Introduction
The mortgage broker, acting as a banking operations and payment services intermediary (COBSP), plays a central role in obtaining financing suited to a property purchase project. As an intermediary between the borrower and banking institutions, the broker has strict obligations, governed by law. Understanding their duties and responsibilities allows borrowers to ensure quality support that complies with regulations. These obligations include in particular their registration, professional liability insurance, rules of good conduct, as well as their duties of information and transparency. Here is a breakdown of the main obligations:
1. A Regulated Intermediary Role: Mandatory Registration
COBSPs must be registered in the single register maintained by ORIAS (Organization for the Register of Insurance Intermediaries). This registration aims to facilitate the identification and census of persons engaged in a regulated activity of intermediation in banking operations and payment services (French Monetary and Financial Code, Art. L. 519-3-1 and L. 546-1).
COBSPs must also inform ORIAS of any changes to their information, such as a change of place of business or cessation of activity (French Monetary and Financial Code, Art. R. 546-3, IV).
2. Professional Liability Insurance
COBSPs must take out professional liability insurance (PLI) to cover the financial consequences of their liability. This obligation applies unless their liability is already covered by the institution for which they act (French Monetary and Financial Code, Art. L. 519-3-4 and R. 519-16).
The minimum level of coverage is set at 500,000 euros per claim and 800,000 euros per insurance year for a single intermediary (French Monetary and Financial Code, Art. R. 519-16, I, para. 1).
3. Compliance with Rules of Good Conduct
COBSPs are subject to rules of good conduct aimed at ensuring an honest, fair, and transparent relationship with their clients. These rules include in particular:
Duty of loyalty: COBSPs must base their proposals on an objective market analysis and offer contracts suited to the clients’ needs (French Monetary and Financial Code, Art. R. 519-28, para. 4; French Monetary and Financial Code, Art. L. 519-1-1, amended by Order No. 2016-351, 25 March 2016, Art. 8, concerning advice on mortgage credit agreements). This obligation is reduced when the intermediary only provides assistance during preparatory work for a banking operation or payment service (French Monetary and Financial Code, Art. R. 519-28, para. 5). The broker must respond truthfully to the credit or payment institution’s requests for information in order to assess the client’s background and the risk involved (French Monetary and Financial Code, Art. R. 519-31, I). The broker must not provide false information that could give an inaccurate picture of the client’s situation (French Monetary and Financial Code, Art. R. 519-31, II).
Duty of information: They must provide clear, accurate, and comprehensible information about the proposed contracts, fees, remuneration received, as well as any financial ties with credit institutions (French Monetary and Financial Code, Art. R. 519-30).
Duty of transparency: They must explain the advantages and risks of the proposed contracts and their suitability to the client’s financial situation (French Monetary and Financial Code, Art. R. 519-28, para. 2). However, this obligation is reduced when the intermediary only provides assistance for preparatory work for a banking operation or payment service and does not receive any remuneration from a credit institution, a financing company, a payment institution, an electronic money institution providing payment services, a crowdfunding intermediary, an insurance company as part of its lending activities, or a management company as part of its AIF management activity (French Monetary and Financial Code, Art. R. 519-28, last para.).
4. Anti-Money Laundering and Counter-Terrorism Financing Obligations (AML-CTF)
COBSPs are subject to strict obligations regarding anti-money laundering and counter-terrorism financing. These obligations include:
Know Your Customer (KYC): identification of clients and beneficial owners of transactions (French Monetary and Financial Code, Art. L. 561-2; the new regulatory framework was established by Order No. 2020-115 transposing the 5th Directive (EU) 2018/843 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, accompanied by its two implementing decrees, Decrees Nos. 2020-118 and 2020-119, 12 Feb. 2020).
Monitoring of complex or unusual transactions
Reporting of suspicions to TRACFIN in case of suspicious transactions (Art. L. 561-15 of the French Monetary and Financial Code)
5. Specific Obligations Related to Advisory Services
COBSPs providing paid advisory services in relation to mortgage credit must comply with additional obligations, including:
- Providing personalized recommendations based on an objective market analysis (French Monetary and Financial Code, Art. L. 519-4-1, amended by Order No. 2016-351, 25 March 2016, Art. 8).
- Acting independently when they receive no remuneration other than that paid by the client (French Monetary and Financial Code, Art. L. 519-1-1, para. 4 and 5 new).
6. Case Study (Aix-en-Provence Court of Appeal, 26 September 2024, No. 19/13821)
The judgment of the Aix-en-Provence Court of Appeal dated 26 September 2024 provides a concrete illustration of the obligations incumbent upon mortgage brokers, particularly their duty of information and advice towards their clients, and the difficulties the latter may encounter in the context of a liability action.
Background of the Case
Mr. and Mrs. I., real estate investors, had taken out five loans to finance their acquisitions. Wishing to take advantage of falling interest rates and optimize their profitability, they had their loans bought out by Bank X, with an overall rate of 2.95% and an extension of the repayment period for some loans.
Deeming this transaction disadvantageous, they brought an action for damages against Bank X, also implicating Company Y, a credit broker, for breach of its obligations.
The Mortgage Broker’s Obligations
Article R. 519-28 of the French Monetary and Financial Code requires credit brokers to inform borrowers of the advantages and risks of the transaction, to carry out a prospective financial study, and to propose the contract best suited to their situation.
However, in this case, Company Y provided no evidence that it had fulfilled these obligations towards Mr. and Mrs. I. and their company. The Court of Appeal therefore found a breach of the broker’s duty of information and advice.
Absence of Proof of Loss
However, the claimants failed to demonstrate that the disputed transaction had caused them concrete loss. Consequently, the Court of Appeal upheld the first instance judgment, dismissing their claims.
Analysis
This decision illustrates the importance of the obligations of mortgage brokers, who must go beyond a simple intermediary role by safeguarding their clients’ interests. It also underscores that recognition of a breach is not sufficient: actual loss must be proven to obtain compensation.
Conclusion
The mortgage broker has strict obligations aimed at protecting the borrower and ensuring quality support. Their role is not limited to finding an attractive rate: they must inform, advise, encourage competition among lenders, and ensure the compliance of the transaction. As a borrower, being well aware of your rights ensures an efficient and transparent brokerage service.
