL regime. We have made some minor technical amendments in these areas. See our response to question 4 and 5.
  1.8 In light of this feedback, we are proceeding with our proposals subject to some small changes.
  1.9 Mixed views were expressed on whether we had correctly estimated the number of firms that
  will register with us to undertake CBTL activity. However, given the wide-ranging views (some respondents thought we had under-estimated, others thought we had over-estimated) and the absence of supporting evidence, we see no reason to change the estimated market sizing, costs and benefits set out in CP15/3. Related issues
  1.10 In March, our fees consultation (CP15/14) included details of the fee structure and registration
  fees applicable to CBTL firms. In March 2016 we intend to consult on CBTL firms’ periodic fees and the FOS levy. To give firms some insight into each of the fees that might be payable, CP15/3 set out, but did not formally consult on, indicative upper bounds for both registration and periodic fees payable by CBTL firms.

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1.11 Some respondents to CP15/3 expressed concerns about the indicative fee structure and fee
levels, particularly for intermediaries’ periodic fees. We acknowledge the concerns raised and will feed these into our other consultations on CBTL fees specified above.
1.12 A minority of respondents asked for clarification or guidance on specific aspects of the
legislation - for example on conduct standards, and the definition of a ‘buy-to-let consumer’.
1.13 We are not offering further interpretation on the conduct standards set out in legislation.3
In its summary of responses4
, the government sought to shape the conduct standards, which are based largely on MCD Articles, so that they work for the buy-to-let market. Our overall approach is to allow firms the flexibility to comply with the legislative requirements in a way that fits their respective business models. Similarly, the legislation sets out a series of circumstances which would constitute a buy-to-let customer acting for the purposes of business. The responsibility sits with firms to assess individual circumstances to determine if the CBTL regime applies. Next steps What do you need to do next?
1.14 Under the legislation, firms wishing to lend, administer, intermediate, arrange or provide
advisory services in relation to CBTL from 21 March 2016 will need to be registered by the FCA to do so. We aim to start accepting applications later this summer. To give firms sufficient time to plan their applications, we are publishing the specimen application form for unauthorised firms alongside this Policy Statement. Further information on the registration process for other firms is set out in response to question 1, below. We would encourage firms to apply as soon as possible after registration opens.
1.15 To understand the registration fees that CBTL firms will be required to pay, firms are encouraged
to read our Policy Statement setting out our response to the recent fees consultation, which will be published in June 2015. Firms are also encouraged to respond to our March 2016 fees consultation, which will propose the periodic fees and Financial Ombudsman Service general levy payable by CBTL firms for 2016/17.
1.16 In addition to our further work on fees, we intend to issue technical documentation later this
year to aid firms’ reporting of CBTL aggregate data. We will also publish any further details for firms needing to register with us to undertake CBTL activity on our MCD webpage.5 Impact of changes on mutual societies
1.17 Section 138K of FSMA requires us to state if our proposed rules have a significantly different
impact on authorised persons who are mutual societies, in comparison with other authorised persons. In our consultation paper, we requested comments or information from respondents on issues relating to mutual societies arising from our proposals.
1.18 Our initial assessment was that we did not believe our proposals gave rise to any issues and we
did not receive any responses to contradict this view.
3 The Government consulted on its drafting of the MCD Order in September 2014 www.gov.uk/government/consultations/implementation-of-the-eu-mortgage-credit-directive 4 www.gov.uk/government/uploads/system/uploads/attachment_data/file/397904/implementation_of_the_EU_MCD_summary_of_ responses.pdf 5 www.fca.org.uk/firms/firm-types/mortgage-brokers-and-home-finance-lenders/mcd

8 June 2015 Financial Conduct Authority
PS15/11 Buy-to-let mortgages - implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules Equality and diversity considerations
1.19 Under the Equality Act 2010 we are required to consider any potentially discriminatory impact
on groups with protected characteristics (age, gender, disability, race or ethnicity, pregnancy and maternity, religion, sexual orientation and gender reassignment) and also the need to eliminate discrimination and advance equality of opportunity when carrying out our activities.
1.20 We published the outcomes of our initial equality impact assessment in CP15/3 and invited
comments or information from respondents about the impacts our proposals may have on equality and diversity issues. Our initial assessment was that we did not believe that our proposals gave rise to any equality and diversity issues and we did not receive any comments during the consultation process to contradict this view.

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PS15/11 Buy-to-let mortgages - implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules 2. Registration
2.1 The legislation requires that, from 21 March 2016, a firm acting as a lender (including engaging
in pre-contractual activities), administrator, intermediary, arranger or carrying out advisory services in relation to CBTL business (‘CBTL firms’) must be registered by the FCA. Firms that fail to register will be subject to a requirement on their relevant permissions that they do not carry on any CBTL activity.6
2.2 Our consultation set out the registration processes for CBTL firms, mirroring the requirements of
the legislation. Firms that are not currently FCA authorised or do not hold an interim permission for consumer credit must meet the conditions set out in article 8(3) of the legislation. These conditions will also apply to firms that seek to re-register, if they have previously had their CBTL registration revoked.7 Other firms are to follow a streamlined application process, as per article 8(2). In our consultation we asked:
Q1: Do you agree with our proposals for registering CBTL firms?
2.3 Most respondents agreed with our registration proposals and comments were limited to points
of clarification. For example, some firms wanted early sight of the application forms to give them sufficient time to plan and avoid any breaks in their ability to do business. Another asked us to confirm that our proposals would only apply to CBTL firms and CBTL activity, and not to other types of firm or activity.
2.4 To avoid authorised firms having to register, one respondent asked whether it was possible for
them to be automatically registered by the FCA and, if they are not undertaking CBTL activity, opt out. Another respondent asked for clarification on the application of the streamlined application process.
2.5 We received several views on the role of intermediaries. Three respondents asked whether we
would expect lenders to check the registration status of CBTL intermediaries when accepting business from them. Respondents wanted clarification that brokers would no longer need to hold consumer credit permissions for their buy-to-let broking activity from 21 March 2016.
2.6 Finally, one firm was concerned that there would be additional impacts on their systems from
having a separate CBTL register.
6 Article 7 of the Mortgage Credit Directive Order 7 Article 13 of the Mortgage Credit Directive Order

10 June 2015 Financial Conduct Authority
PS15/11 Buy-to-let mortgages - implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules Our response We are implementing our proposals for registering CBTL firms, based on the legislative requirements. We can confirm that our proposals will only apply to CBTL firms and activity. We intend to start accepting applications for registration later this summer. This gives firms at least six months to register with us in advance of the legislative requirements on CBTL firms coming into effect on 21 March 2016. To assist firms with their planning, we have issued the specimen registration form for unauthorised firms alongside this Policy Statement8 . As set out in legislation and CP15/3, the streamlined application process will only be available to those firms holding Part 4A permissions or interim permissions for consumer credit, and where a previous CBTL registration has not been revoked. This streamlined online process will only require firms to confirm that they wish to register (whether as a lender, administrator, adviser or arranger) and pay the relevant fee. When we begin accepting registrations, firms holding Part 4A permissions will be able to follow this process using a standalone online form through Connect.9 Firms holding interim permissions will be asked these questions on their consumer credit application form. In line with legislation, the FCA may only register a firm following an application for registration and therefore, the FCA is unable to automatically register all authorised firms as conducting CBTL activity and allow for an opt out. The legislation sets out what conduct requirements a CBTL firm must comply with and it does not require lenders to check the registration status of intermediaries. Therefore, the requirement in MIPRU 5.2.3E which requires lenders use the FCA Register to check whether the intermediary holds the relevant permissions does not apply to CBTL activity. However, lenders may decide to follow this to minimise risks. The government has previously confirmed that it is removing buy-to-let broking from the scope of credit broking under the consumer credit regime. With effect from 21 March 2016, business buy-to-let intermediation will not be a regulated activity. However, CBTL intermediation will be subject to the government’s CBTL framework. They will need to register with us to undertake the activity and will no longer need a consumer credit permission for it. Firms will continue to need appropriate permissions if they are engaged in other regulated credit activities. We will hold details of firms’ CBTL registration status on our existing register and this in itself will not present an additional burden to firms. When an authorised firm is added to the CBTL register the restriction preventing them from carrying out this activity will be automatically removed without further fee. 8 www.fca.org.uk/firms/firm-types/mortgage-brokers-and-home-finance-lenders/mcd 9
www.fca.org.uk/firms/systems-reporting/connect

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PS15/11 Buy-to-let mortgages - implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules 3. Aggregate data reporting by CBTL lenders
3.1 In our consultation, we set out our proposals for aggregated data reporting from CBTL lenders
to support our risk-based approach to supervision and inform our understanding of CBTL activity. We asked:
Q2: Do you agree with our proposals for collecting aggregate data from CBTL lenders?
3.2 All respondents agreed with our proposals. They agreed that this was a proportionate way of
meeting our aims.
3.3 We received a range of comments on reporting timetables and frequencies. One trade body
and two building societies wanted to know when reporting would begin for firms. One building society asked how often they should report, and if data should be backfilled for the period prior to March 2016. Another asked us to delay reporting for up to six months to manage the treatment of pipeline applications.
3.4 We also received some requests for clarity in our accompanying draft guidance. Trade bodies
asked us to clarify whether:

• cases where a Receiver of Rent has been appointed should continue to be reported as in
  arrears
• repossessions should capture those taken into possession or the stock held
• loans should be reported on an account or property level basis
• CBTL data should be removed from other returns
• firms should provide nil returns
• we would publish CBTL data
  3.5 On implementation costs, one building society commented that they anticipated system and
  process development to be relatively small, and one non-bank lender believed there would be no material additional costs for lenders because the data sets largely match those currently collected and provided to trade bodies for their wider buy-to-let activity.
  3.6 In CP15/3, we explained that, once the CBTL market matures, we may consider flexing our
  data reporting requirements. One building society had concerns about the potential impact of this, and one trade body thought that it would not give us any additional insight if we collected transactional level data. One consultancy requested that we clarify any data collection requirements for Product Sales Data returns, if implemented.

