COB Conduct of Business

You are viewing the Handbook in the past on 01/04/2005

Used in

Export part as

COB 1

General
application

COB 1.1

Application and Purpose

  • 01/12/2004

Application

COB 1.1.1

handbook-guidance
COB applies to every firm (except an ICVC) as specified in the remainder of this chapter.
  • 01/12/2001

Purpose

COB 1.1.2

handbook-guidance
The purpose of this chapter is to set out to whom, for what activities, and within what territorial limits the rules, evidential provisions and guidance in COB apply.
  • 01/12/2001

COB 1.2

General application: who?

  • 01/12/2004

COB 1.2.1

handbook-rule

COB applies to every firm in respect of the activities set out in COB 1.3.1 R, except that:

  1. (1) [deleted]
  2. (2) for a UCITS qualifier and a service company that does not operate an ATS, only COB 1.9 (Application to electronic commerce activity providers) and , COB 3 (Financial promotion), COB 7.17 (Investment research recommendations: required disclosures) and any provision of COB incorporated into COB 1.9 or COB 3 by reference, apply;
  3. (2A) for a service company that operates an ATS, only COB 1.9 and COB 3, any provision of COB incorporated into COB 1.9 or COB 3 by reference, and COB 7.17 (Investment research recommendations: required disclosures) and, in relation to the operation of the ATS, COB 4.2 (Terms of business), apply;
  4. (3) COB does not apply to an ICVC;
  5. (4) COB does not apply to an authorised professional firm with respect to its non-mainstream regulated activities except for:
    1. (a) COB 2.1 (Clear, fair and not misleading communication);
    2. (b) COB 3 (Financial promotion); and
    3. (c) the following provisions of COB 4.2 (Terms of business and client agreements with customers): COB 4.2.1 R to COB 4.2.6 G, COB 4.2.12A E and COB 4 Ann 2E(25); and
    4. (d) the IMD minimum implementation provisions and COB 4.3.19 R to COB 4.3.25 R as if they also applied to a firm carrying out the activities in COB 4.3.19R (1)(a) with or on behalf of private customers, unless:
      1. (i) the designated professional body of the firm has made rules which implement some or all of the provisions of articles 12 and 13 of the IMD;
      2. (ii) those rules have been approved by the FSA under section 332(5) of the Act; and
      3. (iii) the firm is subject to the rules in the form in which they were approved;
  6. in which case they are disapplied to the extent that articles 12 and 13 of the IMD are implemented by the rules of the designated professional body.

COB 1.2.1A

handbook-guidance
If a firm engages in insurance mediation activities for non-investment insurance contracts, ICOB applies and COB does not apply.
  • 14/01/2005

COB 1.2.1B

handbook-guidance

The effect of COB 1.2.1 R (4)(d) is that if the relevant designated professional body of an authorised professional firm does not make rules implementing articles 12 and 13 of the IMD applicable to authorised professional firms, those firms will need to comply with:

  1. (a) the IMD minimum implementation provisions; and
  2. (b) COB 4.3.19 R to COB 4.3.25 R as if they also applied to a firm carrying out the activities in COB 4.3.19R (1)(a) with or on behalf of private customers.

COB 1.2.2

handbook-guidance
A UCITS qualifier should be aware of the requirements of CIS 17.4 (Facilities in the United Kingdom).
  • 01/12/2001

COB 1.2.3

handbook-guidance
COB 6.7 (Cancellation and withdrawal) confers rights on customers to rescind agreements with, or withdraw offers from, firms within a specified period.
  • 01/12/2001

COB 1.2.4

handbook-guidance
COB 3 (Financial promotion) is available for nationals of EEA States (other than the United Kingdom) wishing to take advantage of article 36 of the Financial Promotion Order.
  • 01/12/2001

COB 1.2.5

handbook-guidance

Authorised professional firms should be aware of the following:

  1. (1) PROF 5 (Non-mainstream regulated activities);
  2. (2) COB 3.1.5 R (Authorised professional firms) and the exemption in article 55 of the Financial Promotion Order (Communications by members of professions) which applies in relation to financial promotions of authorised professional firms under COB 3.5.5 R (2) (Exemptions); and
  3. (3) COB 4.2.3 G which contains guidance for authorised professional firms on the provision of terms of business.

COB 1.3

General application: what?

  • 01/12/2004

COB 1.3.1

handbook-rule

COB applies to firms with respect to the carrying on of:

  1. (1) all regulated activities except:
    1. (a) regulated mortgage activities; or
    2. (b) to the extent that a provision of COB provides for a narrower application; or;
    3. (c) insurance mediation activities in connection with non-investment insurance contracts; and
  2. (2) unregulated activities to the extent specified in any provision of COB.

COB 1.3.2

handbook-guidance
  1. (1) The approach in COB is to ensure that each rule, or, as appropriate, the rules in a section or part of a section, are applied to firms in respect of particular regulated activities or unregulated activities or, in the case of COB 3 (Financial promotion), in relation to particular kinds of promotion.
  2. (2) Most of COB applies in relation to regulated activities, conducted by firms, which fall within the definition of designated investment business. In relation to deposits, COB has limited application, as described in COB 1.11 (Application of COB in relation to deposits).
  3. (3) The scope of the regulated activities to which COB applies is determined by the description of the activity as it is set out in the Regulated Activities Order. Accordingly, a firm will not generally be subject to COB in relation to any aspect of its business activities which fall within an exclusion found in the Regulated Activities Order. The definition of designated investment business includes, however, activities within the exclusion from dealing in investments as principal in article 15 of the Regulated Activities Order (Absence of holding out etc).
  4. (4) COB has limited application to Lloyd's related activities as set out in Chapter XIII of Part II of the Regulated Activities Order. Firms are reminded of the provisions of COB 12 (Lloyd's).
  5. (5) COB 3 (Financial promotion) applies to a firm which communicates or approves a financial promotion, but see (6);
  6. (6) Firms are reminded that COB 3 (Financial promotion) has limited application to a firm carrying on a takeover or related operation. (See COB 3.2.3A R and COB 3.2.5 R)
  7. (7) MCOB applies to a firm that carries on regulated mortgage activity.
  8. (8) ICOB applies to a firm in relation to insurance mediation activities in connection with non-investment insurance contracts.

Application for private customers, intermediate customers, market counterparties and retail customers

COB 1.3.3

handbook-guidance
  1. (1) The application of many provisions in COB depends on the classification of the client with whom a firm is conducting business. A client must fall within one of three classifications: private customer, intermediate customer or market counterparty. In COB, the term "customer" refers to private customers and intermediate customers, but not market counterparties. The term "client" covers customers and market counterparties. Where relevant, each of the provisions of COB makes clear whether it applies to activities carried on with or for private customers, intermediate customers or both.
  2. (2) [deleted]
  3. (3) Some rules in COB (mainly those relating to distance contracts) use the term "retail customer" rather than "customer", "private customer" or "intermediate customer". A retail customer is an individual who is acting for purposes which are outside his trade, business or profession.
  • 01/01/2004

Inter-professional business

COB 1.3.4

handbook-rule

Only the following provisions of COB apply with respect to the carrying on of inter-professional business:

  1. (1) this chapter;
  2. (2) COB 2.4 (Chinese walls);
  3. (3) COB 4.1 (Client classification);
  4. (3A) COB 5.5 (Information about the firm), except COB 5.5.1 R - COB 5.5.8 G;
  5. (4) COB 7.13 (Personal account dealing).
  • 01/12/2004

COB 1.3.5

handbook-guidance

Firms are reminded that the definition of inter-professional business does not include:

  1. (1) the approval of a financial promotion - COB 3 (Financial promotion) has a limited application in this context (see COB 3.2.3A R and COB 3.2.5 R);
  2. (2) [deleted]
  3. (3) offering, giving, soliciting or accepting inducements for the purpose of or in connection with activities falling within the scope of COB 2.2 (Inducements and soft commission) will apply in this context;
  4. (4) corporate finance business;
  5. (5) concluding a distance contract with a retail customer; or
  6. (6) regulated activities relating to life policies.

COB 1.4

General Application: where?

  • 01/12/2004

COB 1.4.1

handbook-guidance
The rules in COB 1.4 set out the maximum territorial scope of this sourcebook. Particular rules may have express territorial limitations.
  • 01/03/2003

UK establishments: general

COB 1.4.2

handbook-rule
Except as set out in this section, this sourcebook applies in relation to activities carried on from an establishment maintained by the firm (or its appointed representative) in the United Kingdom only.
  • 01/03/2003

Business with UK clients from non-UK offices

COB 1.4.3

handbook-rule

This sourcebook applies in relation to activities not within COB 1.4.2 R (UK establishments: general) carried on with or for a client in the United Kingdom, except in any of the following cases:

  1. (1) this sourcebook does not apply in relation to an activity carried on from an office outside the United Kingdom which, if that office were a separate person, would fall within the overseas persons exclusions in article 72 of the Regulated Activities Order or would not be regarded as carried on in the United Kingdom; or
  2. (2) COB 4.2 (Terms of business and client agreements with customers), COB 5 (Advising and selling) and COB 6 (Product disclosure and the customer's right to cancel or withdraw) do not apply to a firm with respect to an activity exclusively concerning a distance contract with a retail customer, if the following conditions are satisfied:
    1. (a) the firm carries on the activity from an establishment maintained by the firm in an EEA State other than the United Kingdom;
    2. (b) either that EEA State:
      1. (i) has implemented the DMD; or
      2. (ii) has obligations in its domestic law corresponding to those provided for by the DMD;
    3. and, in either case, with the result that the obligation provided for by the DMD (or corresponding obligations) are applied by that State when the firm carries on that activity; and
    4. (c) the firm is a national of an EEA State or a company or firm mentioned in article 48 of the Treaty.

COB 1.4.4

handbook-rule
In addition to the situations in COB 1.4.2 R and COB 1.4.3 R, COB 5.5.7 R (Overseas business for UK private customers) applies wherever the activity is conducted.
  • 01/03/2003

Financial promotions

COB 1.4.5

handbook-rule
Notwithstanding COB 1.4.2 R and COB 1.4.3 R, the territorial scope of the financial promotion rules COB 3) is as set out in COB 3.3 (Application: where?).
  • 01/03/2003

ISD investment firms: compensation information

COB 1.4.6

handbook-rule
In addition to the situations in COB 1.4.2 R and COB 1.4.3 R, COB 5.5.9 R to COB 5.5.12 R apply to a UK firm which is an ISD investment firm in relation to passported activities carried on by it from a branch in another EEA State.
  • 01/03/2003

Life policies

COB 1.4.7

handbook-rule

In addition to the situations in COB 1.4.2 R and COB 1.4.3 R, COB 6 (Product disclosure and the customer's right to cancel or withdraw) applies in relation to life policies if the habitual residence of the client is in the United Kingdom, except:

  1. (1) COB 6.3 (Post-sale confirmation: life policies);
  2. (2) COB 6.9 (With-profits guides); and
  3. (3) (in relation to the conclusion of a distance contract with a retail customer and if the conditions in COB 1.4.3 R (2) are satisfied) COB 6.7 (Cancellation and withdrawal) and any provision of COB 6 which requires the provision of information prior to the conclusion of the contract.

