Q: Which firms need to complete the MLAR?
A: The requirement to submit MLAR is set out in section SUP 16.12 of the Handbook, where specific rules deal with the various reporting requirements for each type of firm. For example there are separate rules for banks, for building societies and for firms only undertaking one or more of the new regulated activities of mortgage lending and mortgage administration.
The obligation to submit an MLAR is only triggered however if a firm is authorised to undertake mortgage lending or mortgage administration.
Q: Which sections of the MLAR need to be completed?
A: The reporting requirements by firm type, in SUP 16.12, provide details of any sections that do not apply. The requirements are also summarised in a table in MLAR Guidance: Introduction, section 2.
Firms completing MLAR (using the online reporting facility) will be presented with all relevant sections of the return. That also means for example, if the firm is a solo-consolidated subsidiary of an authorised credit institution, section C on Capital will not be presented. However:
- Firms authorised for mortgage lending, but not also for mortgage administration, will not need to complete sections G and H.
- Firms authorised for mortgage administration, but not also mortgage lending, will not normally need to complete sections D, E or F (in which case they should be left blank). The exception would be if the firm had non-regulated loans on its balance sheet; or if the firm, having previously undertaken regulated mortgage lending but had since surrendered that authorisation, still had regulated loans on its balance sheet.
Q: Do any sections of MLAR only apply in certain financial quarters?
A: The MLAR is a quarterly return, and firms will need to submit one every financial quarter.
However section J, which collects information on fee tariff measures, only needs to be completed once a year. It should be completed only in respect of each firm’s financial quarter that coincides with its financial year end (ie its accounting reference date). For all other financial quarters it should be left blank.
Q: What is the basis of information to be reported in a firm’s first MLAR?
A: The answer depends on the type of information being reported:
Where the information on the form refers to for example 'advances in the quarter' (or any other volume of business in the quarter), it always relates to only a 3 month period. The 3 month period is the 3 months to the firm’s relevant financial quarter end. Where the information relates to 'balances outstanding at end of quarter' etc., it means the balances outstanding in the firm's books as at the firm's financial quarter end.
So in the case of regulated mortgage contracts being reported, it means the end quarter balance on all such loans advanced since 31 Oct 2004, and still in being at the reporting period end. While for other types of loan balances, it means the end quarter balance on all such loans that are still in existence, irrespective of when they were originally advanced.
Q:How should we enter percentage figures in MLAR?
Percentages occur in sections D3 (columns 8-10), F1-4 (column 7), and also in H1-3 (column 7).
In general, the online reporting system requires percentages to be entered to 2 decimal places, for example 5.45 or 3.00, which means that a valid zero entry will need to be entered as 0.00 otherwise an error message will occur.
There are however specific validation rules which affect how some nil entries should be made:
- In D3: if the balance reported in column 1, 2 or 3 is zero, then the entry in the corresponding interest rate column (columns 8, 9 or 10) must be left blank. If 0 is entered it will fail because of field format rules (field format should be 0.00), while 0.00 will fail the underlying rule which is that a zero balance in column 1, 2 or 3 must be matched by an interest rate that is left blank in the relevant column of 8, 9, or 10.
- In F1-4 and H1-3, an existing QA in section F at Q4 deals with the special treatment for the ‘In possession’ lines.
Q: What types of lending are reportable in the MLAR?
A: The main analysis adopted throughout MLAR is based on the following types:
- Residential loans to individuals (see MLAR Guidance: Introduction, section 4(ii)) which should be classified according to whether they are regulated or non-regulated (eg as at A3.2 &A3.3, and as at D1.1 & D1.2 etc.)
- Other secured loans (see MLAR Guidance: Introduction, section 4(iii)) and shown for example at A3.4, D1.3 etc.
- In addition, a further analysis is used in sections A and B
- Other loans (see MLAR Guidance for A3.5) but this appears only at A3.5 and at B2.5
Specific guidance is also included on how to treat business type loans that are secured on residential property (see MLAR Guidance: Introduction, section 4(ii) and (iii)).
