ALBA 2007 – 1 plc - Irish Stock Exchange

In view of mortgage regulation under the FSMA by the Financial Services Authority ("FSA") (as
described below), the FSA has agreed with the OFT to take responsibility for the enforcement of the
1999 Regulations in mortgage agreements. In May 2005, the FSA issued a statement of good practice
on fairness of terms in consumer contracts, with specific reference to the fairness of variation clauses.
The statement is addressed to firms authorised and regulated by the FSA in relation to products and
services within the FSA's regulatory scope, including regulated mortgage contracts. The statement
provides, amongst other things, the FSA's views on the factors to be considered when assessing the
fairness of variation clauses, particularly where such variation clauses are applied to contracts with
locked-in borrowers (i.e. where, in order to withdraw from the contract, the borrower is required to
give advance notice or to pay a cost or to give up a benefit). Whilst the FSA provides that in general
any information about mortgage interest rates, variations and notification of any changes should be
clear, fair and not misleading, the statement in particular specifies a variety of factors that should be
considered in respect of variation clauses applied to contracts with locked-in borrowers. These factors
include whether there is some connection between mortgage interest rates which apply to locked-in
borrowers and those which apply to non-locked in borrowers; whether valid reasons for the change are
stated clearly and unambiguously in the contract; and whether the borrower must be given advance
notice of the change. Additionally, the FSA states that firms may consider drafting contracts so as to
permit variations to be made only when any lock-in clause has not been exercised.
Under a new concordat agreed between the FSA and the OFT with effect from 31 July 2006,
responsibility for the enforcement of the UTCCR in mortgage loan agreements was agreed to be
allocated, normally, to the FSA in relation to regulated mortgage contracts (in respect of the activities
of firms authorised by the FSA) and to the OFT in relation to mortgages regulated under the CCA and
where entered into by persons not authorised by the FSA nor their appointed representatives. It should
be noted that in the context of the OFT's investigation into credit card default charges, the OFT on 5
April 2006, publicly announced that the principles the OFT considers should be applied in assessing the
fairness of credit card default charges, shall apply (or are likely to apply) also to analogous default
charges in other agreements including those for mortgages.
Mortgage Loans Regulated by the FSMA
The FSMA requirements in respect of regulated mortgage contracts came into force on and from 31
October 2004 (the date known as "N(M)") in the UK). Since such date, regulated mortgage contracts
have been subject to regulation by the FSA.
On and from N(M), a mortgage contract is a "regulated mortgage contract" if, at the time it is entered
into: (a) the borrower is an individual or trustee; (b) the contract provides for the obligation of the
borrower to repay to be secured by a first legal mortgage on land (other than timeshare
accommodation) in the United Kingdom; and (c) at least 40 per cent. of that land is used, or is intended
to be used, as or in connection with a dwelling by the borrower or (in the case of credit provided to
trustees) by an individual who is a beneficiary of the trust, or by a related person. Any variation of a
Mortgage Loan may fall within the regime insofar as, on or after 31 October 2004, it amounts to a new
contract (and otherwise satisfies the definition of a regulated mortgage contract).
Each entity carrying on a regulated activity under the FSMA is required to hold authorisation and
permission from the FSA to carry on that activity. If requirements as to authorisation of lenders,
brokers and other intermediaries (in relation to the carrying on of regulated activities under the FSMA
concerning entering into a regulated mortgage contract) are not complied with, the regulated mortgage
contract is unenforceable against the borrower except with the approval of a court. Generally, each
financial promotion relating to a regulated mortgage contract (or other credit agreement secured by a
mortgage on land, where the lender carries on the regulated activity of entering into regulated mortgage