12 June 2015 Financial Conduct Authority
PS15/11 Buy-to-let mortgages - implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules Our response We intend to implement our approach to collecting aggregate data from CBTL lenders, but with additional guidance in response to feedback. In particular, our guidance set out in SUP 16 clarifies that:

• the number of loans reported should be on an account level basis;
• cases under a Receiver of Rent’s control should continue to be reported as
  in arrears where applicable;
• repossessions are to be reported on the basis of repossessions within the
  period and year to date, as applicable, and not the repossession stock held by the firm; and
• as with other regulatory reporting, CBTL lenders will have to submit a nil
  return if they are registered with us but have no CBTL lending activity to report within a quarter. To aid our analysis of the data and simplify the requirements for firms, we are changing the reporting date and reporting frequencies. In CP15/3, we consulted on rules coming into effect from 21 March 2016, with firms required to report on a quarterly basis linked to their accounting reference date. We are making a change to our rules for firms to report from 1 April 2016 (and only on CBTL mortgages entered into from that date) and every calendar quarter thereafter. However, we will not delay implementation of our requirements to accommodate pipeline applications. We believe the limited nature of our aggregate reporting requirements will have no material implications on the reporting of CBTL applications received prior to 1 April 2016, but which complete after this date. Firms will be required to submit the standalone CBTL returns using our GABRIEL system. We will release technical documentation to firms later this year to support their systems development. We do not currently intend to publish CBTL data on a regular basis, nor do we wish firms to remove details of their CBTL transactions from other regulatory returns they are required to complete by virtue of holding other permissions (eg the Mortgage Lenders and Administrators Return). Finally, we will only be in a position to consider further changes to our aggregate CBTL reporting requirements once our understanding of firms’ activity improves post-March 2016. We will consult on any proposed changes, but do not have any planned at present.

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PS15/11 Buy-to-let mortgages - implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules 4. Complaints and redress
4.1 The government’s proposals mean that the Financial Ombudsman Service’s jurisdiction will
now cover CBTL business. In our consultation we set out proposals to apply the majority of our complaints handling rules in DISP to firms’ CBTL activity. We asked:
Q3: Do you agree with our proposals for complaints and redress in relation to CBTL firms?
4.2 Most respondents agreed with our proposals to apply the majority of DISP rules to CBTL
activity. However, there were mixed views about not applying all rules set out in DISP. Some respondents suggested that firms should be subject to all the DISP rules for CBTL activity, including the requirement to publish complaints data.
4.3 One consultancy asked us to clarify if the ombudsman service levy was additional to other fees
paid by the firm, and whether any CBTL cases referred to FOS would count towards the 25 free case allowance (which applies to firms outside the group fee arrangement).
4.4 One respondent asked whether CBTL firms would be subject to the ‘summary resolution
communication’ proposals consulted on in CP14/3010.
Our response
We intend to implement our original proposals for complaints and redress in relation to CBTL firms. Our proposals are intended to set out the minimum we expect from firms. Beyond this, our rules do not prevent firms from complying with other rules in DISP if they wish to do so on a voluntary basis eg individual firms may decide that they wish to publish CBTL complaints volumes on a voluntary basis. We are considering feedback to CP14/30 and intend to publish the policy statement later this year. We will confirm in this policy statement if we intend to proceed with the summary resolution communication proposals and if so which firms the rules will apply to. As mentioned in the introduction, we are consulting separately on fees arrangements, and will take into account comments made during this consultation.11 It is likely that ombudsman case fee arrangements for CBTL will operate in the same way as they do for firms’ other activities and that chargeable CBTL cases will be included in the free case allowance. 10 www.fca.org.uk/static/documents/consultation-papers/cp14-30.pdf (chapter 2) 11 We consulted on fee structure and registration fees separately in CP15/14 in February 2015, and intend to consult on the levels for periodic fees and the FOS levy in March 2016.

14 June 2015 Financial Conduct Authority
PS15/11 Buy-to-let mortgages - implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules 5. Proposed handbook changes
5.1 In our consultation we set out our proposals for modifications to other Handbook modules to
incorporate CBTL, including changes to our Supervision Manual (SUP), Enforcement Guide (EG), Decision Procedures and Penalties Manual (DEPP), Perimeter Guidance Manual (PERG), and our Glossary. We asked:
Q4: Do you agree with proposed changes to our Supervision, Enforcement Guidance, Decision Procedures and Penalties and Perimeter Guidance manuals? Q5: Do you have any comments on our draft rules in order to implement the CBTL regime set out in legislation?
5.2 Most respondents agreed with the rules and guidance on which we consulted. A trade body
felt that our PERG guidance did not result in any unintended consequences for our regulation of residential lending and struck the correct balance in setting out the distinction between CBTL, buy￾to-let contracts which are regulated mortgage contracts and buy-to-let for business purposes.
5.3 However, some respondents asked for further clarification of the legislative definitions. One
intermediary thought the definition of a CBTL mortgage is unclear and saw risks arising from lenders, advisers, and borrowers adopting differing interpretations and firms failing to understand the scope of their responsibilities. They were also concerned that firms might abuse the ‘business’ declaration to prevent buy-to-let consumers benefiting from the protections set out in the legislation. They suggested that we work with the industry to define a standard objective test so that there was a clear and consistent approach to defining a CBTL agreement. Similarly, a lender suggested that some worked examples would be useful to help firms interpret our guidance for different scenarios.
5.4 One building society asked us to clarify whether:

• all non-business buy-to-let is CBTL by default;
• contracts that currently fall under the definition of a regulated mortgage contract (eg where
  a property is let to a close relative) do not overlap with the CBTL definition and will continue to be MCOB-regulated loans; and
• a contract could be a CBTL contract if the person had lived in the property in the past, or
  wished to live in it or rent it out to close relatives (related persons) in the future.
  5.5 A trade body asked if we intended to produce any further guidance on the declaration process
  set out in legislation, where customers confirm that they are acting for the purposes of business.

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5.6 Some firms questioned how they should interpret the conduct standards set out in legislation
– for example, how to present standard information on webpages, TV and radio.
5.7 One trade body and one non-bank lender asked us to allow the same transitional period to
apply training and competence requirements as other MCD business.
5.8 We also received some requests for clarity on our draft rules and guidance. Respondents
identified issues with

• the definition of a buy-to-let credit agreement used in PERG and our Glossary;
• our cross-referencing in PERG 4.10B.21G(2)(a); and
• the definition of a ‘related person’
  5.9 Finally, a trade body asked us to clarify the purpose of our draft guidance on the application of
  the approved persons regime at SUP 12.6.8(3)G.
  Our response
  We intend to make final rules broadly in line with those on which we consulted.12 As explained in Chapter 1, we have chosen not to issue further guidance on the definitions or the conduct standards contained in the legislation. We believe that the legislation clearly sets out the circumstances under which a buy-to-let customer is acting for the purposes of business and what must be included in the customer’s declaration that he is doing so.13 We wish to give firms flexibility in interpreting the legislative requirements and so do not plan to issue additional guidance. Firms must satisfy themselves whether a customer is a consumer or acting for the purposes of business based on facts specific to each case. We can confirm that the legislation gives firms an additional year to comply with knowledge and competence requirements provided that, before 21 March 2014, the firm was undertaking activity that would have constituted CBTL. We can also clarify that contracts currently falling under the definition of a regulated mortgage contract14 will continue to be MCOB-regulated loans. Regarding the three specific requests for clarity on our draft rules and guidance, we wish to clarify that:
• our definitions refer to credit agreements rather than mortgage contracts
  because this is necessary to accommodate loans that meet the definition of MCD article 3(1)(b).15 12 Our fees instrument, due to be published later this month, will enter into force before that included at Appendix 1 of this Policy Statement. As a consequence, the glossary definition of a ‘CBTL firm’ will form part of the fees instrument. We do not expect that this definition will be materially different to that on which we consulted in CP15/3. 13 Article 4 of the Mortgage Credit Directive Order 14 e.g. where a property is let to a close relative 15 MCD article 3(1)(b) is defined as “credit agreements the purpose of which is to acquire or retain property rights in land or in an existing or projected building”

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• we have corrected our cross referencing in PERG 4.10B.21G
• we have clarified the definition of a ‘related person’ in our final rules in
  PS15/9, our policy statement on the wider changes arising from the Mortgage Credit Directive.16 We do not believe that it is necessary to amend SUP 12.6.8(3) as it is clear that the disapplication of the Approved Persons regime only applies to a CBTL firm’s CBTL activity. This guidance does not affect the position for firms that need Approved Persons because of their other permissions. We have addressed changes to data reporting rules and guidance in response to question 2, above. We will also be using this Instrument to publish the final rules for non-CBTL amendments to DISP brought about by the Mortgage Credit Directive. These changes were consulted on in Chapter 5 of CP14/30.17 We received widespread support for these proposals from stakeholders, therefore we will be proceeding with the amendments. Our final Handbook text is set out in Appendix 1. 16 www.fca.org.uk/static/fca/documents/ps15-9.pdf 17 CP14/30: Improving complaints handling, (Dec 2014). www.fca.org.uk/your-fca/documents/consultation-papers/cp14-30

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PS15/11 Buy-to-let mortgages - implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules 6. Cost benefit analysis
6.1 The Financial Services and Markets Act (FSMA) requires us to publish a cost benefit analysis
(CBA) of our proposed rules. Specifically, section 138I requires us to publish a CBA of proposed rules, defined as ‘an analysis of the costs, together with an analysis of the benefits’ that will arise if the proposed rules are made. It also requires us to include estimates of those costs and benefits, unless these cannot reasonably be estimated or it is not reasonably practicable to produce an estimate.
6.2 The government has published its own impact assessment of the effects of the CBTL appropriate
framework alongside its final legislation that brings the regime into effect.18 In our consultation we set out the CBA for the two discretionary elements of our proposals - aggregate data reporting and the complaints handling rules under DISP. We asked:
Q6: Do you have any comments on our cost benefit analysis?
6.3 Respondents expressed mixed views on whether we had correctly estimated the number of
firms that will register with us to undertake CBTL activity. However, they did not present strong evidence to challenge our CBA.
6.4 One trade body thought that we had overestimated the numbers of authorised lenders and
brokers that will register. They thought that because CBTL is specialist business, only around 30 mainstream buy-to-let mortgage market lenders would register, and that most smaller broker firms would not apply due to the costs involved. Similarly, another trade body thought that transaction numbers would be very small.
6.5 A non-bank lender considered that we had underestimated broker numbers, but recognised
that estimating this with certainty was challenging. They did not think that the benefits balanced the substantial costs, where there was no current evidence of detriment.
6.6 One smaller bank estimated that their costs in implementing the CBTL requirements were 10
times as large as our estimates, and that we had underestimated the investment resources and management time required for firms to implement. 18 www.gov.uk/government/uploads/system/uploads/attachment_data/file/397902/MCD_impact_assessment_final.pdf

18 June 2015 Financial Conduct Authority
PS15/11 Buy-to-let mortgages - implementing the Mortgage Credit Directive Order 2015, feedback on CP15/3 and final rules Our response It is important to recognise that our CBA only estimated the costs and benefits associated with our two discretionary proposals – the application of DISP rules and the introduction of aggregate data reporting. The government has previously estimated the costs and benefits of implementing the legislative regime as a whole. Respondents did not present strong evidence to challenge our CBA. On this basis we are content with the estimated market sizing, costs and benefits outlined in CP15/3, and that the amendments to our Handbook text are not significant and do not alter the CBA.

