The rule states that evidence, whether document-based or via automated systems, must be adequate to support each element of income that the firm is taking into account and be subject to anti-fraud controls.
And in order to comply with MCOB 11.6.8R proof of income will vary depending on factors such as employment status and nature and length of employment – but the regulator is not prescriptive over exactly which documents should be requested.
By way of a suggestion, the FSA had stated “for a self-employed customer a firm may wish to consider using projections of future income where these form part of a credible business plan”.
As a warning to lenders to remind them of the pitfalls to be avoided it added: “A firm must not accept self-certification of income by the customer and the source of the evidence must be independent of the customer."
This harks back to a time when income verification often came in the format of receipts the self-employed borrower had produced on a home computer.
Research carried out by the FSA during the course of MMR has shown that overall the mortgage accounts of self-employed borrowers performed worse than those of employed borrowers.
And where a mortgage had been self-certified, one in 10 borrowers had been possessed or had a possession order made against them.
The final ruling will be welcomed by respondents to the previous draft, CP11/31, who noted the need for lenders to show a flexible approach to customers with ‘non-standard’ income, such as self-employed customers or contractors.
However many were worried that uncertainty about the future supervisory approach of the FSA might result in lenders adopting an overly cautious approach to such cases.