See also answer to General Q11 on what is the definition of a mortgage.
Q: How do we report a regulated mortgage contract where the LTV exceeds 100%?
A; Report the whole loan as a regulated mortgage. Provided such a loan meets all of the tests to be considered as a regulated mortgage contract (RMC) it will not fall outside of the RMC definition if the LTV exceeds 100%. Details of RMCs are set out in the MLAR Guidance: see Introduction chapter, in section 4 (iv).
Q: Does the MLAR include lending done outside of the UK?
A: The MLAR monitors all of a firm’s lending, whether in the UK or overseas. However, only lending secured on UK property is reportable in any detail, while lending secured on overseas property is subject to minimal reporting.
If a firm has branches overseas that are formally part of the firm (whilst not being subsidiaries of the firm) then their lending business should be included in the MLAR along with the rest of the firm's lending business. The approach is:
- If the lending is secured on property in the UK, then it should be classified under the relevant category of UK lending (see MLAR Guidance: Introduction, section 4), for example following the type of breakdown at A3.1 to A3.4 and similar breakdowns in other sections of the MLAR.
- But if the lending is secured on property outside of the UK, then it should be classified as 'other loans'. This category however is only used in sections A3 and B2 of the MLAR (as at A3.5 and B2.5).
Q: If we do overseas lending, where do we report it in section D, E and F?
A: In this case the firm will be doing mortgage business that enables a borrower to buy an overseas property. The treatment in sections D, E, and F will depend on where the security for the loan exists. Thus:
- if the loan is secured on UK property, then assuming the loan is to an individual, it would be classified as 'residential lending to individuals' (either regulated or non-regulated as the case may be). Balances and movements, and arrears would then be reported in sections D, E and F against the same line item classification. (If the loan was to a corporate then it would fall to be reported against 'other secured lending', and so on against this item in D, E, and F)
- if the loan is however secured on property outside of the UK, then such loans fall outside of the analysis used in sections D onwards of the return. They fall to be reported only in sections A and B against the category 'other loans' at line items A 3.5 and B 2.5. Hence movements and arrears on such loans are not captured in the rest of the MLAR, and accordingly are not required to be reported in sections D, E, and F.
- our reason for putting the 2 alternatives, is that a borrower could finance the purchase of an overseas property in either way.
Q: Does a bank and its lending subsidiary each need to complete an MLAR?
A: We assume that each of the subsidiary and the bank undertake regulated mortgage lending and/or administration.
If so, then yes, each will need to complete an MLAR return. This is because the approach to reporting is on the basis of the authorised legal entity.
A UK, a non-EEA bank or an EEA bank, as per SUP 16.12, will not however be required to complete sections A1, A2, B1 and C.
But the subsidiary, assuming it is not a bank, and further assuming that it is a mortgage lender, will potentially need to complete all sections of MLAR except perhaps section C (if it is a solo-consolidated subsidiary). This is based on the reporting requirements set out in SUP 16.12 and also on the MLAR Guidance (see Introduction, section 2, and in particular the table setting out reporting by firm type). We assume the subsidiary is as per the first row of the table, that is a mortgage lender/administrator with no other activities, in which case footnote a) of that table applies, and because of solo-consolidation does not require section C to be completed. See also the answer to General Q4.
Q: Where are Securitised and Unsecuritised loans reportable in the MLAR?
A: We use the following notional example for illustration:
- assume unsecuritised loans of say £100m
- assume securitised loans as follows:
- gross balances of £500m
- linked funding of £490m (also referred to as non-recourse finance in MLAR)
- giving net balances of £10m , which is the amount which contributes to balance sheet footings (i.e. total assets)
- securitised assets (subject to linked presentation under FRS5) are treated as 'off balance sheet' for MLAR, since in effect they do not contribute to balance sheet total assets.