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Annex 1
List of non-confidential respondents
Association of Mortgage Intermediaries
Building Societies Association
Council of Mortgage Lenders
Coventry Building Society
Leeds Building Society
Matthew Speck
Morton Fraser LLP
Paragon Group of Companies PLC
SimplyBiz
Sukhija Financial

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Appendix 1
Made rules (legal instrument)

FCA 2015/33
FOS 2015/3
MORTGAGE CREDIT DIRECTIVE (CONSUMER BUY-TO-LET) INSTRUMENT 2015 Powers exercised by the Financial Ombudsman Service Limited A. The Financial Ombudsman Service Limited makes this instrument amending:
(1) the rules relating to complaints handling procedures of the Financial Ombudsman Service; (2) the rules, standard terms and guidance for Voluntary Jurisdiction participants; as set out in Annexes A and D of this instrument in the exercise of the following powers and related provisions in the Financial Services and Markets Act 2000 (“the Act”):
(a) section 227 (Voluntary jurisdiction);
(b) paragraph 8 (Guidance) of Schedule 17 (The Ombudsman Scheme); (c) paragraph 14 (The scheme operator’s rules) of Schedule 17; (d) paragraph 15 (Fees) of Schedule 17; (e) paragraph 18 (Terms of reference to the scheme) of Schedule 17; and (f) paragraph 22 (Consultation) of Schedule 17. B. The making (and amendment) of the rules, guidance and standard terms in Annexes A and D by the Financial Ombudsman Service Limited is subject to the consent and approval of the Financial Conduct Authority. Powers exercised by the Financial Conduct Authority
C. The Financial Conduct Authority makes this instrument in the exercise of the powers
and related provisions in or under:
(1) the following sections of the Act:
(a) section 137A (The FCA’s general rules);
(b) section 137T (General supplementary powers); (c) section 139A (Power of the FCA to give guidance); (d) section 210 (Statements of policy) as applied by article 23(4) of the Mortgage Credit Directive Order 2015 (SI 2015/910) (“the MCD Order”); (e) section 226 (Compulsory jurisdiction) as applied by article 26(1) of the MCD Order; (f) section 395 (The FCA’s and PRA’s procedures) as applied by article 24(2) of the MCD Order; (g) paragraph 23 of Schedule 1ZA (The Financial Conduct Authority) as applied by article 25 of the MCD Order; and (h) paragraph 13 (FCA’s procedural rules) of Schedule 17 (The Ombudsman Scheme) as applied by article 26(1) of the MCD Order; (2) the following articles of the MCD Order:

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(a) article 18 (Obligations of registered consumer buy-to-let mortgage firms); (b) article 19(4) (Power to direct registered consumer buy-to-let mortgage firms to take appropriate action); (c) article 21 (Monitoring and enforcement); and (d) article 22 (Guidance); and (3) the other powers and related provisions listed in Schedule 4 (Powers exercised) to the General Provisions of the Handbook. D. The rule-making powers listed above are specified for the purpose of section 138G (Rule-making instruments) of the Act. E. The Financial Conduct Authority consents to and approves the rules, guidance and standard terms made and amended by the Financial Ombudsman Service Limited. Commencement F. This instrument comes into force on 21 March 2016. Amendments to the Handbook G. The modules of the FCA’s Handbook of rules and guidance listed in column (1) below are amended in accordance with the Annexes to this instrument listed in column (2) below:
(1) (2)
Glossary of definitions Annex A
Supervision manual (SUP) Annex B
Decision Procedure and Penalties manual (DEPP) Annex C Dispute Resolution: Complaints sourcebook (DISP) Annex D Amendments to material outside the Handbook H. The Enforcement Guide (EG) is amended in accordance with Annex E to this instrument.
I. The Perimeter Guidance manual (PERG) is amended in accordance with Annex F to
this instrument.

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Notes
J. In Annexes A and B to this instrument, the “notes” (indicated by “Note:”) are included for the convenience of readers but do not form part of the legislative text. Citation K. This instrument may be cited as the Mortgage Credit Directive (Consumer Buy-to￾Let) Instrument 2015. By order of the Board of the Financial Conduct Authority 4 June 2015 By order of the Board of the Financial Ombudsman Service Ltd 3 June 2015

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Annex A
Amendments to the Glossary of definitions
In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. Insert the following new definitions in the appropriate alphabetical position. This text is not underlined. buy-to-let credit agreement a contract that:
(a) at the time it is entered into:
(i) is one under which a lender provides credit to an individual or to trustees (the 'borrower'); (ii) provides for the obligation of the borrower to repay to be secured by a mortgage on land in the EEA; (iii) at least 40% of the land is used, or is intended to be used:
(A) (in the case of credit provided to an individual) as or in connection with a dwelling; or (B) (in the case of credit provided to a trustee which is not an individual) as or in connection with a dwelling by an individual who is a beneficiary of the trust or a related person; and (iv) provides that the land secured by the mortgage cannot at any time be occupied as a dwelling by the borrower or a related person; and is to be occupied as a dwelling on the basis of a rental agreement; or (b) is a regulated credit agreement which is an article 3(1)(b) credit agreement and provides that the land, or existing or projected building, to which it relates; (i) cannot at any time be occupied as a dwelling by the borrower or a related person; and (ii) is to be occupied as a dwelling on the basis of a rental agreement. [Note: article 4(1) of the MCD Order] CBTL adviser a person who, in the course of their trade, business or profession, provides personal recommendations to a CBTL consumer in respect of one or more transactions relating to CBTL credit agreements otherwise than:

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(a) in an incidental manner in the course of a professional activity 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. [Note: article 6 of the MCD Order] CBTL arranger a person who in the course of their trade, business or profession, for remuneration which may take a pecuniary form or any other agreed form of financial consideration:
(a) presents or offers CBTL credit agreements to CBTL consumers; or (b) assists CBTL consumers by undertaking preparatory work or other pre-contractual administration in respect of CBTL credit agreements other than as in (a); or (c) concludes CBTL credit agreements with CBTL consumers on behalf of the CBTL lender; and is not:
(d) a CBTL lender; or
(e) merely introducing, either directly or indirectly, a CBTL consumer to a CBTL lender or CBTL arranger. [Note: article 5 of the MCD Order] CBTL business any of the following activities:
(a) acting as a CBTL lender; or
(b) acting as a CBTL arranger; or
(c) acting as a CBTL adviser.
[Note: article 4(1) of the MCD Order]
CBTL consumer (in relation to a buy-to-let credit agreement) (a) a person acting for purposes which are outside that person’s trade, business or profession; or (b) a borrower under a CBTL credit agreement. CBTL credit agreement a buy-to-let credit agreement 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 him. For this purpose examples of when a borrower is to be regarded as entering into a buy-to-let credit agreement for the purpose of a business carried on, or intended to be carried on by him are:

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(a) (i) the borrower previously purchased, or is entering into a buy-to-let credit agreement in order to finance the purchase by him of, the land to which the agreement relates; and (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 buy-to-let credit agreement; 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 buy-to-let credit 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 credit agreement. [Note: articles 4(1) and 4(4) of the MCD Order] CBTL lender a person who:
(a) enters into or promises to enter into a CBTL credit agreement under which the person is to provide credit; or (b) administers a CBTL credit agreement in circumstances where doing so constitutes, or would if the person were not a CBTL firm constitute, administering a regulated mortgage contract; in the course of a trade, business or profession. [Note: article 4(1) of the MCD Order] MCD Order the Mortgage Credit Directive Order 2015 (SI 2015/910). Amend the following definitions as shown. Financial Services Register the public record, as required by section 347 of the Act (The public record), regulation 4 of the Payment Services Regulations (The register of certain payment service providers), and regulation 4 of the Electronic Money Regulations and article 8 of the MCD Order, of every:
…
(ae) CBTL firm;

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… respondent (1) (in DISP, FEES 5 and CREDS 9) a firm (except an AIFM qualifier or a UCITS qualifier), payment service provider, electronic money issuer, CBTL firm, or VJ participant covered by the Compulsory Jurisdiction, Consumer Credit Jurisdiction or Voluntary Jurisdiction of the Financial Ombudsman Service. (2) (in DISP 2 and 3 and FEES 5) includes, as a result of section 226 of the Act:
…
(c) … ; and
(d) … ; and
(e) a person who was formerly a CBTL firm in respect of a complaint about an act or omission which occurred at the time when it was a CBTL firm, provided that the compulsory jurisdiction rules were in force in relation to the activity in question. … senior personnel (1) those persons who effectively direct the business of the firm or CBTL firm, which could include a firm’s or CBTL firm’s governing body and other persons who effectively direct the business of the firm or CBTL firm. …