Electronic commerce activities and communications

COB 1.4.10

handbook-rule
The territorial scope of this sourcebook is modified by ECO in relation to electronic commerce activities and electronic commerce communications.
  • 01/03/2003

COB 1.4.11

handbook-guidance
COB 1.9 contains guidance on how this sourcebook is modified by ECO.
  • 01/03/2003

IMD passported activities

COB 1.4.12

handbook-rule
  1. (1) Notwithstanding COB 1.4.2 R, the IMD minimum implementation provisions apply, on the basis outlined in (4), to the passported activities carried on by a UK firm under the IMD from a branch elsewhere in the EEA unless the Host State regulator imposes measures which implement articles 12 and 13 of the IMD for those activities.
  2. (2) Notwithstanding COB 1.4.2 R, the provisions in COB which implement articles 12 and 13 of the IMD (including COB 4.3.3R (1)(b)(i) (provision of initial disclosure document and fees and commission statement)) do not apply, on the basis outlined in (4), to a UK firm providing cross-border services in another EEA State under the IMD or the Consolidated Life Directive, except that the IMD minimum implementation provisions apply, on the basis outlined in (4), to a UK firm providing cross-border services in another EEA State under the IMD if the Host State regulator does not impose measures which implement the articles for those activities.
  3. (3) In addition to the situation in COB 1.4.3 R, the IMD minimum implementation provisions apply, on the basis outlined in (4), to an incoming EEA firm providing cross-border services in the United Kingdom under the IMD unless the firm's Home State regulator imposes measures which implement the articles for these activities.
  4. (4) The IMD minimum implementation provisions apply to an activity pursuant to this rule as follows:
    1. (a) as outlined in the IMD minimum implementation provisions; and
    2. (b) as if COB 4.3.19 R to COB 4.3.25 R also applied to a firm carrying out the activities in COB 4.3.19R (1)(a)-(c) with or on behalf of private customers.

COB 1.4.13

handbook-guidance
  1. (1) The IMD minimum implementation provisions are the minimum provisions required for the implementation of articles 12 and 13 of the IMD.
  2. (2) The effect of COB 1.4.12 R is to apply these minimum provisions to firms in respect of their insurance mediation activities passported under the IMD if other EEA States have not implemented articles 12 and 13 of the IMD for those activities.
  3. (3) Firms are reminded that insurers have passporting rights under the Consolidated Life Directive but not under the IMD.
  • 01/12/2004

COB 1.5

Application to Occupational pension scheme firms ('OPS firms')

  • 01/12/2004

COB 1.5.1

handbook-rule

In the case of OPS activity undertaken by an OPS firm, COB applies with the following general modifications:

  1. (1) references to customer are to the OPS or welfare trust, whichever fits the case, in respect of which the OPS firm is acting or intends to act, and with or for the benefit of which the relevant activity is to be carried on; and
  2. (2) where an OPS firm is required by any rule in COB to provide information to, or obtain consent from, a customer, that firm must ensure that the information is provided to, or consent obtained from, each of the trustees of the OPS or welfare trust in respect of which that firm is acting, unless the context requires otherwise.
  • 01/12/2001

COB 1.6

Application to stock lending activity, corporate finance business, oil market activity and energy market activity

  • 01/12/2004

Stock lending activity

COB 1.6.1

handbook-rule
In respect of any stock lending activity undertaken with or for a customer by a firm, only those provisions of COB in COB 1.6.2 R apply.
  • 01/12/2001

COB 1.6.2

handbook-rule

Provisions of COB applied to stock lending activity

This table belongs to COB 1.6.1 R

Corporate finance business

COB 1.6.3

handbook-rule
In respect of any corporate finance business undertaken by a firm, only those provisions of COB in COB 1.6.4 R apply.
  • 01/12/2001

COB 1.6.4

handbook-rule

Provisions of COB applied to corporate finance business

This table belongs to COB 1.6.3 R

COB 1.6.5

handbook-guidance
Firms should, when relevant, make reference to MAR 4 (Endorsement of the Takeover Code). The effect of this endorsement in MAR 4, is that, should a firm to whom the endorsement applies fail to comply with the City Code on Takeovers and Mergers ('Takeover Code'), the Rules Governing Substantial Acquisition of Shares ('SARs') or rulings or requirements made by the Takeover Panel, the Takeover Panel can request the FSA to take enforcement action against that firm.
  • 01/12/2001

COB 1.6.5A

handbook-guidance
COB 6.7 (Cancellation and withdrawal) has limited application for corporate finance business. Distance contracts concluded with retail customers in the course of corporate finance business are exempt from COB 6.7 if the price of the financial service is dependent on fluctuations in the financial market outside the firm's control (COB 6.7.17, row 2, case 15(a)).
  • 01/12/2004

Oil market activity and energy market activity

COB 1.6.6

handbook-rule

Only the provisions of COB listed in COB 1.6.7 R apply in respect of:

  1. (1) oil market activity; and
  2. (2) other energy market activity;
undertaken by any firm (but see COB 1.6.8 R).
  • 01/12/2001

COB 1.6.7

handbook-rule

Provisions applied to oil market activity and energy market activity

This table belongs to COB 1.6.6 R

COB 1.6.8

handbook-rule

Despite COB 1.6.6 R, only the provisions of COB listed in COB 1.6.9 R apply to:

  1. (1) oil market activity; or
  2. (2) other energy market activity; undertaken by any firm where, if the firm were not authorised, the activity would not be a regulated activity because of:
  3. (3) article 16 of the Regulated Activities Order (Dealing in contractually based investments); or
  4. (4) article 22 of the Regulated Activities Order (Deals with or through authorised persons etc.).
  • 20/09/2001

COB 1.6.9

handbook-rule

Oil market activity and energy market activity: provisions applied to certain dealings with or through authorised persons etc.

This table belongs to COB 1.6.8 R.

COB 1.6.10

handbook-guidance

Article 16 of the Regulated Activities Order (Dealing in contractually based investments) sets out an exclusion for unauthorised persons who deal in investments as principal in contractually based investments. The exclusion relates to dealings:

  1. (1) with or through an authorised person or, in certain cases, an exempt person; or
  2. (2) in certain cases, through an office outside the United Kingdom maintained by a party to the transaction.
  • 20/09/2001

COB 1.6.11

handbook-guidance

Article 22 of the Regulated Activities Order (Deals with or through authorised persons) sets out an exclusion for unauthorised persons who deal in investments as agent. The exclusion relates to dealings with or through an authorised person if:

  1. (1) the transaction is entered into on advice given to the client by an authorised person; or
  2. (2) it is clear, in all the circumstances, that the client, in his capacity as an investor, is not seeking and has not sought advice from the agent as to the merits of the client's entering into the transaction (or the agent has declined to give such advice but has recommended the client seek such advice from an authorised person); and in either case, the agent does not receive from any person other than the client any pecuniary reward or advantage for which he does not account to the client.
  • 20/09/2001

COB 1.6.12

handbook-rule
Despite COB 1.6.6 R to COB 1.6.11 G, if a firm that is undertaking oil market activity or other energy market activity operates an ATS, COB 4.2 (Terms of business) applies in relation to the operation of the ATS.
  • 01/04/2004

COB 1.7

Appointed representatives

  • 01/12/2004

COB 1.7.1

handbook-guidance
  1. (1) Although COB does not apply directly to a firm's appointed representatives, a firm will always be responsible for the acts and omissions of its appointed representatives in carrying on business for which the firm has accepted responsibility (section 39(3) of the Act). In determining whether a firm has complied with any provision of COB, anything done or omitted by a firm's appointed representative (when acting as such) will be treated as having been done or omitted by the firm (section 39(4) of the Act).
  2. (2) Firms should also refer to SUP 12 (Appointed representatives), which sets out requirements which apply to firms using appointed representatives.
  • 01/12/2001

COB 1.8

Application to electronic media

  • 01/12/2004

COB 1.8.1

handbook-guidance
GEN 2.2.14 R (References to writing) has the effect that electronic media may be used to make communications that are required by the Handbook to be 'in writing' unless a contrary intention appears.
  • 01/12/2001

Additional guidance in respect of electronic communication with or for customers

COB 1.8.2

handbook-guidance

For any electronic communication with a customer, a firm should:

  1. (1) have in place appropriate arrangements, including contingency plans, to ensure the secure transmission and receipt of the communication; it should also be able to verify the authenticity and integrity of the communication; the arrangements should be proportionate and take into account the different levels of risk in a firm's business;
  2. (2) be able to demonstrate that the customer wishes to communicate using this form of media; and
  3. (3) if entering into an agreement, make it clear to the customer that a contractual relationship is created that has legal consequences.
  • 01/12/2001

COB 1.8.3

handbook-guidance
Firms should note that GEN 2.2.14 R does not affect any other legal requirement that may apply in relation to the form or manner of executing a document or agreement.
  • 01/12/2001

COB 1.9

Application in relation to electronic commerce activities and communications

  • 01/12/2004

Application and purpose

COB 1.9.1

handbook-guidance
  1. (1) COB 1.9.1 G and COB 1.9.2 G apply to a firm:
    1. (a) which is an electronic commerce activity provider, that is, any firm which carries on an electronic commerce activity; and
    2. (b) in relation to a financial promotion which is an electronic commerce communication.
  2. (2) Paragraph (1) means that firms need to be aware of this section whenever they are providing a service which:
    1. (a) is normally provided for remuneration;
    2. (b) is provided at a distance;
    3. (c) is so provided by means of electronic equipment for the processing (including digital compression) and storage of data; and
    4. (d) is so provided at the individual request of a recipient of the service.
  3. (3) The purpose of this section is to indicate, for the benefit of such firms, the extent to which and the general manner in which the normal provisions of COB are modified by ECO.
  • 01/11/2002

Modification of COB resulting from the E-Commerce Directive

COB 1.9.2

handbook-guidance

The modifications made to COB resulting from the introduction of the E-Commerce Directive are of three kinds:

  1. (1) ECO 1.1.6 R modifies COB so that a firm providing an electronic commerce activity from an establishment elsewhere in the EEA to a recipient who is in the United Kingdom (an incoming ECA provider) is not required to comply with any provision of COB except to the extent required by ECO 1. These exceptions relate to the 'consumer contract derogation' (see ECO 1.2) and to the 'insurance derogation' (see ECO 1.3);
  2. (2) ECO 2:
    1. (a) modifies COB so that, in relation to a financial promotion which is an outgoing electronic commerce communication, COB 3 has an extended application to cover the whole of the EEA;
    2. (b) obliges such a firm, in providing an electronic commerce activity within the EEA, to comply with the minimum information and other requirements in the E-Commerce Directive; and
    3. (c) relieves such a firm of the obligations covered by the derogations in ECO 1.
  3. otherwise COB applies in the usual way to such a firm.
  4. (3) ECO 3 applies to a firm providing an electronic commerce activity from an establishment in the United Kingdom to a recipient who is in the United Kingdom or in a non-EEA State (a domestic ECA provider). Such a firm has to comply with COB in the usual way and so the requirements in ECO 3 are in addition to COB. ECO 3 sets out the minimum information and other requirements in the E-Commerce Directive.
  • 01/11/2002

The Distance Marketing Directive

COB 1.9.3

handbook-guidance
The Distance Marketing Directive is also relevant for electronic commerce activities and communications. The E-Commerce Directive applies in relation to any commercial transaction entered into over the Internet; the Distance Marketing Directive applies only in relation to contracts for financial services concluded exclusively by any means of distance communication such as telephone, fax or mail as well as electronic communications. COB 1.10.3G (2)(b) (Application of the Distance Marketing Directive and the Distance Marketing Regulations) provides guidance on the Distance Marketing Directive.
  • 09/10/2004

COB 1.10

Application of the Distance Marketing Directive and the Distance Marketing Regulations

  • 01/12/2004

COB 1.10.1

handbook-guidance
This section provides guidance on certain expressions used in COB that are derived from the Distance Marketing Directive and on the application of the Distance Marketing Regulations.
  • 09/10/2004

Initial service agreement and successive operations

COB 1.10.2

handbook-guidance

This sourcebook adopts the concepts of "initial service agreement" and "successive operations" from the DMD.