On this basis the reporting treatment across MLAR is as follows:
- Unsecuritised loans: these are reportable in MLAR sections: A, B, C, D, E, F
- Securitised loans subject to linked presentation should be reported:
- In A3 columns 4 to 7
- As a contribution to A1.6, but only the net balances (ie as shown in A3 column7)
- any securitisation transactions in qtr are reportable in D1 column 5, and also in D2 column 3;
- while outstanding balances are reportable in D2 column 6 (in our example it would be £500m)
- In G1.1c and G1.2c. (Balances would be £500m)
- Also in G2.3, in a special entry (see MLAR Guidance on G2.3) for your firm's 'own SPVs'
- Any SPV loans in arrears are reportable here (see paragraph (iii) of section H of MLAR Guidance)
See also General Q12a.
Q: How should we report mortgages held as part of a pool of securitised mortgages in a Master Trust?
A: The firm asking the question further noted that:
- Only some of the loans in the pool were securitised (and held in an SPV)
- The other loans held in the pool were described as earmarked for, but not yet subject to securitisation
- At any one time, the terms of the Master Trust provided for a designated share to be deemed as securitised (that is, individual loans subject to securitisation were not separately identifiable)
The answer provided was as follows:
- Those loans (that is the share of the pool) subject to securitisation should be reported in A3 column 4 (and the linked funding shown in column 6). The gross balances in column 4 would also be reportable in D2 column 6, and in section G (G1.1c, G1.2c and G2.3)
- The other loans in the pool, that is those earmarked for but not yet subject to securitisation, should be treated as unsecuritised loans and reported in A3 column 1 until such time as they are formally subject to securitisation.
- These other loans (i.e. to be reported in A3 Column 1) should also be reported elsewhere in MLAR (e.g. sections D, E and F). As the amount of such loans is determined as a designated share of the pool, this will mean that information on loan characteristics (e.g. interest rates etc.) will probably need to be ascertained at overall pool level with the actual amount reported in D, E and F etc. being determined as a proportion of the overall pool.
See also General Q12a.
Q: How should we report ‘Liquidity securitisations with the Bank of England’ or other non-standard securitisations in MLAR?
In order to answer this, we begin by explaining our approach to securitisations and how this influences reporting in MLAR.
Historically, securitisations have typically involved the creation of securities (Notes or loan notes) on a pool of mortgages, and the Notes have then been sold to 3rd parties.
In MLAR, our approach to reporting mortgages has been to separately identify those loans that have been securitised from those which have not been securitised. The reason for this is that under the hitherto conventional approach to securitisation, the risks attaching to such securitised loans were no longer held by the originating lender and instead were transferred to the 3rd party Note-holders. It is a fundamental part of mortgage monitoring within MLAR that we can identify those loans where the risks are retained by the lender, and those loans where (as a result of conventional securitisation) the risks are transferred to 3rd parties.
Up to now the only variant on which we have issued a QA is where loans are held in a master trust for securitisation. That QA is in the MLAR FAQ document, General section, Q9a. There, those loans which are not actually securitised within a master trust, are deemed to be un-securitised and reported as such in MLAR. This is because the lender is still on risk for the performance of those loans. See the QA for specific details.
Since late 2007 however, a further type of 'securitisation' has come about. This is where, in order for a firm to avail itself of the Bank of England special liquidity facility, the firm has 'securitised' a pool of loans and subsequently used that security or Notes as collateral for liquidity. However, it is our understanding that in such circumstances the risks attaching to the performance of the underlying pool of loans remain with the lender and that no risk transfer has taken place to the Bank of England. It is our view therefore that, for MLAR reporting, such loans should continue to be reported within MLAR as un-securitised loans. As such they should be included within A1.6 (if a firm reports section A1/A2) but in any case should be reported within A3 columns 1 to 3 (and not in columns 4 to 7), and then in sections D, E and F in the normal way.
In other non-standard types of securitisation, that is where either none or not all of the Notes are issued to 3rd parties, our advice is as follows:
- Where a firm itself holds some of the loan notes, then only that portion which is represented by loan notes held by third parties (and where the risk has also been transferred to the third party), should be reported as securitised in MLAR.