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Annex B
Amendments to the Supervision manual (SUP)
In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. 2 Information gathering by the FCA or PRA on its own initiative
2.1 Application and purpose
Application
…
2.1.2A G CBTL firms are subject to a duty to deal with the FCA in an open and co￾operative manner under article 18(1)(d) of the MCD Order. SUP 2.3 applies to CBTL firms in relation to complying with that duty as though:
(1) a reference to firm included a reference to a CBTL firm; (2) a reference to the regulatory system were a reference to the provisions of the MCD Order, rules, directions and guidance applicable to CBTL firms; (3) a reference to Principle 11 were a reference to the duty imposed by
article 18(1)(d) of the MCD Order;
(4) a reference to the appropriate regulator’s functions under the Act were a reference to the FCA’s functions under Part 3 of the MCD Order; (5) a reference to SUP 12.5.3G were a reference to SUP 12.5.3AG; (6) a reference to material outsourcing were a reference to outsourcing services of such importance that weakness, or failure, of the services would cast serious doubt upon the CBTL firm’s continuing satisfaction of any condition for registration in article 8(2) or 8(3) of the MCD Order; and (7) the rules were guidance in the same terms but with the word “must” replaced with the word “should”. … Purpose …
2.1.10 G The purpose of applying the provisions set out in SUP 2.1.2AG to CBTL
firms is to amplify the duty of CBTL firms to deal with the FCA in an open

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5.1 Application and purpose
Application
…
5.1.1C D SUP 5.5.1R and SUP 5.5.5R apply to CBTL firms in relation to their CBTL business as if a reference to firm in these rules were a reference to a CBTL firm and a reference to section 166 of the Act were a reference to section 166 of the Act, as applied by article 23(2)(b) of the MCD Order. 5.1.1D G SUP 5.5.1R and SUP 5.5.5R apply to former CBTL firms in relation to their CBTL business as guidance and as if:
(1) a reference to firm in those rules were a reference to a CBTL firm; (2) section 166 of the Act were a reference to section 166 of the Act as applied by article 23(2)(b) of the MCD Order; and (3) the word “must” were replaced by the word “should”. 5.1.1E G The guidance in SUP 5.2.1G, SUP 5.3, SUP 5.4 (except SUP 5.4.1AG), and SUP 5.5 (except SUP 5.5.10G and SUP 5.5.11G) applies to CBTL firms and former CBTL firms in relation to their CBTL business as if:
(1) a reference to firm in that guidance included a CBTL firm; (2) a reference to a section of the Act were a reference to that section as applied by article 23 of the MCD Order if applicable; and (3) a reference to the FCA’s functions under the Act were a reference to the FCA’s functions under Part 3 of the MCD Order. …
5.5 Duties of firms
…
Assisting the skilled person
…
5.5.11A G Section 166(7) of the Act (as applied by article 23(2)(b) of the MCD Order) imposes, in appropriate circumstances, a duty on CBTL firms to give the skilled person all such assistance as the skilled person may reasonably require. Where this duty applies to a CBTL firm, the FCA expects the CBTL

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(1) take reasonable steps to ensure that, when reasonably required by the skilled person, each of its appointed representatives waives any duty of confidentiality; (2) take reasonable steps to ensure that, when reasonably required by the skilled person, each of its appointed representatives complies with any duty under section 166(7) applicable to it, or provides assistance to the skilled person as though that duty applied directly to it; (3) allow the skilled person access at all reasonable business hours to the CBTL firm’s accounting and other records in whatever form; (4) provide such information and explanations as the skilled person reasonably considers necessary or desirable for the performance of his duties; and (5) permit the skilled person to obtain such information directly from the CBTL firm’s auditor as he reasonably considers necessary or desirable for the proper performance of his duties. … 10A FCA Approved Persons 10A.1 Application … Appointed representatives 10A.1.15 R The descriptions of the following FCA controlled functions apply to an appointed representative of a firm, except in relation to CBTL business or an introducer appointed representative, as they apply to an FCA-authorised person:
…
…
10A.4 Specification of functions
…
10A.4.2 R Part 1 of the table of FCA controlled functions applies in relation to an FCA￾authorised person. It also applies in relation to an appointed representative for the purposes of SUP 10A.1.15R (Appointed representatives) whether its principal is an FCA-authorised person or a PRA-authorised person, except in relation to CBTL business. … …

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12 Appointed representatives
12.1 Application and purpose
12.1.1 R …
(1B) This chapter applies to a CBTL firm other than a CBTL lender which is considering appointing, has decided to appoint or has appointed an appointed representative in relation to CBTL business as it does to a firm. … …
12.3 What responsibility does a firm have for its appointed representatives or
EEA tied agent?
Responsibility for appointed representatives
12.3.1 G In determining whether a firm has complied with any provision in or under
the Act such as any Principle or other rule, or with any provision in Part 3 of the MCD Order, anything that an appointed representative has done or omitted to do as respects the business for which the firm has accepted responsibility will be treated as having been done or omitted to be done by the firm (section 39(4) of the Act and article 17 of the MCD Order). …
12.4 What must a firm do when it appoints an appointed representative or an
EEA tied agent?
The permission that the firm needs
…
12.4.1A G The effect of sections 20 (Authorised persons acting without permission) and 39(4) (Exemption of appointed representatives) of the Act is that the regulated activities covered by an appointed representative’s appointment need to:
…
(2) be excluded from being regulated activities when carried on by the principal, for example because they fall within article 28 of the Regulated Activities Order (Arranging transactions to which the arranger is a party) or because they constitute CBTL business and the principal is a CBTL firm. 12.4.1B G In relation to CBTL business only a CBTL firm which is a firm can appoint an appointed representative.

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…
12.5 Contracts: required terms
Required contract terms for all appointed representatives …
12.5.3 G A (Subject to SUP 12.5.3AG) a firm should satisfy itself that the terms of
the contract with its appointed representative (including an introducer appointed representative):
…
12.5.3A G To the extent that the appointment of the appointed representative includes CBTL business, a firm should satisfy itself that the terms of the contract with its appointed representative:
(1) are designed to enable the firm to comply properly with any direction issued or imposed under article 19 of the MCD Order; and (2) require the appointed representative to deal with the FCA in an open and co-operative manner and give access to its premises, as set out in SUP 2.3.4G and SUP 2.3.5AG(2) as applied by SUP 2.1.2AG. …
12.5.5 R A firm must ensure that its written contract with each of its appointed
representatives:
…
(2) requires the appointed representative to comply, and to ensure that any persons who provide services to the appointed representative under a contract of services or a contract for service comply, with the relevant requirements in or under the Act (including the rules) that apply to the activities which it carries on as appointed representative of the firm; and (2A) (where the scope of appointment of the appointed representative includes CBTL business) requires the appointed representative to comply, and to ensure that any persons who provide services to the appointed representative under a contract for service comply, with the requirements of and arising under Part 3 of the MCD Order; and … …
12.6 Continuing obligations of firms with appointed representatives or EEA tied
agents

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…
Obligations of firms under the approved persons regime
12.6.8 G …
(3) The approved persons regime does not apply in relation to CBTL business carried on by CBTL firms. … Obligations of firms under the training and competence rules … 12.6.11- A R A CBTL firm must take reasonable care to ensure that:
(1) individuals who are its appointed representatives; and (2) individuals who are employed or appointed by appointed representatives (whether under a contract of service or for services); who act in connection with the CBTL business of the appointed representative for which the CBTL firm has accepted responsibility satisfy the knowledge and competence requirements set out in paragraph 3 of
Schedule 2 to the MCD Order.
…
12.9 Record keeping
…
12.9.3 G The firm should also satisfy itself that:
(1) the appointed representative is making and retaining records in accordance with the relevant record keeping rules in the Handbook or, in relation to CBTL business, the record keeping requirements in or under Part 3 of the MCD Order, if these records are not maintained by the firm; … … 15 Notifications to the FCA or PRA
15.1 Application
Who?

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…
15.1.3A G The guidance in SUP 15.13 applies to all CBTL firms whether or not they are also firms. … After SUP 15.12 insert the following new section. The text is new and is not underlined.
15.13 Notification by CBTL firms
Application and purpose
15.13.1 G This section sets out guidance for CBTL firms to assist them in complying
with their obligation to notify the FCA immediately if they cease to satisfy any condition for registration in article 8(2) or 8(3) of the MCD Order. [Note: article 12 of the MCD Order]
15.13.2 G The nature of a CBTL firm’s obligation under article 12 of the MCD Order
will depend on whether the CBTL firm has a Part 4A permission to carry on one or more regulated activities. CBTL firms which have Part 4A permission
15.13.3 G The circumstances in which a CBTL firm which has a Part 4A permission
should notify the FCA include but are not limited to when:
(1) it ceases to carry on CBTL business and does not propose to resume carrying on CBTL business in the immediate future. This does not include circumstances where the CBTL firm temporarily withdraws its products from the market or is preparing to launch fresh products; or (2) it applies to cancel its Part 4A permission; or (3) it applies to vary its Part 4A permission so that once the variation takes effect it will cease to hold any Part 4A permission; or (4) it receives a final notice to cancel its Part 4A permission; or (5) it receives a second supervisory notice to vary its Part 4A permission so that once the variation takes effect it will cease to hold any Part 4A permission. CBTL firms which do not have a Part 4A permission
15.13.4 G The circumstances in which a CBTL firm which does not have a Part 4A
permission should notify the FCA include but are not limited to when:
(1) it ceases to carry on CBTL business and does not propose to resume carrying on CBTL business in the immediate future; this does not

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(a) is convicted of any offence involving fraud or dishonesty or any indictable offence, including any act or omission which would have been an offence if it had taken place in the United Kingdom; or (b) becomes subject to a prohibition order; or (4) it takes on an individual to be responsible for the management or operation of the CBTL business within the CBTL firm who has been:
(a) convicted of any offence involving fraud or dishonesty or any indictable offence, including any act or omission which would have been an offence if it had taken place in the United Kingdom; or (b) is subject to a prohibition order; or (5) (if the CBTL firm is an undertaking) any person who:
(a) holds 10% or more of the shares in the CBTL firm or in a parent undertaking of the CBTL firm; or (b) holds 10% or more of the voting power in the CBTL firm or in a parent undertaking of the CBTL firm; or (c) holds shares or voting power in the CBTL firm or in a parent undertaking of the CBTL firm as a result of which he is able to exercise significant influence over the management of the CBTL firm; ceases to be a fit and proper person having regard to the need to ensure the sound and prudent conduct of the affairs of the CBTL firm; or (6) (if the CBTL firm is an undertaking) any person who is not a fit and proper person, having regard to the need to ensure the sound and prudent conduct of the affairs of the CBTL firm, acquires an interest such that he:
(a) holds 10% or more of the shares in the CBTL firm or in a parent undertaking of the CBTL firm; or