  1. (1) A firm's contract with a customer may take the form of an initial service agreement under which successive operations or a series of separate operations of the same nature are performed over time. Where this is the case, the DMD disclosure and cancellation requirements apply in relation to the initial service agreement only and not to the successive or separate operations. However, if new elements are added to the initial service agreement, the addition of those new elements is treated as a new contract to which the DMD disclosure and cancellation requirements apply. In accordance with recital 17 of the Distance Marketing Directive, examples are:
    1. (a) the opening of a bank account, which would be an initial service agreement, and the deposit or withdrawal of funds from that account which would be a successive or series of separate operations under that initial agreement; however, adding a debit card to the account would be the addition of a new element involving a separate contract; and
    2. (b) concluding an investment management agreement would be an initial service agreement, and carrying on discretionary or advisory transactions under that agreement would be a successive or a series of separate operations under it.
    3. Other examples are, in the FSA's view:
    4. (c) opening a brokerage account for the purposes of trading securities, and transactions under that account;
    5. (d) establishing a facility to enable a customer to subscribe to an ISA for the present and future tax years, and successive subscriptions under that agreement;
    6. (e) subscribing to an investment trust savings scheme, and successive purchases or sales of shares under that scheme; and
    7. (f) concluding a life policy, pension contract or stakeholder pension scheme that includes a pre-selected option providing for future increases or decreases in regular premiums or payments, and subsequent index-linked changes to those premiums or increases or decreases to pension contributions following fluctuations in salary.
  2. (2) Even if a firm has not entered into an initial service agreement with a retail customer, but simply performs successive operations or a series of separate operations of the same nature for a retail customer over time, the DMD disclosure requirements will not apply to the successive or separate operations, provided there has been an operation of the same nature within the past year. But if it has been longer than a year, the next operation will be treated as the first in a new series of operations and the DMD disclosure requirements will apply. In accordance with recital 17 of the Distance Marketing Directive, an example of "successive operations" is the subscription to units of the same collective investment scheme.

Retail customer

COB 1.10.3

handbook-guidance
  1. (1) The Distance Marketing Directive provides protections for 'any natural person who, in distance contracts... is acting for purposes which are outside his trade, business or profession', for which the FSA uses the term 'retail customer'. In practice, private individuals may act in a number of capacities. In the FSA's view retail customer does not include an individual acting, for example:
    1. (a) as trustee of a trust such as a housing or NHS trust; or
    2. (b) as member of the governing body of a club or other unincorporated association such as a trade body or a student union; or
    3. (c) as a pension trustee (but see COB 6.4.19 and COB 6.7.8 regarding the information and cancellation rights of such trustees).
  2. (2) Examples of retail customers are:
    1. (a) personal representatives, including executors, unless they are acting in a professional capacity, for example, a solicitor acting as executor; or
    2. (b) private individuals acting in personal or other family circumstances for example, as trustee of a family trust.
  • 09/10/2004

Distance contract

COB 1.10.4

handbook-guidance
  1. (1) To be a distance contract, a contract must be concluded under an 'organised distance sales or service-provision scheme' run by the contractual provider of the service who, for the purpose of the contract, makes exclusive use (directly or through an intermediary) of one or more means of distance communication up to and including the time at which the contract is concluded. The expression 'organised distance sales or service-provision scheme' is not defined in the DMD, but:
    1. (a) recital 15 of the DMD states that contracts negotiated at a distance involve the use of means of distance communication which are used as part of such a scheme not involving the simultaneous physical presence of the supplier and the consumer; and
    2. (b) recital 18 of the DMD states that the expression is intended to exclude services provided on a strictly occasional basis and outside a commercial structure dedicated to the conclusion of distance contracts.
  2. (2) So, in the FSA's view, this means that:
    1. (a) the firm must have put in place facilities designed to enable a retail customer to deal with it exclusively at a distance, such as facilities for a retail customer to deal with it purely by post, telephone, fax or the Internet. If a firm normally operates face-to-face and has no facilities in place enabling a retail customer to deal with it customarily by distance means, the DMD will not apply. A one-off transaction effected exclusively by distance means to meet a particular contingency or emergency will not be a distance contract; and
    2. (b) there must have been no simultaneous physical presence of the firm and the other party to the contract throughout the offer, negotiation and conclusion of the contract. So, for example, contracts offered, negotiated and concluded over the Internet, through a telemarketing operation or by post will normally be distance contracts. A retail customer may visit the local office of the firm in the course of the offer, negotiation or conclusion of the contract with that firm. Wherever, in the literal sense, there has been "simultaneous physical presence" of the firm and the retail customer at the time of such a visit, any ensuing contract will not be a distance contract.
  • 09/10/2004

Use of intermediaries

COB 1.10.5

handbook-guidance
The mere fact that an intermediary (acting for the supplier or for the retail customer) is involved, does not make the sale of a financial product or service a distance contract. The same principles apply as in the case of contact between the supplier and a retail customer. For example, if the intermediary and retail customer are simultaneously physically present at some stage in the course of the offer, negotiation and conclusion of a contract, the contract will not be a distance contract.
  • 01/12/2004

Distance contracts for intermediation services

COB 1.10.6

handbook-guidance

Some of the services which some intermediaries provide will themselves fall within the scope of the DMD. The FSA expects this to apply in only a small minority of cases, for example where the intermediary agrees to provide continuing advisory, broking or portfolio management services for a retail customer. The DMD is only relevant if:

  1. (1) there is a contract between the intermediary and the retail customer in respect of the intermediary's mediation services; an intermediary may in its terms of business make clear that it does not, in providing its mediation services, act contractually on behalf of, or for, its retail customer and then proceed on the basis that no contract for its mediation services will arise;
  2. (2) the contract is a distance contract; and
  3. (3) the contract is concluded other than merely as a stage in the provision of another service by the intermediary or another person (see COB 4 Annex 1.1 R(13) and COB 6.7.17, Row 1, case D(a)).
  • 01/12/2004

Application of parts of the Distance Marketing Regulations

COB 1.10.7

handbook-guidance

COB implements most of the Distance Marketing Directive for distance contracts concluded by firms, the making or performance of which constitutes, or is part of, designated investment business or accepting deposits. However, certain aspects of the Distance Marketing Directive are implemented by provisions of the Distance Marketing Regulations, which apply in addition to COB, in particular:

  1. (1) regulation 12 (Automatic cancellation of an attached distance contract) on which there is guidance in COB 6.7.51A G; and
  2. (2) regulation 14 (Payment by card).
  • 09/10/2004

COB 1.11

Application of COB in relation to deposits

  • 01/12/2004

COB 1.11.1

handbook-guidance

Table: Application of rules in COB in relation to deposits

Export chapter as

COB 2

Rules
which apply to all firms conducting designated investment business

COB 2.1

Clear, fair and not misleading communication

  • 01/12/2004

Application

COB 2.1.1

handbook-rule
  1. (1) This section applies to a firm when it communicates information to a customer in the course of, or in connection with, its designated investment business.
  2. (2) This section does not apply to a firm when it communicates a financial promotion in circumstances in which COB 3 (Financial promotion) applies to the firm.
  • 01/12/2001

Purpose

COB 2.1.2

handbook-guidance
The purpose of this section is to restate, in slightly amended form, and as a separate rule, the part of Principle 7 (Communications with clients) that relates to communication of information. This enables a customer, who is a private person, to bring an action for damages under section 150 of the Act to recover loss resulting from a firm communicating information, in the course of designated investment business, in a way that is not clear or fair, or is misleading.
  • 01/12/2001

Clear, fair and not misleading communication

COB 2.1.3

handbook-rule
When a firm communicates information to a customer, the firm must take reasonable steps to communicate in a way which is clear, fair and not misleading.
  • 01/12/2001

COB 2.1.4

handbook-guidance
When considering the requirements of COB 2.1.3 R, a firm should have regard to the customer's knowledge of the designated investment business to which the information relates.
  • 01/12/2001

COB 2.1.5

handbook-guidance
COB 2.1 embraces all communications with customers, for example: client agreements, periodic statements, financial reports, telephone calls and any correspondence which is not a financial promotion to which COB 3 (Financial promotion) applies. Firms should note the requirements of COB 3.8.4 R relating to non-real time financial promotions and COB 3.8.22 R relating to real time financial promotions.
  • 01/12/2004

COB 2.2

Inducements and soft commission

Application

COB 2.2.1

handbook-rule
This section applies to a firm that conducts designated investment business with or for a customer.
  • 01/12/2001

Purpose

COB 2.2.2

handbook-guidance
Principles 1 and 6 require a firm to conduct its business with integrity, to pay due regard to the interests of its customers and to treat them fairly. The purpose of this section is to ensure that a firm does not conduct business under arrangements that might give rise to a conflict with its duty to customers.
  • 01/12/2004

Prohibition of inducements

COB 2.2.3

handbook-rule

A firm must take reasonable steps to ensure that it, and any person acting on its behalf, does not:

  1. (1) offer, give, solicit or accept an inducement; or
  2. (2) direct or refer any actual or potential item of designated investment business to another person on its own initiative or on the instructions of an associate;

if it is likely to conflict to a material extent with any duty that the firm owes to its customers in connection with designated investment business or any duty which such a recipient firm owes to its customers.