- Where a firm itself holds all of the loan notes, then the underlying loans should be reported as un-securitised in MLAR.
Q: Can you offer guidance on the handling of rounding in general?
A: The firm provided further background:
Normally we would adopt the approach of doing the calculation in as much detail as the underlying data allows, and then round.
However in the example below using D3.1 columns 1 to 3, this would result in the entries not adding up correctly:
In Pounds, using un-rounded figures:
Total Of which at Fixed Of which at Variable
1987922385.00 730392744.00 1257529641.00
When rounded and presented in £000 this becomes:
Total Of which at Fixed Of which at Variable
1987922 730393 1257530
Which is out by 1 (thousand pounds) in this example because both the fixed and the variable totals were rounded up.
The approach should be to report totals, and the items which make them up, in such a way that while each figure is rounded to the nearest £thousand there is also arithmetic agreement. That is, we expect totals reported to agree exactly with the sum of the underlying components. To achieve this it will be necessary, as in the above example, to be selective when rounding: clearly not all elements need to be rounded, otherwise the total will not agree with the sum of the rounded components.
To help firms, we have recently made available sets of validation rules for each of the IRR returns (including for example where items should agree with one another; where components should agree with totals; and any other relationships that exist). They are part of the IRR web pages, under consolidated returns.
Q: Can you clarify the definition of a mortgage?
A: The firm asking the question, specifically wanted to know whether any of the following were included:
- Contingent liabilities, such as Bonds, Guarantees and indemnities (I understand that in some instances, where UK land is held as security, a Lloyds Guarantee may be a RMC), and
- Other facilities where we are 'advancing' against risks such as Forward Foreign Exchange contracts, agreed limits for electronic transmission (so called ‘BACS limits'), and other sorts of advances that are outside of the traditional lending products.
- Finally, could you please clarify the situation where we may be holding UK land as security for a 3rd party liability, such as a guarantee, eg a director could guarantee a company's borrowing facilities, which, in turn, is covered by a first party charge over the director's residential property.
The FCA's view is that any form of financial accommodation made to an individual customer that could result in a debt secured on his/her residential property will fall within the FSMA/RAO definition of a 'regulated mortgage contract' ('RMC'), whether or not that debt has crystallised. See our advice on the Q&A section of our website under the Question: 'What forms of financial accommodation will be subject to mortgage regulation?':
However, for the purposes of MLAR reporting, we wish to collect information on the subset of RMCs and other mortgages that are 'actual' or 'committed' rather than those that are 'contingent' on an event external to the lender or borrower, ie we do not require reporting where there is potential for a financial accommodation to result, at some time in the future, in a loan actually being made or being deemed to have been made.
Specifically, therefore, we do not require firms to report in the MLAR amounts that would be classified as 'contingent liabilities' such as bonds, guarantees, indemnities and settlement limits. Nor do we require reporting of guarantees held that are themselves secured on residential property. Please note that this approach does not affect the underlying legal status of the arrangements, and thus the potential application of MCOB rules.
If a contingent liability were to become crystallised at some future date, any resultant loan should be treated for MLAR reporting purposes in the same way as a loan of a similar type that originated in the normal course of business (ie did not start out as a contingent liability).
Q: What is the impact of International Accounting Standards (IAS) on reporting across the various sections of MLAR?
A: The MLAR Guidance deals with Accounting Conventions at section 5 of the Introduction chapter.
The original text was amended in April 2005 via Instrument 2005/21, which was attached to PS05/5 'Implications of a changing accounting framework – Feedback on CP04/17 & made text' [see Appendix 1, Annex G, Part 3, where there are changes to various parts of the MLAR Guidance contained in SUP 16 Annex 19BG]. For convenience, the updated text of section 5 of the Introduction is shown below, with new text underlined:
'5. Accounting conventions
Unless the contrary is stated in these guidance notes, the return should be compiled using generally accepted accounting practice.
However, information in respect of lending (e.g. balances, advances, interest rates, arrears etc.) to be reported in sections D, E, F, G, H and J of the return should not be fair-valued but should report the contractual position (i.e. as between lender and borrower).'