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(b) holds 10% or more of the voting power in the CBTL firm or in a parent undertaking of the CBTL firm; or (c) holds shares or voting power in the CBTL firm or in a parent undertaking of the CBTL firm as a result of which he is able to exercise significant influence over the management of the CBTL firm; or (7) any of the following persons cease to be of good repute:
(a) a person responsible for the management of the CBTL firm; or (b) a person responsible for the CBTL firm’s CBTL business; or (c) a director of the CBTL firm (if the CBTL firm is a body corporate); or (8) a person who is not of good repute becomes:
(a) responsible for the management of the CBTL firm; or (b) responsible for the CBTL firm’s CBTL business; or (c) a director of the CBTL firm (if the CBTL firm is a body corporate); or (9) (if the CBTL firm is a CBTL arranger or a CBTL adviser) it ceases to hold professional indemnity insurance as described in article 8(f) of the MCD Order; or (10) the individuals responsible for the management or operation of the CBTL business of the CBTL firm lack an appropriate level of knowledge or competence in relation to CBTL credit agreements. Method, form and timing of notifications
15.13.5 G Any notification given by a CBTL firm under article 12 of the MCD Order
should be:
(1) in writing;
(2) in English;
(3) given to or addressed for the attention of the CBTL firm’s usual supervisory contact at the FCA (where the CBTL firm does not have an identified supervisory contact this will be the FCA’s Contact Centre); (4) delivered to the FCA by one of the methods in SUP 15.7.5AR to the appropriate address set out in SUP 15.7.6AG; and

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(5) given by a person who has full knowledge of the facts giving rise to the notification and who is responsible for the management of the CBTL firm or the CBTL firm’s CBTL business.
15.13.6 G A notification given under article 12 of the MCD Order should contain at
least the following information:
(1) the CBTL firm’s name and reference number; (2) the name and telephone, postal and email (where available) contact details of the person responsible for making the notification; (3) a statement that the notification is given under article 12 of the MCD Order; (4) a statement setting out the specific condition of article 8 of the MCD Order that the notification relates to; (5) full details of the facts giving rise to the notification, including in particular when the relevant events occurred and when the CBTL firm became aware of them (if different); and (6) full details of any steps taken or proposed to be taken by the CBTL firm to address the issues giving rise to the obligation to make the notification, including a proposed timeline for the steps, if applicable.
15.13.7 G The MCD Order requires notification to be given immediately. The FCA
expects CBTL firms to act with all due urgency in notifying it of any relevant event, and it is unlikely that the FCA will regard delay in excess of 5 working days as complying with the CBTL firm’s obligations. Amend the following as shown. 16 Reporting requirements
16.1 Application
…
16.1.1D D SUP 16.21 applies to a CBTL firm.
…
16.3 General provisions on reporting
…
Structure of the chapter

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16.3.2 G This chapter has been split into the following sections, covering:
…
(14) … ; and
(15) … ; and
(16) reporting under the MCD Order for CBTL firms (SUP 16.21).
…
After SUP 16.20 insert the following new section. The text is new and is not underlined.
16.21 Reporting under the MCD Order for CBTL firms
Application
16.21.1 D This section applies to a CBTL firm that enters into or promises to enter into
a CBTL credit agreement as lender, or a CBTL firm in which the rights and obligations of the lender under a CBTL credit agreement are vested. Purpose
16.21.2 G The purpose of this section is to direct CBTL firms in relation to:
(1) the information that they must provide to the FCA on their CBTL business and their compliance with requirements imposed by
Schedule 2 to the MCD Order; and
(2) the time at which, and the manner and form in which, they must provide that information. [Note: article 18(1)(c) of the MCD Order]
16.21.3 G The purpose of this section is also to make provision for CBTL firms in
relation to the failure to submit reports.
Reporting requirement
16.21.4 D (1) A CBTL firm must submit a duly completed consumer buy-to-let
return to the FCA.
(2) The return referred to in (1) must be submitted:
(a) in the format set out in SUP 16 Annex 39AD; guidance notes for the completion of the return are set out in SUP 16 Annex 39BG; (b) online through the appropriate systems accessible from the FCA’s website; and

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(c) within 30 business days following the end of the reporting period. (3) The reporting period is the four calendar quarters beginning on 1 April.
16.21.5 D SUP 16.3.11R (Complete reporting) and SUP 16.3.13R (Timely reporting)
apply as directions to a CBTL firm in relation to CBTL business as if a reference to firm in these provisions were a reference to a CBTL firm.
16.21.6 R SUP 16.3.14R (Failure to submit reports) applies to a CBTL firm in relation
to CBTL business as if a reference to firm in that rule were a reference to a CBTL firm.
16.21.7 D (1) A CBTL firm may appoint another person to provide a report on the
CBTL firm’s behalf if the CBTL firm has informed the FCA of that appointment in writing. (2) Where (1) applies, the CBTL firm must ensure that the report complies with the requirements of SUP 16.21. …

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After SUP 16 Annex 38B insert the following new annexes. The text is new and is not underlined. 16 Annex 39AD Consumer buy-to-let return CONSUMER BUY-TO-LET (CBTL) MORTGAGE AGGREGATED DATA RETURN Lending Number Value (£000) New CBTL advances in the reporting period Outstanding CBTL loans Arrears, repossessions and receivers Number Value (£000) CBTL loans in arrears of >1.5% of outstanding balance In the reporting period In the reporting year to date CBTL repossessions Number of Receiver appointments on CBTL Number of CBTL properties under the control of a Receiver Complaints In the reporting period In the reporting year to date Total CBTL complaints outstanding at reporting period start date CBTL complaints received CBTL complaints closed CBTL complaints upheld by firm Total redress paid on CBTL complaints (£)

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16 Annex 39BG Guidance notes for completion of consumer buy-to-let return in SUP 16 Annex 39AD Outline guidance for firms completing the aggregated ‘consumer buy-to-let’ (CBTL) mortgage return We expect firms registered by us to carry out CBTL lending to report aggregated data to us on a quarterly basis, with reports scheduled in line with each calendar quarter. We expect firms to report loans, and aspects relating to those loans, that meet the definition of a “consumer buy-to-let mortgage contract”, as defined in article 4 of the Mortgage Credit Directive Order (CBTL credit agreement in the Handbook). We expect firms to submit a nil return if they have no data to report. Further guidance is provided, below, on what should be reported under each category. 1 Lending The number of CBTL loans reported should be at account level, rather than property level. (a) New CBTL advances in the reporting period This should include new loans for house purchase and remortgage, where the mortgage completes in the reporting period. (b) Outstanding CBTL loans This is the amount of total debt at the reporting date, and should comprise the total amount outstanding (after deducting any write-offs but without deduction for any provisions) in respect of:
(i) the principal of the advance (including any further advances made); (ii) interest accrued on the advance (but only up to the reporting date), including any interest suspended; and (iii) any other sum which the borrower is obliged to pay the firm and which is due from the borrower, e.g. fees, fines, administration charges, default interest and insurance premiums; 2 Arrears, repossessions and receivers (a) CBTL loans in arrears of >1.5% of outstanding balance At the reporting date, the amount of arrears is the difference between:
(i) the accumulated total amounts of (monthly or other periodic) payments due to be received from the borrower; and (ii) the accumulated total amount of payments actually made by the borrower. Only amounts which are contractually due at the reporting date should be included in 2(a)(i) above. That is:

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(i) include accrued interest only up to the reporting date but not beyond; (ii) and only include a proportion of any annual insurance premium if the firm permits such amounts to be paid in periodic instalments. However, if the terms of the loan or the lender’s practice are such as to permit insurance premiums to be added to the loan principal then do not treat such amounts as contractually due; (iii) similarly, where 'any other sum' has been added to the loan, only include such proportions as are contractually due (e.g. if it is the practice in particular circumstances to add the sum/charge to the loan and require repayment over the residual term of the loan); (iv) in assessing 'payments due' when a borrower has a flexible loan, it is important to apply the contractual terms of the loan: for example, payment holidays which satisfy the terms of the loan should not be treated as giving rise to an arrears position. Where a firm makes a temporary 'concession' to a borrower (i.e. an agreement with the borrower whereby monthly payments are either suspended or less than they would be on a fully commercial basis) for a period, the amounts included in 2(a)(i) are those contractually due (and at commercial rates of interest). Hence the borrower will continue to be in arrears and the level of arrears will in fact continue to increase until such time as he is able fully to service the debt outstanding. Where the terms of the loan do not require payment of interest (or capital) until a stated date or until redemption or until certain conditions are triggered, as for example in the case of certain building finance loans, then the loan is not in arrears until such time as contractual repayments fall due. Accounts under a Receiver’s control should be reported as in arrears where this is the case. (b) CBTL repossessions This should include each property secured by a CBTL mortgage taken into possession (through any method e.g. voluntary surrender, court order etc.) in the reporting period. It should not include all possession stock remaining unsold in the period. This should not include where a property is under the control of a receiver, but should include where a receiver has exercised power of sale. (c) Number of Receiver appointments on CBTL This should include where, within the reporting period, a Receiver has been appointed on a property secured by a CBTL mortgage, including those where the property is no longer under control of a Receiver. (d) Number of CBTL properties under the control of a Receiver This should include where, at the end of the reporting period, the Receiver is managing/overseeing a property secured by a CBTL mortgage. 3 Complaints

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A complaint should be reported where the complaint concerns CBTL activity. Firms already required to complete the complaints return set out in DISP 1 Annex 1 should continue to do so alongside the CBTL aggregated return.