  • 01/12/2001

COB 2.2.4

handbook-guidance
The purpose of COB 2.2.3 R (2) is to prevent the requirement in COB 2.2.3 R (1) being circumvented by an inducement being given or received by an unregulated associate. A firm may be able to demonstrate that it could not reasonably have knowledge of an associate giving or receiving an inducement. It should not, however, direct business to another person on the instruction of an associate if this is likely to conflict with the interests of its customers.
  • 01/12/2001

Investment research

COB 2.2.4A

handbook-guidance
An offer or agreement to publish investment research which is, or to change a published recommendation so that it becomes, favourable to its subject (even if the subject is a customer of the firm), is an example of offering or accepting an inducement which is likely to conflict to a material extent with the firm's duties to its other customers. (See also COB 5.10 in relation to inducements related to corporate finance and COB 7.16 in relation to investment research.)
  • 01/05/2004

Restriction in connection with packaged products

COB 2.2.5

handbook-evidential-provisions
  1. (1) A firm should not enter, and should take reasonable steps to ensure that no person acting on its behalf enters, into any of the following arrangements with another firm in relation to a packaged product if any commission is required to be disclosed to a customer:
    1. (a) volume overrides, if commission paid in respect of several transactions is more than a simple multiple of the commission payable in respect of one transaction of the same kind;
    2. (b) an arrangement to pay commission that is increased in excess of the amount disclosed to the customer, unless the increase is attributable to an increase in the premiums or contributions payable by that customer;
    3. (c) an agreement to indemnify the payment of commission on terms that would or might confer an additional financial benefit on the recipient in the event of the commission becoming repayable;
    4. (d) an arrangement to pay commission other than to the firm responsible for a sale, unless:
      1. (i) the firm responsible for the sale has passed on its right to receive the commission to the recipient; or
      2. (ii) another firm has given advice on investments to the same customer after the sale; or
      3. (iii) the commission is paid following the sale of a packaged product by the firm in response to a direct offer financial promotion communicated by that firm to a customer of the recipient firm.
  2. (1A) COB 2.2.5 E (1) does not apply to arrangements between firms that are in the same immediate group. In this situation COB 5.7.5 R will apply.
  3. (2) Contravention of (1) may be relied upon as tending to establish contravention of COB 2.2.3 R.
  • 01/12/2004

Financial assistance and product providers

COB 2.2.5A

handbook-evidential-provisions
  1. (1) This evidential provision applies in relation to a holding in, or the provision of credit to, a firm which holds itself out as giving advice on investments to private customers on packaged products except where the relevant transaction is between persons who are in the same immediate group.
  2. (2) A product provider should not take any step which would result in it:
    1. (a) having a direct or indirect holding in a firm in (1) of its capital or voting power ; or
    2. (b) providing credit to a firm in (1) (other than commission due from the firm to the product provider in accordance with an indemnity commission clawback arrangement);
    3. unless all the conditions in (4) are satisfied. A product provider should also take reasonable steps to ensure that its associates do not take any step which would result in it having a holding as in (a) or providing credit as in (b), having regard to (5).
  3. (3) A firm in (1) should not take any step which would result in a product provider having a holding as in (2)(a) or providing credit as in (2)(b), unless all the conditions in (4) are satisfied.
  4. (4) The conditions referred to in (2) and (3) are that:
    1. (a) the holding is acquired, or credit is provided, on commercial terms; that is terms objectively comparable to those on which an independent person unconnected to a product provider would, taking into account all relevant circumstances, be willing to acquire the holding or provide credit;
    2. (b) the firm (or, if applicable, each of the firms) taking the step has reliable written evidence that (a) is satisfied;
    3. (c) there are no arrangements, in connection with the holding or credit , relating to the channelling of business from the firm in (1) to the product provider; and
    4. (d) the product provider is not able, and none of its associates is able, because of the holding or credit, to exercise any influence over the advice on investments in relation to packaged products given by the firm.
  5. (5) In this evidential provision, in applying (2) and (3) any holding of, or credit provided by, a product provider's associate is to be regarded as held by, or provided by, that product provider.
  6. (6) In this evidential provision , in applying (3) references to a " product provider " are to be taken as including an unauthorised equivalent of a product provider ; that is, an unauthorised insurance undertaking or an unauthorised operator of a regulated collective investment scheme or of an investment trust savings scheme.
  7. (7) Contravention of (2) or (3) may be relied upon as tending to establish contravention of COB 2.2.3 R.
  • 01/12/2004

Packaged products - guidance on indirect benefits

COB 2.2.6

handbook-guidance
  1. (-2) To comply with COB 2.2.3 R, neither a product provider nor any of its associates should give, and a firm should not receive from such persons , any indirect benefit, if the benefit is likely to conflict to a material extent with any duty owed by the receiving firm when giving advice on investments to private customers on packaged products. Such conflicts may arise, for example, where the gift might induce material bias as regards:
    1. (a) the choice of product provider whose products are recommended; or
    2. (b) the type of product which is recommended.
  2. (-1) The guidance in COB 2.2.7 G is not relevant to indirect benefits which may be given by a product provider or its associate to its own representatives.
  3. (1) The FSA will not regard a firm as being in contravention of COB 2.2.3 R if it gives or receives gifts, hospitality and promotional competition prizes of a reasonable value, providing they do not conflict with the duties that the recipient owes to its customers.
  4. (2) A product provider may assist another firm to promote its packaged products so that the quality of its service to customers is enhanced. Such assistance should not be of a kind or value that is likely to impair the other firm's ability to pay due regard to the interests of its customers, and to give advice on, and recommend, packaged products available from the recipient firm's whole range or ranges of packaged products. The recipient firm should be mindful of the requirements of COB 5.3.5 R (Requirement for suitability generally).
  5. (3) In relation to the sale of packaged products, COB 2.2.7 G indicates the kind of benefits which, in the FSA's view, a firm can give and receive without contravening COB 2.2.3 R.
  6. (4) COB 2.2.6 G does not apply to indirect benefits provided by a firm to another firm that is in the same immediate group. In this situation COB 5.7.5 R will apply.
  • 01/12/2004

COB 2.2.7

handbook-guidance

Reasonable indirect benefits

This Table belongs to COB 2.2.6 G.

  • 01/12/2004

Requirements when using a soft commission agreement

COB 2.2.8

handbook-rule

A firm must not deal in investments as agent for a customer, either directly or indirectly, through any broker, under a soft commission agreement, unless:

  1. (1) the agreement is a written agreement for the supply of goods or services described in COB 2.2.12 R which do not take the form of, or include, cash or any other direct financial benefit;
  2. (2) the broker has agreed to provide best execution to the firm;
  3. (3) the firm has taken reasonable steps to ensure that the terms of business and methods by which services will be supplied by the broker do not involve any potential for comparative price disadvantage to the customer;
  4. (4) for transactions in which the broker acts as principal, the firm has taken reasonable steps to ensure that commission paid under the agreement will be sufficient to cover the value of the goods or services to be received and the costs of execution; and
  5. (5) the firm makes adequate prior and periodic disclosure to the customer in accordance with COB 2.2.16 R and COB 2.2.18 R.
  • 01/12/2001

COB 2.2.9

handbook-guidance
When the soft commission broker is part of an 'integrated house', a firm may be able to meet the requirements of COB 2.2.8 R (4) if it is able to monitor the individual transaction prices obtained by the broker, and has taken reasonable steps to ensure that the broker has complied with its best execution obligation. Alternatively, a firm should select a soft commission broker who is able to demonstrate independence of action in the market place. This is unlikely to be fulfilled when that broker deals exclusively with one market maker.
  • 01/12/2001

COB 2.2.10

handbook-guidance
When a broker is only partly remunerated by commission, in complying with COB 2.2.8 R (4) a firm should take reasonable steps to ensure that the commission element that should be disclosed constitutes the greater part of that broker's remuneration. A broker firm should also set its multiple at a level which it can demonstrate would generate sufficient commission income from softing transactions to cover the costs of the goods and services provided, and the costs of dealing and settling the associated transactions, together with the specialised softing administration. When considering whether the commission is sufficient to cover the costs of the services provided, the broker firm may have regard to the aggregate number of bargains transacted rather than each individual transaction.
  • 01/12/2001

COB 2.2.11

handbook-guidance
Although "commission recapture" and "directed commission" arrangements are not covered by COB 2.2.8 R, a firm should have regard to the prohibition on inducements in COB 2.2.3 R.
  • 01/12/2001

Allowable benefits provided under a soft commission agreement

COB 2.2.12

handbook-rule

A firm may accept goods or services supplied under a soft commission agreement, and these goods or services will not constitute an inducement for the purposes of COB 2.2.3 R, provided that they are directly relevant to, and are used to assist in, the provision to the firm's customers of:

  1. (1) investment management services;
  2. (2) advice on dealing in, or on the value of, any designated investment;
  3. (3) custody services relating to designated investments belonging to, or managed for, customers; or
  4. (4) services relating to the valuation or performance measurement of portfolios.
  • 01/12/2001

COB 2.2.13

handbook-guidance

Examples of particular goods and services that could be provided under a soft commission agreement include, to the extent they would assist in the provision of the services specified in COB 2.2.12 R:

  1. (1) research, analysis and advisory services, including those on economic factors and trends;
  2. (2) market price services;
  3. (3) electronic trade confirmation systems;
  4. (4) third party electronic dealing or quotation systems;
  5. (5) computer hardware associated with specialised computer software or research services;
  6. (6) dedicated telephone lines;
  7. (7) seminar fees (if the subject matter is relevant to the provision of the services set out in COB 2.2.12 R); and
  8. (8) publications (if the subject matter is relevant to the provision of the services set out in COB 2.2.12 R).
  • 01/12/2001

COB 2.2.14

handbook-guidance

Examples of goods and services that the FSA does not regard as relevant to the provision of the services specified in COB 2.2.12 R include:

  1. (1) travel, accommodation or entertainment costs, whether or not related to the conduct of designated investment business;
  2. (2) any seminar fees not falling within COB 2.2.13 G (7) ;
  3. (3) any subscription for publications not falling within COB 2.2.13 G (8);
  4. (4) office administrative computer software, for example, word processing or accounting programmes;
  5. (5) computer hardware not associated with specialist computer software;
  6. (6) membership fees to professional associations;
  7. (7) purchase or rental of standard office equipment or ancillary facilities;
  8. (8) employees' salaries; and
  9. (9) direct money payments.
  • 01/12/2001

COB 2.2.15

handbook-guidance
In complying with COB 2.2.8 R when a firm is able to and does reclaim or offset all or part of the VAT payable on benefits received, the firm should ensure that its soft commission account with the broker is charged only with the net amount at the firm's effective rate. Disclosure of the value of benefits received, in accordance with COB 2.2.18 R, should be expressed net of VAT reclaimed, when appropriate.
  • 01/12/2001

Prior disclosure

COB 2.2.16

handbook-rule

Before a firm enters into a client agreement authorising it to deal for a customer, either directly or indirectly, with or through the agency of another person, under a soft commission agreement which the firm has, or knows, or ought reasonably to know, that another member of its group has, with that other person, the firm must inform the customer in writing of:

  1. (1) the existence of the soft commission agreement; and
  2. (2) the firm's or, when relevant, its group's policy relating to soft commission agreements.
  • 20/09/2001

COB 2.2.17

handbook-guidance

When making the disclosures required by COB 2.2.16 R, a firm should note that:

  1. (1) it is acceptable to make a general disclosure that soft commission agreements are, or may be, in place;
  2. (2) the requirements apply equally when deals are placed directly, and not solely on an agency basis, with a third party (for example, a unit trust manager in the same group), that itself is a party to the soft commission agreement; and
  3. (3) the policy statement should explain generally why the firm or a member of its group might find it necessary or desirable to pay soft commission, bearing in mind the practices in the markets in which it does business on behalf of its customers.
  • 01/12/2001

Periodic disclosure

COB 2.2.18

handbook-rule

If a firm has, or knows, or ought reasonably to know, that another member of its group has a soft commission agreement with another person under which either the firm or that other member of its group deals for a customer, the firm must:

  1. (1) provide each relevant customer at least once a year, unless COB 2.2.19 R applies, with the following information covering the period since the firm last reported to that customer or, if no previous report has been made, since the firm first dealt for him:
    1. (a) the percentage paid under soft commission agreements of the total commission paid by or at the direction of:
      1. (i) the firm; and
      2. (ii) any other member of the firm's group which is a party to those agreements;
    2. (b) the value (on a cost price basis) of goods or services received by the firm under soft commission agreements, expressed as a percentage of the total commission paid by or at the direction of:
      1. (i) the firm; or
      2. (ii) other members of the firm's group;
    3. (c) a summary of the goods or services received by the firm;
    4. (d) a list of the brokers which are parties to the soft commission agreements; and
    5. (e) the total commission paid from the portfolio of that customer;
  2. (2) at least once a year explain to each relevant customer, unless COB 2.2.19 R applies, the policy of the firm relating to soft commission agreements for the period up to the submission of the next policy statement (which must not exceed one year) or state that its policy has not changed (this may be included in any periodic report provided under (1), or in a separate document);
  3. (3) give to a customer to whom it is relevant an explanation promptly after any material change in the firm's policy relating to soft commission agreements, and, if it is the case, confirm to each relevant customer that the goods and services received by the firm are expected to assist only in the conduct of designated investment business with or for other customers.
  • 20/09/2001

Exceptions

COB 2.2.19

handbook-rule

A firm need not make the periodic disclosures required by COB 2.2.18 R (1) or COB 2.2.18 R (2) if:

  1. (1) the customer is habitually resident overseas and has requested the firm not to do so; or
  2. (2) a firm has information from which it is reasonable to conclude that the customer does not wish to receive this information.
  • 01/12/2001

Record keeping

COB 2.2.20

handbook-rule
  1. (1) A firm must make records of the reports sent to its customers as required by COB 2.2.18 R and retain those records for at least three years from the date on which the soft commission agreement to which they relate is terminated.
  2. (2) A firm must make a record of each payment of disclosable commission, and must retain that record for a period of at least six years from the date of payment.
  3. (3) A firm must make a record of each benefit given to another firm in accordance with COB 2.2.6 G, and must keep that record for at least six years from the date on which it was given.

COB 2.3

Reliance on others

  • 01/12/2004

Application

COB 2.3.1

handbook-rule
This section applies to a firm when it is conducting designated investment business or activities in connection with designated investment business.
  • 01/12/2001

Purpose

COB 2.3.2

handbook-guidance
Principle 2 requires a firm to conduct its business with due skill, care and diligence. This section indicates the extent to which firms can meet this requirement by relying on others.
  • 01/12/2001

Reliance on others

COB 2.3.3

handbook-rule
A firm will be taken to be in compliance with any rule in COB that requires a firm to obtain information to the extent that the firm can show that it was reasonable for the firm to rely on information provided to it in writing by another person.
  • 01/12/2001

COB 2.3.4

handbook-evidential-provisions
  1. (1) In relying on COB 2.3.3 R, a firm should take reasonable steps to establish that the other person providing written information is:
    1. (a) not connected with the firm; and
    2. (b) competent to provide the information.
  2. (2) Compliance with (1) may be relied on as tending to establish compliance with COB 2.3.3 R.
  3. (3) Contravention of (1) may be relied on as tending to establish contravention of COB 2.3.3 R.
  • 01/12/2001

COB 2.3.5

handbook-guidance

A firm may generally rely on any information provided to the firm in writing by:

  1. (1) an unconnected authorised person; or
  2. (2) a professional firm;

unless the firm is aware, or ought reasonably to be aware, of any fact, or facts, that would give reasonable grounds to question the accuracy of any such information.

  • 01/12/2001

COB 2.3.6

handbook-rule
  1. (1) Any information which a rule in COB or in CASS requires to be sent to a customer may be sent to another person on the instruction of the customer, so long as the recipient is not connected with the firm.
  2. (2) There is no need for a firm to send information to a customer where it has taken reasonable steps to establish that this has been or will be supplied by another person.
  • 01/01/2004

COB 2.4

Chinese walls

  • 01/12/2004

Application

COB 2.4.1

handbook-rule
This section applies to a firm that conducts designated investment business.
  • 01/12/2001

Purpose

COB 2.4.2

handbook-guidance
Principle 8 (Conflicts of interest) requires a firm to manage a conflict of interest fairly, both between itself and its customers and between a customer and another client. One of the methods by which a firm may manage conflicts of interest is to establish and maintain internal arrangements restricting the movement of information within the firm - Chinese walls. The purpose of this section is to set out the circumstances when the FSA would consider it appropriate for a firm to withhold or not to use information that it would otherwise have to disclose to, or use for the benefit of a client.
  • 01/12/2001

COB 2.4.3

handbook-guidance
The purpose of COB 2.4.4 R (1) is also to exercise the FSA's power under section 147 of the Act to make control of information rules (see COB 2.4.5 G for an explanation of the effect of this).
  • 01/12/2001

Control of information

COB 2.4.4

handbook-rule
  1. (1) When a firm establishes and maintains a Chinese wall (that is, an arrangement that requires information held by a person in the course of carrying on one part of its business to be withheld from, or not to be used for, persons with or for whom it acts in the course of carrying on another part of its business), it may:
    1. (a) withhold or not use the information held; and
    2. (b) for that purpose, permit persons employed in the first part of its business to withhold the information held from those employed in that other part of the business;
  2. but only to the extent that the business of one of those parts involves the carrying on of designated investment business or related ancillary activities.
  3. (2) Information may also be withheld or not used by a firm when this is required by an established arrangement maintained between different parts of the business (of any kind) in the same group. This provision does not affect any requirement to transmit or use information that may arise apart from the rules in COB.
  4. (3) For the purpose of this rule, 'maintains' includes taking reasonable steps to ensure that the arrangements remain effective and are adequately monitored, and must be interpreted accordingly.
  5. (4) For the purposes of section 118(8) of the Act, behaviour conforming with COB 2.2.4R(1) does not amount to market abuse.

Effect of acting in conformity with COB 2.4.4 R

COB 2.4.5

handbook-guidance

Section 147 of the Act enables the FSA to make rules ("control of information rules") about the disclosure and use of information held by a firm. COB 2.4.4 R (1) is the only control of information rule made by the FSA. This means that:

  1. (1) acting or engaging in conduct in conformity with COB 2.4.4 R (1) provides a defence against proceedings brought under section 397(2) or (3) of the Act (Misleading statements and practices) - see sections 397(4) and (5)(c);
  2. (2) behaviour conforming with COB 2.4.4 R (1) does not amount to market abuse - see COB 2.4.4 R (4); and
  3. (3) acting in conformity with COB 2.4.4 R (1) provides a defence for a firm against FSA enforcement action, or an action for damages under section 150 of the Act, based on a breach of a relevant requirement to disclose or use information (this is likely to be relevant only for requirements in PRIN, COB and MAR 3 (Inter-professional conduct)). Acting in conformity with COB 2.4.4 R (2) has a similar effect but only in relation to such a requirement in COB.
  • 01/12/2001

Attribution of knowledge

COB 2.4.6

handbook-rule
When any of the COB rules or any of the CASS rules apply to a firm that acts with knowledge, the firm will not be taken to act with knowledge for the purposes of that rule if none of the relevant individuals involved on behalf of the firm acts with that knowledge as a result of arrangements established under COB 2.4.4 R.
  • 01/01/2004

COB 2.4.7

handbook-guidance
When a firm manages a conflict of interest using the arrangements in COB 2.4.4 R which take the form of a Chinese wall, individuals on the "other side of the wall" will not be regarded as being in possession of knowledge denied to them as a result of the Chinese wall.
  • 01/12/2001

COB 2.5

Exclusion of liability

  • 01/12/2004

Application

COB 2.5.1

handbook-rule
  1. (1) This section applies to a firm that conducts designated investment business.
  2. (2) This section also applies to a firm which enters into a distance contracts to accept deposit with a retail customer.
  • 09/10/2004

Purpose

COB 2.5.2

handbook-guidance
This section amplifies Principle 6 (Customers' interests) which requires a firm to pay due regard to the interests of its customers and treat them fairly.
  • 09/10/2004

Limits on the exclusion of liability: designated investment business

COB 2.5.3

handbook-rule
A firm must not, in any written or oral communication in connection with designated investment business, seek to exclude or restrict, or to rely on any exclusion or restriction of, any duty or liability it may have to a customer (which for these purposes includes a retail customer) under the regulatory system.
  • 09/10/2004

COB 2.5.4

handbook-rule
A firm must not, in any written or oral communication to a private customer in connection with designated investment business, seek to exclude or restrict, or to rely on any exclusion or restriction of, any duty or liability not referred to in COB 2.5.3 R unless it is reasonable for it to do so.
  • 09/10/2004

Limits on the exclusion of liability: distance contracts to accept deposits

COB 2.5.5

handbook-rule
A firm must not, in any written or oral communication to a retail customer in connection with a distance contract to accept deposits with a retail customer, seek to exclude or restrict, or to rely on any exclusion or restriction of, any duty or liability it may have to a retail customer under COB.
  • 09/10/2004

COB 2.6

General provisions related to distance marketing

  • 01/12/2004

Application

COB 2.6.1

handbook-rule

This section applies to a firm which:

  1. (1) conducts designated investment business with or for a retail customer;
  2. (2) accepts a deposit from a retail customer.
  • 09/10/2004

Pre-contract information about contractual obligations to be in conformity with contract

COB 2.6.2

handbook-rule
A firm must ensure that information provided to a retail customer before the conclusion of a distance contract about his contractual obligations under that contract conforms with the contractual obligations that would be imposed on him under the law applying if the contract were concluded.
  • 09/10/2004

Unsolicited services

COB 2.6.3

handbook-rule
  1. (1) Subject to COB 2.6.3R (2), a firm must not:
    1. (a) supply a service to a retail customer without a prior request on his part, when the supply of such service includes a request for immediate or deferred payment; or
    2. (b) enforce any obligations against a retail customer in the event of unsolicited supplies of such services, the absence of reply not constituting consent.
  2. (2) Paragraph (1) applies in relation to designated investment business, and accepting deposits, under an organised distance sales or service-provision scheme run by the firm or by an intermediary, who, for the purpose of that supply, makes exclusive use of one or more means of distance communication up to and including the time at which the services are supplied.
  • 09/10/2004

COB 2.6.4

handbook-rule
COB 2.6.3R (2) does not apply for a tacit renewal of a distance contract.
  • 09/10/2004

Paper copy of contractual terms and conditions

COB 2.6.5

handbook-rule
During the course of a distance contract with a firm, if a retail customer requests a paper copy of his contractual terms and conditions, the firm must provide it without additional charge and without delay.
  • 09/10/2004

Change in means of distance communication

COB 2.6.6

handbook-rule
During the course of a distance contract, a firm must comply with a retail customer's request to change the means of distance communication used, unless this is incompatible with the distance contract concluded or the service being provided by the firm.
  • 09/10/2004

Export chapter as

COB 3

Financial
promotion

COB 3.1

Application: who?