Thus the first paragraph of this note refers to generally accepted accounting practice, and that means that if a firm is subject to IAS then it should use that basis when reporting in the MLAR. However, the effect of the amending second paragraph is to confine the IAS basis to sections A, B and C, and to leave the remaining sections on a contractual basis (thereby simplifying the reporting of the various analyses of lending).
There were also a number of other changes related to PS05/5 that were made to sections A, B, C and D of the MLAR Guidance via 2005/21.
Q: If a firm is subject to International Accounting Standards (IAS), how does this affect the MLAR reporting of securitised loans?
The reporting of securitised loans for MLAR purposes is not on the same basis that a firm would use for its published IAS accounts. Please refer to QA1 in Section A of this document for full details.
For general reporting details of securitised loans, see Q9 of the General section.
Q: How do we classify residential loans to individuals (eg buy to lets) that exist as part of a 'business loans' type package?
A: This refers to a situation where an individual has several loans from a lender involving several securities.
This topic is covered in some depth in MLAR Guidance: Introduction, section 4 (ii) and (iii), where the concept of 'business loan' type packages is defined.
Essentially the treatment hinges on how the loans are linked to the securities:
- Loans where there is a one-to-one correspondence between the loan and a specific security: report these under 'residential loans to individuals'
- Loans where there is no one-to-one correspondence between a loan and a specific security: report these under 'other secured loans'. These multi-loan/multi-security 'business loan' type packages are such that the lender normally assesses loan cover against the basket of securities in the package. As a result it is not possible to assess such things as LTV or income multiple. Moreover, such lending is different from the range of loans normally associated with 'residential lending to individuals'. So 'other secured loans' is the most appropriate category.
Q: Could you provide confirmation on signage rules when entering data into MLAR?
A: The firm asking this question used the following example:
In section D1, Column 6 is a calculated field made up of Col  +Col -Col -Col  +Col . With existing returns we would normally report most figures as positive figures (regardless of their actual signage). Their signage is taken into account when calculating totals. For example:
Opening Mortgage Balances 50,000
Write offs 1,000
Other Dr/ (Cr) (10,000)
Closing mortgage balances would be calculated as 50,000+15,000-5,000-1,000-10,000 = 49,000 . Should we assume the above principles when populating the MLAR return (ie report most figures as positive amounts), otherwise the formulae to calculate column 6 would not work?
These assumptions are correct. As a general rule, all quantities are entered without sign, except:
- where the amount is the opposite of what is normal, (eg a write back would need a negative sign, since that would be the opposite of a write off)
- where a field can be + or - (eg the Other debit/ (credit) etc. items), in which case it is essential to use the relevant sign if negative
Q: Given the reference in C1.4 to 'General provisions', what is the meaning of 'Provisions' used elsewhere in MLAR such as sections A and B?
A: In the absence of any qualifying text such as 'general' or 'specific', the use of the term 'Provisions' by itself means all provisions, that is it means the total of general plus specific provisions.
As to its use within sections A and B, its context should indicate whether it is a stock (ie balance of provisions at a point in time) or a flow (ie an amount of provision being charged or written off in respect of a financial quarter or a period of several quarters). For example:
- in A3 it is provisions stock or balance
- in B1.16 it is a year to date flow figure, representing the charge to the P&L
- in B2 the analysis consists of opening and closing stocks and also reconciling flows as follows
- B2 column 3 'provisions charge in financial year to date' will not necessarily be exactly the same as B1.16 since B1.16 covers all provisions charges by the firm (and there may be some that do not relate to loans in B2). But for some firms the figures may be the same
- B2 column 2 and 3 items are:
- amounts written off so far in the year to date; and
- charges made during the same period (but they are not purely charges that have necessarily 'occurred' as such, since they include charges for anticipated events or as a contingency against losses that may arise, together with some losses that have already occurred)
But C1.4 is only general provisions, and this term is defined in the guidance notes at section C1-2 subparagraph (6).