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Annex C
Amendments to the Decision Procedure and Penalties manual (DEPP) In this Annex, underlining indicates new text and striking through indicates deleted text. 2 Annex 1G Warning notices and decision notices under the Act and certain other enactments Insert the following new table at the end of this annex. The Mortgage Credit Directive Order 2015 Description Handbook reference Decision maker
Article 11(1) when the FCA is
proposing to refuse an application for entry on the register or variation of an existing entry on the register Executive procedures
Article 11(2) when the FCA is deciding
to refuse an application for entry on the register or variation of an existing entry on the register Executive procedures where no representations are made in response to a warning notice, otherwise by the RDC Articles 14(1), 14(2), 16(3) and 16(4) when the FCA is proposing or deciding to revoke or suspend the registration of a registered CBTL firm other than at the firm’s request or with the firm’s consent* RDC
Article 23(4) when the FCA is
proposing or deciding to publish a statement (under section 205 of the Act) or impose a financial penalty (under section 206 of the Act)* RDC

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2 Annex 2G Supervisory notices
Insert the following new table at the end of this annex.
The Mortgage
Credit Directive
Order 2015
Description Handbook reference
Decision maker
Article 19(6) when the FCA is
exercising its own￾initiative power to impose a direction RDC or executive procedures See DEPP 2.5.7G and DEPP 2.5.7AG Amend the following as shown.
Schedule 3 Fees and other required payments
…
Sch 3.2G
The FCA’s power to impose financial penalties is contained in:
….. the Immigration Regulations the MCD Order
Schedule 4 Powers Exercised
…
Sch 4.1G
The following powers and related provisions in or under the Act have been exercised by the FCA to make the statements of policy in DEPP:
…
Section 210(1) (Statements of policy) (including as applied by regulation 86(6) of
the Payment Services Regulations, and by paragraph 3 of the Schedule to the Cross￾Border Payments in Euro Regulations and by article 23(4) of the MCD Order) …
Section 395 (The Authority’s procedures) (including as applied by paragraph 7 of

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Schedule 5 to the Payment Services Regulations, and by paragraph 5 of the
Schedule to the Cross-Border Payments in Euro Regulations and by article 24(2) of
the MCD Order)

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Annex D
Amendments to the Dispute Resolution: Complaints sourcebook (DISP) In this Annex, underlining indicates new text and striking through indicates deleted text. INTRO 1 Introduction This part of the FCA Handbook sets out how complaints are to be dealt with by respondents (firms, payment service providers, electronic money issuers, CBTL firms and VJ participants) and the Financial Ombudsman Service. … The powers to make rules (or set standard terms) relating to firms, payment service providers, electronic money issuers, CBTL firms and VJ participants derive from various legislative provisions; but the rules (and standard terms) have been co-ordinated to ensure that they are identical, wherever possible. … … 1 Treating complainants fairly
1.1 Purpose and application
…
1.1.2 G Details of how this chapter applies to each type of respondent are set out
below. For this purpose, respondents include:
(1) persons carrying on regulated activities (firms), providing payment services (payment service providers), or providing electronic money issuance services (electronic money issuers) or carrying on CBTL business (CBTL firms) and which are covered by the Compulsory Jurisdiction; and … … Application to CBTL firms 1.1.10G R This chapter (except the complaints record rule, the complaints reporting rules and the complaints data publication rules) applies to CBTL firms in respect of complaints from eligible complaints concerning activities carried on from an establishment maintained in the United Kingdom. 1.1.10H G (1) In this sourcebook, the term CBTL firm does not include a firm. A firm carrying on CBTL business is covered by this sourcebook as a

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(2) CBTL firms are reminded of their obligation to retain information relevant to demonstrating the firm’s compliance or non-compliance with the requirements of Schedule 2 to the MCD Order. …
1.2 Consumer awareness rules
Publishing and providing summary details, and information about the Financial Ombudsman Service
1.2.1 R To aid consumer awareness of the protections offered by the provisions of
this chapter, respondents must:
…
(2) refer eligible complainants to the availability of this information:
…
(aa) in relation to CBTL arrangers, in the information on registering complaints internally and out-of-court complaint and redress procedures provided under article 7(1)(h) of
Schedule 2 to the MCD Order; or
…
1.2.2A G If an MCD credit intermediary has, before or at the point of sale, provided an eligible complainant with appropriate information in a durable medium about their internal procedures for the reasonable and prompt handling of complaints pursuant to another rule, the MCD credit intermediary need not refer to the availability of that information again under DISP 1.2.1R(2)(b). …
1.3 Complaints handling rules
…
1.3.3B G The processes that a firm or CBTL firm should have in place in order to comply with DISP 1.3.3R may include, taking into account the nature, scale and complexity of the firm's or CBTL firm’s business including, in particular, the number of complaints the firm or CBTL firm receives:
…
…

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1 Annex 2G Application of DISP 1 to type of respondent/complaint … 2 Jurisdiction of the Financial Ombudsman Service
2.1 Purpose, interpretation and application
Purpose
2.1.1 G The purpose of this chapter is to set out rules and guidance on the scope of the
Compulsory Jurisdiction and the Voluntary Jurisdiction, which are the Financial Ombudsman Service’s two jurisdictions:
(1) the Compulsory Jurisdiction is not restricted to regulated activities, payment services, and issuance of electronic money, and CBTL business, and covers:
…
…
Type of respondent/ complaint
DISP 1.2
Consumer awareness rules
DISP 1.3
Complaints handling rules
DISP 1.4-1.8
Complaints resolution rules etc.
DISP 1.9
Complaints record rule
DISP 1.10
Complaints reporting rules
DISP 1.10A
Complaints data publication rules
… an incoming
EEA AIFM, for complaints concerning
AIFM management functions carried on for an authorised AIF under the freedom to provide cross￾border services … a CBTL firm in relation to complaints concerning CBTL business Applies for eligible complainants Applies for eligible complainants Applies for eligible complainants Does not apply Does not apply Does not apply

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…
2.3 To which activities does the Compulsory Jurisdiction apply?
Activities by firms
2.3.1 R The Ombudsman can consider a complaint under the Compulsory Jurisdiction
if it relates to an act or omission by a firm in carrying on one or more of the following activities:
…
(1C) CBTL business;
…
…
Activities by CBTL firms
2.3.2BA R The Ombudsman can consider a complaint under the Compulsory Jurisdiction if it relates to an act or omission by a CBTL firm in carrying on CBTL business or any ancillary activities, including advice, carried on by the CBTL firm in connection with its CBTL business. … General
2.3.3 G Complaints about acts or omissions include those in respect of activities for
which the firm, payment service provider, or electronic money issuer or CBTL firm is responsible (including business of any appointed representative or agent for which the firm, payment institution or electronic money institution has accepted responsibility). …
2.5 To which activities does the Voluntary Jurisdiction apply?
2.5.1 R The Ombudsman can consider a complaint under the Voluntary Jurisdiction
if:
…
(2) it relates to an act or omission by a VJ participant in carrying on one or more of the following activities …

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(c) activities which (at 24 April 2015 21 March 2016) would be covered by the Compulsory Jurisdiction, if they were carried on from an establishment in the United Kingdom (these activities are listed in DISP 2 Annex 1G); … …
2.6 What is the territorial scope of the relevant jurisdiction?
Compulsory Jurisdiction
2.6.1 R (1) The Compulsory Jurisdiction covers complaints about the activities of
a firm (including its appointed representatives), of a payment service provider (including agents of a payment institution), or of an electronic money issuer (including agents of an electronic money institution) or of a CBTL firm carried on from an establishment in the United Kingdom. … ...
2.7 Is the complainant eligible?
…
Eligible complainants
2.7.3 R An eligible complainant must be a person that is:
…
(3) a charity which has an annual income of less than £1 million at the time the complainant refers the complaint to the respondent; or (4) a trustee of a trust which has a net asset value of less than £1 million at the time the complainant refers the complaint to the respondent; or (5) (in relation to CBTL business) a CBTL consumer. … Exceptions
2.7.9 R The following are not eligible complainants:
(1) (in all jurisdictions) a firm, payment service provider, electronic money issuer, CBTL firm or VJ participant whose complaint relates in any way to an activity which:

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…
(ab) the firm, payments service provider, or electronic money issuer or CBTL firm itself is entitled to carry on under the Payment Services Regulations, or the Electronic Money Regulations or the MCD Order; or … … … 2 Annex 1G Regulated Activities for the Voluntary Jurisdiction at 24 April 2015 21 March 2016 … The activities which were covered by the Compulsory Jurisdiction (at 24 April 2015 21 March 2016) were:
(1) for firms:
…
(i) CBTL business;
…
(3) … or any ancillary activities … in connection with them; (4) for CBTL firms: CBTL business or any ancillary activities, including advice, carried on by the CBTL firm in connection with it. ... The activities which (at 24 April 2015 21 March 2016) were regulated activities were, in accordance with section 22 of the Act (The classes of activity and categories of investment), any of the following activities specified in Part II of the Regulated Activities Order:
…
(28) advising on a home reversion plan (article 53B); (29) (28A) advising on a home purchase plan (article 53C); (29A) (29) advising on a regulated sale and rent back agreement (article 53D);

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(29A) advising on regulated credit agreements for the acquisition of land (article 53DA) (30) advising on syndicate participation at Lloyd’s (article 56) …