  • 01/12/2004

Firms

COB 3.1.1

handbook-rule
This chapter applies to every firm (other than an ICVC) which communicates or approves a financial promotion.
  • 01/12/2001

COB 3.1.2

handbook-guidance

This chapter applies generally to firms in relation to all financial promotions. This wide application is however cut back by COB 3.2 (Application: what?) and COB 3.3 (Application: where?) which limit the application of this chapter for:

  1. (1) financial promotions for deposits, general insurance contracts, pure protection contracts, reinsurance contracts and regulated mortgage contracts;
  2. (2) financial promotions which fall within the scope of the exemptions in the Financial Promotion Order or the additional exemptions set out in COB 3.2.5 R; and
  3. (3) financial promotions to persons outside the United Kingdom.

Appointed representatives

COB 3.1.3

handbook-guidance
Under section 39(3) of the Act, a firm is responsible for financial promotions communicated by its appointed representatives when acting as such (see COB 1.7 (Appointed representatives)).
  • 01/12/2001

Nationals of other EEA States

COB 3.1.4

handbook-guidance
A national of an EEA State (other than the United Kingdom) wishing to take advantage of the exemption in article 36 of the Financial Promotion Order in relation to any controlled activity lawfully carried on by him in that State, should act in conformity with the rules in this chapter.
  • 01/12/2001

Authorised professional firms

COB 3.1.5

handbook-rule
  1. (1) COB 3 does not apply to an authorised professional firm in relation to the communication of a financial promotion if the following conditions are satisfied:
    1. (a) the firm's main business must be the practice of its profession IPRU(INV) 2.1.2R (3));
    2. (b) the financial promotion must be made for the purposes of and incidental to the promotion or provision by the firm of:
      1. (i) its professional services; or
      2. (ii) its non-mainstream regulated activities (see PROF 5.2); and
    3. (c) the financial promotion must not be communicated on behalf of another person who would not be able lawfully to communicate the financial promotion if he were acting in the course of business.
  2. (2) In (1)(b)(i), "professional services" means services:
    1. (a) which do not constitute a regulated activity; and
    2. (b) the provision of which is supervised and regulated by a designated professional body.
  • 20/09/2001

COB 3.1.6

handbook-guidance
Authorised professional firms are reminded that in circumstances in which COB 3 does not apply to the firm COB 2.1 (Clear, fair and not misleading communication) may apply.
  • 01/12/2001

COB 3.2

Application: what?

  • 01/12/2004

What do "communicate", "approve" and "financial promotion" mean?

COB 3.2.1

handbook-guidance
  1. (1) The rules in this chapter adopt various concepts from the restriction on financial promotion by unauthorised persons in section 21(1) of the Act (Restrictions on financial promotion). Guidance on that restriction is contained in AUTH App 1 (Financial promotion and related activities) and that guidance will be relevant to interpreting these rules. In particular, guidance on the meaning of:
    1. (a) "communicate" is in AUTH App 1.6 (Communicate);
    2. (b) "invitation or inducement" and "engage in investment activity" (two elements which, with "communicate", make up the definition of "financial promotion") is in AUTH App 1.4 (Invitation and inducement) and AUTH App 1.7 (Engage in investment activity).
  2. (2) Guidance on the "approval" of a financial promotion is in COB 3.12.1 G (Approval of financial promotions).

Media of communication

COB 3.2.2

handbook-guidance
  1. (1) There is no restriction on the media of communication to which this chapter applies. It applies to a financial promotion communicated by any means, including by way of printed advertising, radio and television broadcast, a personal visit, a telephone call, an e-mail, the internet and electronic media such as digital and other forms of interactive television and media. Both solicited and unsolicited communications are covered.
  2. (2) Financial promotions may be communicated, for example, by means of:
    1. (a) product brochures;
    2. (b) general advertising in magazines, newspapers, radio and television programmes and websites;
    3. (c) mailshots (whether distributed by post, facsimile, e-mail or other media);
    4. (d) telemarketing activities, such as telephone calls made by call centres;
    5. (e) written correspondence, telephone calls and face to face discussions including by representatives;
    6. (f) sales aids which themselves constitute a financial promotion;
    7. (g) presentations to groups of individuals;
    8. (h) tip-sheets; and
    9. (i) other publications, which may contain non-personal recommendations as to the acquisition, retention or disposal of investments of any description.
  • 01/12/2004

Financial promotions for deposits, pure protection contracts which are long-term care insurance contracts and certain reinsurance contracts

COB 3.2.3

handbook-rule
  1. (1) To the extent that a financial promotion relates to:
    1. (a) a deposit; or
    2. (b) a pure protection contract which is a long-term care insurance contract or reinsurance contract covering a person against all or part of his loss in relation only to an obligation taken on by him under a long-term insurance contract which is not a non-investment insurance contract;
  2. only COB 3.1 to COB 3.5 and COB 3.8.4 R to COB 3.8.6 G and COB 3.14 apply, unless the financial promotion relates to a cash deposit ISA or cash deposit CTF in which case COB 3.9.6 R (1), COB 3.9.7A R, COB 3.9.8 R and COB 3.9.21 R also apply and, if the financial promotion relates to a cash deposit CTF, COB 3.9.30 R also applies; and
  3. (2) if the financial promotion relates to a structured deposit, the following will also apply: COB 3.8.8 R, COB 3.8.9 G, COB 3.8.11 R, COB 3.8.12 G, COB 3.8.15 R and COB 3.8.16 G.

Financial promotions for regulated mortgage contracts

COB 3.2.3A

handbook-rule
This chapter does not apply to a firm to the extent that a financial promotion is a qualifying credit promotion (but see MCOB 3 (Financial promotions)).

Financial promotions for non-investment insurance contracts

COB 3.2.3B

handbook-rule
This chapter does not apply to a firm to the extent that a financial promotion is in respect of a non-investment insurance contract (but see ICOB 3 (Financial Promotion)).
  • 14/01/2005

Exemptions

COB 3.2.4

handbook-rule

This chapter does not apply to a firm in relation to a financial promotion of a kind listed in COB 3.2.5 R, except that:

  1. (1) if the financial promotion relates to an unregulated collective investment scheme, COB 3.11 (Unregulated collective investment schemes) applies;
  2. (2) (except where COB 3.2.3 R applies) if the firm approves the financial promotion, the following apply:
    1. (a) COB 3.1 to COB 3.5 (Application, General and Purpose).
    2. (b) COB 3.8.4 R (1) (Non-real time financial promotions: clear, fair, and not misleading) except if the financial promotion is exempt under COB 3.2.5 R;
    3. (c) COB 3.12.1 G to COB 3.12.5 G (Approval of financial promotions; No approval of real time financial promotions; Approval of financial promotions when not all the rules apply); and
  3. (3) (except where COB 3.2.3 R applies) if the firm:
    1. (a) approves a specific non-real time financial promotion relating to an investment or service of an overseas person; and
    2. (b) the financial promotion is exempt under any of COB 3.2.5 R;
  4. COB 3.12.6 R and COB 3.12.7 G (Specific non-real time financial promotions for overseas persons) apply.
  • 20/09/2001

COB 3.2.5

handbook-rule

Exemptions

This table belongs to COB 3.2.4 R

Combination of exemptions

COB 3.2.6

handbook-rule
A firm may rely on more than one exemption (and also on COB 3.3.1 R (Territorial limitation)) in relation to the same financial promotion.
  • 01/12/2001

Guidance on the exemptions

COB 3.2.7

handbook-guidance
  1. (1) Under (1) a financial promotion which is communicated only to market counterparties or intermediate customers is exempt. See COB 3.5.6 R and COB 3.5.7 R which amplify this exemption. A firm will need to take particular note of the conditions in COB 3.5.7 R when designing financial promotions for trade publications which may be available also to private customers.
  2. (2)
    1. (a) A table summarising some of the main exemptions contained in the Financial Promotion Order, and therefore relevant to COB 3.2.5 R (2), is in COB 3 Annex 1 G. Guidance on certain exemptions is contained in AUTH App 1 (Financial promotion and related activities).
    2. (b) A firm is required to comply with the rules in COB 3 in relation to a financial promotion communicated by its appointed representative even though the financial promotion does not require approval because of the exemption in article 16 of the Financial Promotion Order (Exempt persons).
  3. (3) In COB 3.2.5 R:
    1. (a) Item (4) reflects the exemption in article 28 of the Financial Promotion Order (One-off non-real time communications and solicited real time communications), but goes further, exempting such financial promotions which relate to deposits and all contracts of insurance. It exempts, amongst other things, correspondence which is written specifically for a recipient, whether hard copy or e-mail. A firm should note, however, that such correspondence will, if personal recommendations are made, be subject to other obligations such as know your customer and suitability requirements (see COB 5.2 and COB 5.3). It does not exempt financial promotions communicated in the form of mass mailshots, which may appear to be items of personalised correspondence but which in fact comprise the same or virtually the same material sent to a number of recipients, without tailoring the material to the circumstances of each recipient. Such mailshots must meet the requirements of this chapter. AUTH App 1.14.3 G (One-off financial promotions (articles 28 and 28A)) provides further guidance on the scope of the exemption in article 28.
    2. (b) Items (5)(e), (f) and (g) exempt a financial promotion made by a firm which refers only to its activities in general terms in image advertising. Acceptable examples include 'life and pensions' and 'life assurance and pensions business'. In addition a firm or its appointed representative may include its name, address and telephone number in accordance with items 5(a) and (c). AUTH App 1.4.20 G (Image advertising) provides guidance on when image advertising may involve a financial promotion.
    3. (c) Item (5)(h) exempts financial promotions which merely comprise lists of prices published in newspapers, or through the internet, or other electronic media. In addition a firm may include its name, address and telephone number in accordance with items (5)(a) and (c). AUTH App 1.4.13 G (Publication or broadcast of prices of investments (historic or live)) provides guidance on when the display of prices may involve a financial promotion.
    4. (d) Item (8) exempts financial promotions that are decision trees if the decision tree satisfies the requirements of COB 6.5.8 R. A decision tree will not be a financial promotion if it is neither an invitation nor an inducement to engage in investment activity; for example, when it is prepared for training or educational purposes.
  4. (4) A company's annual report and accounts issued in accordance with a requirement of the Companies Act 1985 (or corresponding Northern Ireland or EEA provisions) are exempt under item (2) and article 59 of the Financial Promotion Order. But this exemption does not extend to the report and accounts of ICVCs, other types of OEIC, and unit trust schemes. AUTH App 1.21.11 G (Article 59: Annual accounts and directors' report) provides further guidance on the scope of the exemption in article 59.
  5. (5) A financial promotion included in a newspaper, magazine or periodical which is printed and published overseas, but which may be brought into the United Kingdom and made available to persons in the United Kingdom, will be exempt provided that the financial promotion is not communicated to persons inside the United Kingdom (see COB 3.3 and AUTH App 1.12.2 G (Financial promotions to overseas recipients (article 12))).
  6. (6) This chapter does not apply in relation to a financial promotion the communication of which by a firm would contravene section 238(1) of the Act (Restrictions on promotion of unregulated collective investment schemes) (see COB 3.11.4 R and AUTH App 1.20 (Additional restriction on the promotion of collective investment schemes)).

