MCOB: Advising, Selling and Disclosure
This topic is the day-to-day rulebook for the mortgage sale itself, drawn from the FCA's Mortgages and Home Finance: Conduct of Business sourcebook (MCOB). It covers what counts as advice and the tight limits on execution-only, the initial disclosure of service and fees, suitability of the recommendation, pre-contract disclosure through the ESIS, the reflection period, record-keeping, and how the Consumer Duty reshapes all of it.
Advised versus execution-only sales
MCOB draws a sharp line between advised and non-advised (execution-only) business. A sale is treated as 'advised' whenever the firm gives a personal recommendation to a particular customer to enter into, or vary, a specific regulated mortgage contract; making that recommendation is what triggers the suitability duty. Since the Mortgage Market Review, most interactive sales to retail customers (face-to-face or by phone) must be advised, precisely because during an interactive conversation it is too easy for the customer to be steered or to disclose needs that call for advice. Execution-only (non-advised) sales are therefore tightly restricted under MCOB 4.8A and are permitted only in limited situations — broadly, where no personal recommendation is made and the customer has positively elected, in a durable medium, to proceed with a specified product on their own initiative (for example a professional/high-net-worth customer, a business borrower, a straightforward rate switch with no advice, or a contract variation). A branch adviser who can only offer their own bank's products, or a broker recommending a product, is giving advice and owes the full suitability obligation.
Initial disclosure: describing the service and how you are paid
At the very start of an interview — before the substantive discussion — the adviser must make clear the nature and scope of the service under the initial disclosure rules (MCOB 4.4A). The customer must be told what range of products the firm can advise on (its market coverage) and the basis of the firm's remuneration. Firms describe their scope honestly: a firm that can select from the whole market is different from one advising only on a limited panel of named lenders, which is different again from a single-lender/tied adviser (such as a branch adviser recommending only their employer's mortgages) — and each must describe its service accordingly rather than imply wider choice than it offers. On remuneration, an intermediary will typically receive a procuration fee (proc fee) from the lender for introducing the business, and this must be disclosed; where the firm also intends to charge the customer a fee for arranging the mortgage, the amount or basis of that fee must be disclosed up front and confirmed in writing before the customer is committed. The Consumer Duty reinforces all of this: disclosure must genuinely equip the customer to understand the service and its cost.
Suitability: the heart of an advised sale
Where advice is given, MCOB 4.7A requires the firm to take reasonable steps to obtain the necessary information about the customer's needs and circumstances and to recommend only a regulated mortgage contract that is suitable for them. Suitability includes that the customer can afford it, that it meets their needs and circumstances, and that it is the most appropriate of those the firm can offer. Specific situations attract extra suitability tests. For an interest-only mortgage the adviser must assess whether the customer has a credible strategy to repay the capital. For debt consolidation — folding expensive unsecured debts into the mortgage — the adviser must weigh the risks: securing previously unsecured debt against the home, and potentially paying more interest overall by spreading a short debt over a long mortgage term, even if the monthly outgoing falls. If the only mortgage a limited-panel firm can offer is not ideal for the customer, the firm should not dress it up as ideal — it should explain the limitation, and if nothing suitable is available, it should not recommend a product at all. Firms must generally keep records evidencing the suitability of the advice for at least three years (and longer, effectively indefinitely, for lifetime mortgages/equity release).
Pre-contract disclosure: the ESIS
Under the Mortgage Credit Directive the standard pre-contract disclosure document is the European Standardised Information Sheet (ESIS), which replaced the older Key Facts Illustration (KFI). Governed by MCOB 5A, the ESIS presents the key features of the specific mortgage in a standard format so customers can compare offers: the identity of the lender, the loan amount and term, the interest rate and type, the monthly payment, the total amount to repay, the APRC, any fees and early repayment charges, and prescribed risk warnings (for example that payments can rise). The customer must be provided with an ESIS in good time before being bound by the contract — at the point the adviser recommends a particular product or the customer asks for one, and always before application, so they have a genuine opportunity to consider it. A frequent exam distractor confuses the ESIS with the binding offer or with the initial disclosure document; the ESIS is the personalised illustration of the product's costs and features.
The binding offer and the reflection period
The MCD introduced a consumer protection around the binding mortgage offer. Once the lender makes a binding offer, the customer must be given a reflection period of at least seven days during which they can consider the offer; the offer is binding on the lender for the duration, and the customer may accept at any point within it but cannot be pressured to accept immediately. In the UK many lenders implement this as a seven-day period after the offer is issued. This gives the borrower time to compare and reflect before committing to a long-term liability, complementing the earlier ESIS disclosure. Advisers should understand the sequence — initial disclosure, fact-find and suitability, ESIS, application, binding offer with reflection period, completion — because CeMAP tests the order and purpose of each stage.
Communications, promotions and vulnerable customers
All mortgage communications and financial promotions must be clear, fair and not misleading (MCOB 2 and 3A) — they must not overstate benefits, hide risks or bury key costs. The Consumer Duty's consumer-understanding outcome pushes this further: communications should be tailored so customers can understand them and make effective, informed decisions, tested for comprehension rather than merely being technically accurate. Where a customer shows signs of vulnerability — through health, life events, low financial resilience or low capability — the adviser must respond with additional care: allow more time, check understanding, avoid pressure, and adapt communication to the customer's needs so they are not disadvantaged. Equity-release/lifetime-mortgage sales to retail customers carry enhanced protections and, given the complexity and the interaction with later-life finances, are generally required to be advised rather than execution-only. Across all of this the golden thread is that disclosure exists to protect the customer's decision, not merely to tick a compliance box.
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