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Annex E
Amendments to the Enforcement Guide (EG)
In this Annex, all the text is new and not underlined.
Insert the following new provisions after EG 19.169.
The Mortgage Credit Directive Order 2015
19.170 The Mortgage Credit Directive (MCD) allows for an exemption not to apply
the MCD to buy-to-let lending if there is in place an appropriate framework for the regulation of these mortgages. The Mortgage Credit Directive Order 2015 (MCDO) is the vehicle through which the framework for “consumer buy-to￾let” (CBTL) mortgages has been established in order to comply with the MCD.
19.171 The MCDO requires that a firm acting as a lender, intermediary or carrying
out advisory services in relation to CBTL from 21 March 2016 must be registered by the FCA to do so. It provides for the FCA to determine applications to be registered, as well as powers to suspend or revoke registration.
19.172 It also imposes obligations on registered firms to comply with conduct
requirements set out in the Schedule to the MCDO, retain relevant information and to deal with the FCA in an open and co-operative manner. The FCA also has the power to give directions to a registered firm to secure compliance with the requirements set out in the Schedule. In addition, the FCA has investigation and sanctioning powers in relation to the framework.
19.173 The FCA's approach to taking enforcement action under the MCDO will
mirror its general approach to enforcing the Act, as set out in EG 2. It will seek to exercise its enforcement powers in a manner that is transparent, proportionate and responsive to the issue and consistent with its publicly stated policies. It will also seek to ensure fair treatment when exercising its enforcement powers. Finally, it will aim to change the behaviour of the person who is the subject of its action, to deter future non-compliance by others, to eliminate any financial gain or benefit from non-compliance and, where appropriate, to remedy the harm caused by the non-compliance.
19.174 The MCDO, for the most part, applies or mirrors the FCA's investigative and
sanctioning powers under the Act. The FCA has adopted procedures and policies for the use of those powers that are akin to those it has under the Act. Key features of the FCA's approach are described below. Information gathering and investigation powers
19.175 Article 23 of the MCDO applies many of the provisions of the Act in relation
to the FCA’s investigation and information-gathering powers in respect of a registered firm. The effect of this is to apply the same procedures under the Act

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19.176 For example, the FCA will notify the subject of the investigation that it has
appointed investigators to carry out an investigation under the MCDO and the reasons for the appointment, unless notification is likely to result in the investigation being frustrated. In most cases, the FCA expects to carry out a scoping visit early on in the enforcement process. The FCA's policy in regulatory investigations under the MCDO is to use powers to compel information, in the same way as it would in the course of an investigation under the Act. Decision making under the MCDO
19.177 The RDC is the FCA’s decision maker for some decisions which require
warning notices or decision notices to be given under the MCDO as set out in DEPP 2 Annex 1G. The RDC will make its decisions following the procedure set out in DEPP 3.2 or, where appropriate, DEPP 3.3, and DEPP 3.4 applies for urgent notices under article 16(1)(a).
19.178 For decisions made by executive procedures, the procedure to be followed will
be those described in DEPP 4.
19.179 Article 18(3) applies sections 393 and 394 of the Act to warning notices and
decision notices given under the MCDO and so require the FCA to give third party rights and to give access to material as set out under the Act. Article 24(1) applies the procedural provisions of Part 9 of the Act, in respect of matters that can be referred to the Tribunal, and article 24(2) applies Part 26 of the Act to warning and decision notices given under the MCDO. Public censures, imposition of penalties and the impositions of suspensions under the MCDO
19.180 When determining whether to take action to impose a penalty or to issue a
public censure under the MCDO, the FCA’s policy includes having regard to the relevant factors in DEPP 6.2 and DEPP 6.4. When determining the level of financial penalty, the FCA’s policy includes having regard to the relevant principles and factors in DEPP 6.5, DEPP 6.5A, DEPP 6.5D and DEPP 6.7.
19.181 As with cases under the Act, the FCA may settle or mediate appropriate
cases involving breaches of the MCDO to assist it to exercise its functions. DEPP 5, DEPP 6.7 and EG 5 set out information on the FCA’s settlement process and the settlement discount scheme.
19.182 When determining whether to take action to impose a suspension under the
MCDO, the FCA’s policy includes having regard to the relevant factors in DEPP 6A.2 and 6A.4. When determining the length of the period of suspension, the FCA’s policy includes having regard to the relevant principles and factors in DEPP 6A.3.

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19.183 The FCA will apply the approach to publicity that is outlined in EG 6.

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Annex F
Amendments to the Perimeter Guidance manual (PERG) In this Annex, underlining indicates new text and striking through indicates deleted text unless otherwise stated.
Part 1
2.6 Specified investments: a broad outline
…
Rights under a regulated mortgage contract
2.6.27 G In accordance with article 61(3)(a) of the Regulated Activities Order, a
regulated mortgage contract is a contract which, at the time it is entered into, satisfies the following conditions:
…
(3) at least 40% of that land is used, or is intended to be used, as or in connection with a dwelling. Detailed guidance on this is set out in PERG 4.4 (Guidance on regulated activities connected with mortgages), however generally speaking the definition of regulated mortgage contract does not include certain loans to commercial borrowers, second charge loans by a credit union, exempt consumer buy-to-let mortgage contracts (see PERG 4.4.31G) and second charge bridging loans (see PERG 4.4.1-AG). …
2.7 Activities: a broad outline
…
Exemption relating to the purchase of land for non-residential purposes 2.7.19E G A credit agreement is an exempt agreement if at, the time it is entered into:
(1) any sums due under it are secured by a legal or equitable mortgage on land; and (2) less than 40% of the land is used, or is intended to be used, as or in connection with a dwelling:
(a) …

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(b) in the case of credit provided to trustees, by an individual who is a beneficiary of the trust or a related person related person of a beneficiary; and (2A) the credit agreement is not an MCD article 3(1)(b) credit agreement. (3) … (4) This exemption is intended to mirror the definition of regulated mortgage contract so that buy-to-let loans (that are not secured by a legal mortgage on the borrower's or a related person's residence) are not regulated either as regulated mortgage contracts or as regulated credit agreements. [deleted] …
2.8 Exclusions applicable to particular regulated activities
2.8.6A G The exclusions in the Regulated Activities Order that relate to the various arranging activities are as follows:
…
The exclusions …
(14) Under article 36(2A), arrangements related to regulated mortgage contracts are excluded from article 25A in so far they constitute CBTL business (see PERG 4.10B) carried on by a CBTL firm. … 2.8.6C G The following activities are excluded from the regulated activity of credit broking:
…
Other exclusions
(7) The exclusions for electronic commerce activities by an incoming ECA provider (see PERG 2.9.18G), activities carried on by a CBTL firm with a view to an individual entering into a CBTL credit agreement (see PERG 2.9.28G and PERG 4.10B) and activities carried on by local authorities (see PERG 2.9.23G) also apply to credit broking. … 2.8.12A G Advice given by an unauthorised person in relation to a home finance transaction or advising on regulated credit agreements for the acquisition of land in the circumstances referred to in PERG 2.8.6AG(5)(a) or (b)

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(Arranging deals in investments and arranging a home finance transaction) is also excluded. In addition:
(1) the following exclusions apply in specified circumstances where a person is advising on investments, advising on regulated credit agreements for the acquisition of land or advising on a home finance transaction:
…
(d) … ; and
(e) … ; and
(f) as a CBTL firm in the course of CBTL business (see PERG 4.10B) (in the case of advising on regulated credit agreements the purpose of which is to acquire land); … 2.8.14B G The following exclusions apply in specified circumstances where a person is administering a home finance transaction:
…
(5) … ;
(6) in the course of carrying on CBTL business as a CBTL firm (see PERG 4.10B). …
2.9 Regulated activities: exclusions applicable in certain circumstances
…
Registered consumer buy-to-let credit firms
2.9.28 G This group of exclusions applies, in specified circumstances, to the
regulated activities of:
(1) arranging (bringing about) regulated mortgage contracts; (2) making arrangements with a view to regulated mortgage contracts; (3) credit broking; (4) advising on regulated mortgage contracts; (5) advising on regulated credit agreements for the acquisition of land; (6) exercising, or having the right to exercise, the lender's rights and

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2.9.29 G These exclusions apply to any CBTL business carried on by a CBTL firm
(see PERG 4.10B).
…
4 Guidance on regulated activities connected with mortgages …
4.2.3 G A person who is concerned to know whether his proposed activities may
require authorisation will need to consider the following questions (these questions are a summary of the issues to be considered and have been reproduced, in slightly fuller form, in the flowchart in PERG 4.18):
…
(4A) is the only available exclusion the one for CBTL firms (see PERG 4.10B (Regulation of buy to let lending))? … (5A) … (6) if the answer to 4A is “no” and it is not the case that all of my activities are excluded, am I a professional firm whose activities are exempted under Part XX of the Act (see PERG 4.14 (Mortgage activities carried on by professional firms))? … If a person gets as far as question (8) and the answer to that question is 'no', that person requires authorisation and should refer to the FCA website "How do I get authorised": http://www.fca.org.uk/firms/about￾authorisation/getting-authorised for details of the application process. However, if a person wishes to carry on CBTL business see PERG 4.10B (Regulation of buy to let lending) it may be able benefit from the exclusion for CBTL firms and be placed on the relevant register described in PERG 4.10B if:
(a) no other exclusion applies; and
(b) the answer to questions (6) to (8) is “no”.

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Note that the person would need to apply to be included on the relevant register described in PERG 4.10B. … 4.4.1-A G A contract is not a regulated mortgage contract if it is:
…
(3) … ;
(4) a CBTL credit agreement excluded as described in PERG 4.4.31G. … 4.4.6A G … (4) A buy-to-let loan secured on the property to be let is potentially a regulated mortgage contract. However, such a loan may be excluded as a loan to a commercial borrower under the exclusions referred to in (3) or under the buy-to-let exclusions described in PERG 4.4.31G and PERG 4.10B which refer to consumer borrowers. … Exclusion for certain consumer buy-to-let mortgage contracts
4.4.31 G There is an exclusion for what the RAO refers to as an “exempt consumer
buy-to-let mortgage contract”. This is explained in PERG 4.10B (Regulation of buy-to-let lending).
4.4.32 G For a buy-to-let credit agreement (described in PERG 4.10B.5G), article
61A(5) of the Regulated Activities Order says that a borrower is to be regarded as entering into an agreement, or intending to enter into an agreement, for the purposes of a business if (1) or (2) are met:
(1) (a) the borrower previously purchased, or is entering into the contract in order to finance the purchase by the borrower of, the land secured by the mortgage; (b) 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 (see PERG 4.4.19G), 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 (c) 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 (see PERG

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4.4.19G);
(2) the borrower is the owner of land, other than the land secured by the mortgage, which is (a) 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 (see PERG 4.4.19G); or (b) secured by a mortgage under a buy-to-let credit agreement. …
4.6.32 G The Regulated Activities Order contains a number of other exclusions which
have the effect of preventing certain activities from amounting to advising on regulated mortgage contracts. These are referred to in PERG 4.10 (Exclusions applying to more than one regulated activity) and PERG 4.10B (Regulation of buy to let lending). …
4.7.2 G The Regulated Activities Order contains an exclusion which has the effect of
preventing certain activities of trustees, nominees and personal representatives from amounting to entering into a regulated mortgage contract. There is also an exclusion for local authorities and their wholly￾owned subsidiaries. These are referred to in PERG 4.10 (Exclusions applying to more than one regulated activity).In addition, there is an are exclusions where both the lender and borrower are overseas, which is referred to in PERG 4.11 (Link between activities and the United Kingdom) and related to consumer buy-to-let lending, which is described in PERG 4.10B. …
4.8.8 G The Regulated Activities Order contains an exclusion which has the effect of
preventing certain activities of trustees, nominees and personal representatives from amounting to administering regulated mortgage contracts. There is also an exclusion for local authorities and their wholly￾owned subsidiaries. These are referred to in PERG 4.10 (Exclusions applying to more than one regulated activity). In addition, there is an exclusion are exclusions where both the administrator and borrower are overseas, which is referred to in PERG 4.11 and related to consumer buy-to￾let lending, which is described in PERG 4.10B. … Exclusion: Buy to let
4.10.11 G There is an exclusion for CBTL business. It is described in PERG 4.10B
(Regulation of buy to let lending).