Other Handbook rules relevant to financial promotions

COB 3.2.8

handbook-guidance
  1. (1) Firms are reminded that financial promotions (including those which are exempt) may be subject to more general rules including Principle 7 (Communications with clients), SYSC 3 (Systems and controls) and COB 2.1.3 R (Clear, fair and not misleading communication).
  2. (2) Firms are reminded that if in the course of making a financial promotion of any kind a representative gives specific advice on investments to a private customer about the suitability of a product for that individual, rules on advising and selling in COB 5.
  3. (3) Firms are reminded that this chapter does not apply with respect to the carrying on of inter-professional business. This means that a financial promotion communicated to a market counterparty in connection with certain types of regulated activities is exempt from this chapter; instead, MAR 3 (Inter-professional conduct) may be relevant. But that exemption does not apply in relation to the approval of a financial promotion in the course of inter-professional business.

COB 3.3

Application: where?

  • 01/12/2004

Territorial scope

COB 3.3.1

handbook-rule

This chapter applies to a firm only in relation to:

  1. (1) the communication of a financial promotion to a person inside the United Kingdom;
  2. (2) the communication of an unsolicited real time financial promotion to a person outside the United Kingdom, unless:
    1. (a) it is made from a place outside the United Kingdom; and
    2. (b) it is made for the purposes of a business which is carried on outside the United Kingdom and which is not carried on in the United Kingdom; and
  3. (3) the approval of a non-real time financial promotion for communication to a person inside the United Kingdom;
subject to COB 3.3.3 R (Exceptions to territorial scope: rules without territorial limitation) and COB 3.3.4A R (Exceptions to territorial scope: distance contracts).
  • 09/10/2004

COB 3.3.2

handbook-guidance
  1. (1) The application under COB 3.3.1 R is relevant both when a firm communicates a financial promotion itself and when a firm approves a non-real time financial promotion for communication by others. But see also COB 3.3.3 R (2) regarding approvals.
  2. (2) The exemptions in COB 3.2.5 R (Application: what?; Exemptions) also incorporate some territorial elements. In particular, the exemption for financial promotions originating outside the United Kingdom (section 21(3) of the Act (Restrictions on financial promotion)) (see COB 3.2.5 R(2) and AUTH App 1.12.2 G (Financial promotions to overseas recipients (article 12)), the exemptions for overseas communicators (see COB 3.2.5 R(3) and AUTH App 1.14.14 G (Overseas communications (articles 30 to 33)) and the exemption for incoming electronic commerce communications (see AUTH App 1.12.38 G (article 20B)).
  3. (3) The scope of COB 3 is extended by ECO 2.2.3 R to cover financial promotions which are outgoing electronic commerce communications, subject to the lifting of rules in the derogations to the E-Commerce Directive as set out in ECO 2.

Exceptions to territorial scope: rules without territorial limitation

COB 3.3.3

handbook-rule

The following parts of this chapter apply without any territorial limitation, subject to COB 3.3.4A R:

  1. (1) COB 3.11 (Unregulated collective investment schemes);
  2. (2) if a firm approves a financial promotion:
    1. (a) COB 3.1 to COB 3.5 (Application, General and Purpose);
    2. (b) COB 3.8.4 R (1) (Non-real time financial promotions: clear, fair and not misleading);
    3. (c) COB 3.12.1 G to COB 3.12.5 G (Approval of financial promotions; No approval of real time financial promotions; Approval of financial promotions when not all the rules apply).
  • 09/10/2004

COB 3.3.4

handbook-guidance
There is no need for a financial promotion which is indicated in COB 3.3.1 R to be outside the territorial scope of the application of this chapter to be approved before being communicated by an unauthorised person (because the restriction in section 21 of the Act (Restrictions on financial promotion) does not apply). If a firm nevertheless approves such a financial promotion, it must comply with the rules indicated in COB 3.3.3 R (2). However, a firm must not approve a real time financial promotion (see COB 3.12.2 R).
  • 20/09/2001

Exceptions to territorial scope: distance contracts

COB 3.3.4A

handbook-rule
  1. (1) Notwithstanding COB 3.3.1 R and COB 3.3.3 R, this chapter, other than the rules in (3), does not apply to a firm when it communicates a financial promotion, if the conditions in (2) are satisfied:
  2. (2) The conditions are that:
    1. (a) the firm communicates the financial promotion from an establishment maintained by the firm in an EEA State other than the United Kingdom, and not from an establishment maintained by the firm in the United Kingdom or outside the EEA;
    2. (b) either that EEA State:
      1. (i) has implemented the DMD; or
      2. (ii) has obligations in its domestic law corresponding to those provided for by the DMD;
    3. (c) the financial promotion relates, exclusively, to a distance contract, for the conclusion of which the obligations provided for by the DMD (or corresponding obligations) are applied by that State; and
    4. (d) the firm is a national of an EEA State or a company or firm mentioned in article 48 of the Treaty.
  3. (3) The rules which continue to apply, notwithstanding this rule, are:
    1. (a) COB 3.8.4 R (Non-real time financial promotions: clear, fair and not misleading; comparisons; restriction of information on compensation);
    2. (b) COB 3.8.22 R (1) and (2) (Real time financial promotions);
    3. (c) COB 3.9.5 R (Prohibited types of direct offer financial promotion);
    4. (d) COB 3.10 (Unsolicited real time financial promotions);
    5. (e) COB 3.11 (Unregulated collective investment schemes and qualified investor schemes); and
    6. (f) COB 3.13.1 R (Additional requirements for financial promotions for an overseas long-term insurer).
  • 09/10/2004

Meaning of "communicated to a person inside or outside the United Kingdom"

COB 3.3.5

handbook-rule

For the purposes of this chapter:

  1. (1) a financial promotion is communicated to a person outside the United Kingdom if it is:
    1. (a) made to a person who receives it outside the United Kingdom; or
    2. (b) directed only at persons outside the United Kingdom; and
  2. (2) a financial promotion is communicated to a person inside the United Kingdom if it is communicated to a person other than as described in (1);

and see COB 3.5.6 R and COB 3.3.6 R which amplify this rule.

  • 01/12/2001

Meaning of "directed only at persons outside the United Kingdom"

COB 3.3.6

handbook-rule
  1. (1) If the conditions set out in 4(a), (b), (c) and (d) are met, a financial promotion directed from a place inside the United Kingdom will be regarded as directed only at persons outside the United Kingdom.
  2. (2) If the conditions set out in 4(c) and (d) are met a financial promotion directed from a place outside the United Kingdom will be regarded as directed only at persons outside the United Kingdom.
  3. (3) In any other case where one or more of the conditions in 4(a) to (e) is met, that fact will be taken into account in determining whether a financial promotion is directed only at persons outside the United Kingdom (but a financial promotion may still be regarded as directed only at persons outside the United Kingdom even if none of these conditions is met).
  4. (4) The conditions are that:
    1. (a) the financial promotion is accompanied by an indication that it is directed only at persons outside the United Kingdom;
    2. (b) the financial promotion is accompanied by an indication that it must not be acted upon by persons in the United Kingdom;
    3. (c) the financial promotion is not referred to in, or directly accessible from, any other financial promotion which is made to a person or directed at persons in the United Kingdom by or on behalf of the same person;
    4. (d) there are in place proper systems and procedures to prevent recipients in the United Kingdom (other than those to whom the financial promotion might otherwise lawfully have been made) engaging in the investment activity to which the financial promotion relates with the person directing the financial promotion, a close relative of his or a member of the same group;
    5. (e) the financial promotion is included in:
      1. (i) a website, newspaper, journal, magazine or periodical publication which is principally accessed in or intended for a market outside the United Kingdom;
      2. (ii) a radio or television broadcast or teletext service transmitted principally for reception outside the United Kingdom.

COB 3.4

Purpose

  • 01/12/2004

COB 3.4.1

handbook-guidance
  1. (1) Section 21(1) of the Act (Restrictions on financial promotion) imposes a restriction on the communication of financial promotions by unauthorised persons. A person must not, in the course of business, communicate an invitation or inducement to engage in investment activity (a financial promotion) unless:
    1. (a) he is an authorised person; or
    2. (b) the content of the financial promotion is approved by an authorised person.
  2. (2) However, the Financial Promotion Order exempts from the restriction created by section 21(1) of the Act certain types of financial promotion.
  3. (3) Sections 238 and 240 of the Act (Restrictions on promotion/approval) impose restrictions on the communication and approval by firms of financial promotions relating to unregulated collective investment schemes. See further COB 3.11 (Unregulated collective investment schemes) and AUTH App 1.20 (Additional restriction on the promotion of collective investment schemes).

COB 3.4.2

handbook-guidance
  1. (1) The purpose of this chapter is to provide rules and guidance for a firm which wishes to communicate or approve a financial promotion. COB 3.5.2 G provides a guide to the topics covered in this chapter. AUTH App 1 (Financial promotion and related activities) provides further detailed guidance on the financial promotion regime under section 21 of the Act (Financial promotion) which will be relevant in interpreting these rules.
  2. (2) This chapter amplifies, for activities within its scope:
    1. (a) Principle 6 (Customers' interests) which requires a firm to pay due regard to the interests of its customers and treat them fairly; and
    2. (b) Principle 7 (Communications with clients) which requires a firm to pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.