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…
8.17 Financial promotions concerning agreements for qualifying credit
…
8.17.3 G An agreement for qualifying credit includes the following types of loan in
addition to those that would be a regulated mortgage contract, but in each case only if the lender carries on the regulated activity of entering into regulated mortgage contracts:
(1) loans secured by a second or subsequent charge; [deleted] … …
Part 2
Insert new section PERG 4.10B after PERG 4.10A. In this Part, the text is all new and is not underlined. 4.10B Regulation of buy to let lending Introduction 4.10B.1 G Article 72I of the Regulated Activities Order (Registered consumer buy-to￾let mortgage firms) excludes certain consumer buy-to-let credit business from the Regulated Activities Order. Instead that business is regulated under Part 3 of the MCD Order. This section provides more detail about the regulation of consumer-buy-to-let business. Details about the Regulated Activities Order exclusion 4.10B.2 G Article 72I of the Regulated Activities Order excludes CBTL business from the regulated activities listed in PERG 2.9.28G. 4.10B.3 G The exclusion only applies to a person included on the FCA register described in PERG 4.10B.16G. 4.10B.4 G There are three main conditions for regulated mortgage activities to be CBTL business:
(1) the activities must relate to buy-to-let credit agreements (see PERG 4.10B.5G); (2) the borrower must be acting as a consumer (see PERG 4.10B.10G(2)); and (3) the activities must come within the definition of CBTL business (see PERG 4.10B.8G).

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What does buy-to-let credit agreement mean?
4.10B.5 G (1) A buy-to-let credit agreement means either:
(a) a contract that at the time it is entered into has the following characteristics:
(i) a lender provides credit to an individual or trustees (the 'borrower'); (ii) the contract provides for the obligation of the borrower to repay to be secured by a mortgage on land in the EEA; (iii) at least 40% of that land is used, or is intended to be used, as or in connection with a dwelling by the borrower (or, where trustees are the borrower, by an individual who is a beneficiary of the trust) or by a related person; and (iv) provides that the land secured by the mortgage is subject to the requirements in (2); or (b) is an MCD article 3(1)(b) credit agreement which provides that the land, or existing or projected building, to which it relates is subject to the requirements in (2). (2) The requirements are that the land, or existing or projected building (as applicable):
(a) cannot at any time be occupied as a dwelling by the borrower or by a related person; and (b) is to be occupied as a dwelling on the basis of a rental agreement. 4.10B.6 G Related person is described in PERG 4.4.19G. 4.10B.7 G PERG 4.4.6AG explains why the requirement in PERG 4.10B.5G that the borrower does not use the land as a dwelling does not take the contract out of the definition of regulated mortgage contract altogether without having to rely on the consumer buy-to-let exclusion described in this section. Business covered by Part 3 of the Mortgage Credit Directive Order 2015:
Introduction
4.10B.8 G CBTL business means the activities in the table in PERG 4.10B.9G. 4.10B.9 G Table: Definition of consumer buy-to-let business

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Activity Explanation
Entering into, or promising to enter into, a CBTL credit agreement in the course of a trade, business or profession (acting as a CBTL lender) See PERG 4.10B.11G(1) Administering a CBTL credit agreement in the course of a trade, business or profession (acting as a CBTL lender) See PERG 4.10B.11G(2) Acting as a CBTL arranger in relation to a CBTL credit agreement See PERG 4.10B.12G Acting as a CBTL adviser in relation to a CBTL credit agreement See PERG 4.10B.13G A CBTL credit agreement is explained in PERG 4.10B.10G Meaning of CBTL credit agreement 4.10B.10 G A CBTL credit agreement means a contract that meets the following conditions:
(1) it meets the definition of a buy-to-let credit agreement in PERG 4.10B.5G; and (2) it 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. 4.10B.11 G (1) PERG 4.4.32G explains when a borrower is regarded as entering into a buy-to-let credit agreement for the purpose of a business carried on, or intended to be carried on, by the borrower. (2) A person administers a CBTL credit agreement if the person carries on administering a regulated mortgage contract in respect of the CBTL credit agreement, or would carry on that regulated activity in respect of the CBTL credit agreement if it was not a person included on the FCA register described in PERG 4.10B.16G. Business covered by Part 3 of the Mortgage Credit Directive Order 2015: Credit intermediaries 4.10B.12 G A person is acting as a CBTL arranger if the person:
(1) is not a lender as described in the first row of the table in PERG 4.10B.9G;

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(2) is not merely introducing, either directly or indirectly, a borrower to a lender or credit intermediary; (3) 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 (4) meets one or more of the following conditions:
(a) the person presents or offers CBTL credit agreements to consumers; or (b) the person assists consumers by undertaking preparatory work or other pre-contractual administration in respect of CBTL credit agreements other than as referred to in (a); or (c) the person concludes CBTL credit agreements with consumers on behalf of the lender. Business covered by Part 3 of the Mortgage Credit Directive Order 2015:
Advisers
4.10B.13 G Under article 6(1) of the MCD Order a person is acting as a CBTL adviser 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 CBTL credit agreements. 4.10B.14 G Under article 6(2) of the MCD order a person who provides personal recommendations to a consumer in respect of one or more transactions relating to CBTL credit agreements is not acting as a CBTL adviser if the recommendations are provided:
(1) 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 (2) 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. Link to the Mortgage Credit Directive 4.10B.15 G (1) The definitions of CBTL arranger and CBTL adviser are largely the same as those under the Mortgage Credit Directive. (2) There is guidance on these terms in PERG 4.10A (Activities regulated under the Mortgage Credit Directive). (3) The main difference between the definitions in this section and those

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FOS 2015/3 in PERG 4.10A is that this section only relates to CBTL credit agreements. Registration of consumer buy-to-let mortgage firms 4.10B.16 G Part 3 of the MCD Order has a procedure for the FCA to include a person carrying on one of the activities described in PERG 4.10.9G in a register. 4.10B.17 G There are two types of person subject to the regime:
(1) firms with Part 4A permissions (including firms with 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)); and (2) unauthorised persons described in article 8(3) of the MCD order. 4.10B.18 G (1) There are detailed conditions for admission to the register that apply to an unauthorised person described in article 8(3) of the MCD Order. (2) These detailed conditions do not apply to a firm in PERG 4.10B.17G(1). The conditions for a firm in PERG 4.10B.17G(1) to be included on the register are simpler. 4.10B.19 G Part 3 of the MCD Order has a detailed regulatory regime for firms subject to that regime. Exempt consumer buy-to-let contracts 4.10B.20 G There is another exclusion for buy-to-let contracts in addition to the one in
article 72I of the Regulated Activities Order (see PERG 4.10B.1G for article
72I).
4.10B.21 G A contract is excluded from the definition of regulated mortgage contract if, at the time it is entered into, it meets the following conditions:
(1) it is a consumer buy-to-let mortgage contract within the meaning of the MCD Order (see PERG 4.10B.10G for an explanation of what this means); and (2) it is either:
(a) of a kind to which the Mortgage Credit Directive does not apply by virtue of the exclusions summarised in PERG 4.10A.5G(1) to (8); or (b) a bridging loan (see PERG 4.13.6G). 4.10B.22 G The RAO refers to the contract described in PERG 4.10B.21G as an “exempt consumer buy-to- let mortgage contract”.

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4.10B.23 G (1) The exclusion for exempt consumer buy-to-let mortgage contracts has the effect that a person whose business covers exempt consumer buy-to-let lending does not have to consider its position in respect of
Part 3 of the MCD Order or consider the exclusion in PERG
4.10B.2G.
(2) However, exempt consumer buy-to-let lending is not excluded from the regime in Part 3 of the MCD Order altogether. This is because the Part 4A permission of a firm that has permission to carry out any of the following activities:
(a) arranging (bringing about) regulated mortgage contracts; (b) making arrangements with a view to regulated mortgage contracts; (c) credit broking; (d) advising on regulated mortgage contracts; (e) entering into a regulated mortgage contract; (f) administering a regulated mortgage contract; is subject to a requirement that the firm does not carry on any activity that would constitute CBTL business as defined in PERG 4.10B.9G unless the firm is registered as described in PERG 4.10B.16G. (3) That requirement covers the exempt consumer buy-to-let lending referred to in (1). 4.10B.24 G Another purpose of the exclusion in PERG 4.10B.2G is that it provides an exclusion in relation to credit broking. Does all buy-to-let business fall under this regime? 4.10B.25 G Part 3 of the MCD Order does not apply to all mortgage contracts secured on buy-to-let property. 4.10B.26 G The regime is only relevant to credit secured on residential property. If a loan to a buy-to-let borrower is secured on commercial property, the loan is not a residential mortgage contract and this chapter does not apply. 4.10B.27 G The Part 3 regime is only relevant to consumer borrowers. Non-consumer borrowers fall outside Part 3. Many will be excluded from regulated mortgage activities altogether by the exclusions for loans to business borrowers in PERG 4.4.17G to PERG 4.4.21G.

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