COB 3.5

General

  • 01/12/2004

Topics covered in this chapter

COB 3.5.1

handbook-guidance
This chapter includes some provisions which are applicable to all types of financial promotion and others which apply only to specific types. COB 3.5.2 G has been provided to help locate the areas of particular relevance to types of financial promotion.
  • 01/12/2001

COB 3.5.2

handbook-guidance

Areas of particular relevance to types of financial promotion.

This table belongs to COB 3.5.1 G

  • 01/12/2001

Other regulations and guidelines

COB 3.5.3

handbook-guidance

A firm communicating a financial promotion may also be subject to other regulations and guidelines, outside the remit of the FSA, such as:

  1. (1) the codes adopted or issued from time to time by the Advertising Standards Authority and Office of Communications (OFCOM);
  2. (2) regulations from any overseas regulator (where relevant) if the firm intends to market from the United Kingdom into any other country;
  3. (3) the POS Regulations and;
  4. (4) the Privacy and Electronic Communications (EC Directive) Regulations (SI 2003/2426).

"Real time" and "non-real time" financial promotions

COB 3.5.4

handbook-guidance
This chapter draws a distinction between a real time and a non-real time financial promotion. Guidance on the meaning of those expressions, which are based on article 7 of the Financial Promotion Order, is contained in AUTH App 1.10 (Types of financial promotion).

COB 3.5.5

handbook-rule
  1. (1) A "real time financial promotion" is a financial promotion which is communicated in the course of a personal visit, telephone conversation or other interactive dialogue.
  2. (2) A "non-real time financial promotion" is a financial promotion that is not a real time financial promotion. It includes a financial promotion made by letter, e-mail or contained in a newspaper, journal, magazine, other periodical publication, website, television or radio programme, or teletext service.
  3. (3) The following are to be regarded as indications that a financial promotion is a non-real time financial promotion:
    1. (a) the financial promotion is communicated to more than one person in identical terms (save for details of the recipient's identity);
    2. (b) the financial promotion is communicated by way of a system which in the normal course constitutes or creates a record of the communication which is available to the recipient to refer to at a later time;
    3. (c) the financial promotion is communicated by way of a system which in the normal course does not enable or require the recipient to respond immediately to it.
  • 01/12/2001

Meaning of "made", "directed at" and "recipient" in this chapter

COB 3.5.6

handbook-rule

(In accordance with article 6 of the Financial Promotion Order (Interpretation: communications)) any reference in this chapter to:

  1. (1) a communication being made to another person is a reference to a communication being addressed, whether verbally or in legible form, to a particular person or persons (for example, where it is contained in a telephone call or letter);
  2. (2) a communication being directed at persons is a reference to a communication being addressed to persons generally (for example where it is contained in a television broadcast or website);
  3. (3) a "recipient" of a communication is the person to whom the communication is made or, in the case of a non-real time financial promotion which is directed at persons generally, any person who reads or hears the communication.
  • 20/09/2001

When is a financial promotion "directed only at" certain persons?

COB 3.5.7

handbook-rule
  1. (1) This rule applies for the purposes of determining whether a communication is directed:
    1. (a) only at market counterparties or intermediate customers under COB 3.2.5 R; or
    2. (b) in a way that complies with paragraph 2(b) in COB 3 Annex 5 R.
  2. (2) If all the conditions set out in (4) are met, a communication is to be regarded as directed as in (1).
  3. (3) In any other case in which one or more of those conditions are met, that fact is to be taken into account in determining whether the communication is directed as in (1) (but a communication may still be regarded as so directed even if none of the conditions in (4) are met).
  4. (4) The conditions are that:
    1. (a) the communication includes an indication of the description of persons to whom it is directed and an indication of the fact that the investment or service to which it relates is available only to such persons;
    2. (b) the communication includes an indication that persons of any other description should not rely upon it;
    3. (c) there are in place proper systems and procedures to prevent recipients other than persons to whom it is directed engaging in the investment activity, or participating in the collective investment scheme, to which the communication relates with the person directing the communication, a close relative of his or a member of the same group.
  • 01/12/2001

COB 3.6

Confirmation of compliance

  • 01/12/2004

Confirmation of compliance

COB 3.6.1

handbook-rule
  1. (1) Before a firm communicates or approves a non-real time financial promotion, it must confirm that the financial promotion complies with the rules in this chapter.
  2. (2) A firm must arrange for the confirmation exercise in (1) to be carried out by an individual or individuals with appropriate expertise.
  • 01/12/2001

COB 3.6.2

handbook-guidance
  1. (1) In COB 3.6.1 R (2) 'appropriate expertise' will vary depending on the complexity of the financial promotion and the investment or service to which it relates. The individuals engaged by a firm to confirm the compliance of its financial promotions with this chapter may themselves have different levels of expertise and therefore a different level of authority for confirmation depending on the type of financial promotion and the investment or service involved.
  2. (2) A firm may arrange for a third party with appropriate expertise to carry out the confirmation exercise on the firm's behalf, but the responsibility for the financial promotion remains with the firm.
  • 01/12/2001

Withdrawing confirmation

COB 3.6.3

handbook-rule

If, at any time after it has completed a confirmation exercise in COB 3.6.1 R (1), a firm becomes aware that a financial promotion no longer complies with the rules in this chapter, it must ensure that the financial promotion is withdrawn as soon as is reasonably practicable by:

  1. (1) ceasing to communicate it;
  2. (2) withdrawing its approval (if applicable); and
  3. (3) notifying any person that the firm knows to be relying on its approval (if applicable) or confirmation (under COB 3.6.5 R).
  • 01/12/2001

COB 3.6.4

handbook-guidance
  1. (1) COB 3.6.3 R is of particular importance to a financial promotion, such as a product brochure, that a firm uses over a period of time. It has little application to a financial promotion which is of its nature ephemeral, for example a mobile phone text message. Further, a financial promotion which clearly speaks as at a particular date will not cease to comply with the rules in this chapter merely because the passage of time has rendered it out-of-date; an example would be a dated analyst's report.
  2. (2) For compliance with COB 3.6.3 R, the FSA will expect a firm to monitor its relevant financial promotions as part of the firm's routine compliance monitoring procedures. A firm may find it helpful to designate a relevant financial promotion with a 'review date', a date at which the financial promotion should be checked once more against the rules of this chapter. If it is found no longer to meet these requirements it should be withdrawn as soon as is reasonably practicable.
  3. (3) If at any time a firm becomes aware that private customers may have been misled by a financial promotion it should consider whether private customers who have responded to the financial promotion should be contacted with a view to explaining the position and offering any appropriate form of redress to those who have suffered financial loss.
  • 01/12/2001

Communicating a financial promotion where another firm has confirmed compliance

COB 3.6.5

handbook-rule

A firm will not contravene any of the rules in this chapter in circumstances where it (firm 'A') communicates a non-real time financial promotion which has been produced by another person provided that:

  1. (1) A takes reasonable care to establish that another firm (firm 'B') has already confirmed the compliance of the financial promotion in accordance with COB 3.6.1 R;
  2. (2) A takes reasonable care to establish that A communicates the financial promotion only to recipients of the type for whom it was intended at the time B carried out the confirmation exercise; and
  3. (3) so far as A is, or ought reasonably to be, aware:
    1. (a) the financial promotion has not ceased to be clear, fair and not misleading since that time; and
    2. (b) B has not withdrawn the financial promotion.
  • 01/12/2001

COB 3.7

Records

  • 01/12/2004

Requirement to make and retain records

COB 3.7.1

handbook-rule
  1. (1) A firm must make an adequate record of each non-real time financial promotion which it has confirmed as complying with the rules in this chapter.
  2. (2) A record in (1) must be retained for the following periods:
    1. (a) indefinitely in the case of a financial promotion relating to a pension transfer, pension opt-out or FSAVC;
    2. (b) six years in the case of a financial promotion relating to a life policy, pension contract or stakeholder pension scheme;
    3. (c) three years in any other case.

Content of records

COB 3.7.2

handbook-guidance

In deciding what is an adequate record under COB 3.7.1 R, a firm should consider including, or providing reference to, where appropriate matters such as:

  1. (1) the name of the individual or individuals who confirmed that the financial promotion complied with the rules in this chapter;
  2. (2) the date of confirmation and (where appropriate) approval;
  3. (3) details of the medium for which the financial promotion was authorised;
  4. (4) the evidence supporting any material factual statement about an investment matter in the financial promotion.
  • 01/12/2001

COB 3.7.3

handbook-guidance
  1. (1) A firm should also retain a copy of the financial promotion as finally published or, if this is not practicable, monitor the published version to verify that it is in substantially the same format as the version which the firm confirmed complied with the rules in this chapter.
  2. (2) Records which should be retained include:
    1. (a) any written financial promotion used by a representative;
    2. (b) any written material which is used in an organised marketing campaign (including, for example, written mailshots whether sent by e-mail, post, facsimile or other media).
  3. (3) see COB 3.14.5 G (6) for guidance on recording an electronic financial promotion containing market information which is updated continuously.
  • 01/12/2004

Form of records

COB 3.7.4

handbook-rule
A record in COB 3.7.1 R may be in any form, provided that it is readily accessible for inspection by the FSA.
  • 01/12/2001

COB 3.7.5

handbook-guidance
A firm may arrange for records to be kept in such form as it chooses, such as hard copy, disk or tape. If the financial promotion is not in a written form, the record should represent the actual financial promotion as accurately as possible. A record would be "readily accessible" if it were available for inspection within 48 hours of the request being made. SYSC 3.2.20 R (2) (Records to be capable of reproduction on paper) does not apply to records of real time financial promotions.
  • 01/09/2003

COB 3.8

Form and content of financial promotions

  • 01/12/2004

Application

COB 3.8.1

handbook-rule

This section applies as follows:

  1. (1) COB 3.8.2 R to COB 3.8.20 G apply to a firm which communicates or approves a non-real time financial promotion;
  2. (2) COB 3.8.21 G to COB 3.8.25 G apply to a firm which communicates a real time financial promotion.

Non-real time financial promotions: name and contact point

COB 3.8.2

handbook-rule
A non-real time financial promotion must contain the name of the firm or the name of its appointed representative and either an address of the firm or a contact point from which an address is available.
  • 01/11/2002

COB 3.8.3

handbook-guidance
  1. (1) For the purposes of COB 3.8.2 R, the name may be a trading name or shortened version of the legal name of the firm (although other legislation, for example, the Companies Act 1985, may require a firm to include information not required by this rule).
  2. (2) The type of contact point envisaged for a firm by COB 3.8.2 R is: an e-mail address, or telephone or facsimile number, where a person can contact the firm for its address.
  3. (3) Except for a direct offer financial promotion (see COB 3.9.6 R) a firm is not required in a financial promotion which it communicates or approves to name the FSA as its regulator. However, to comply with COB 3.8.4 R, if the firm chooses to name the FSA as its regulator and the financial promotion refers to matters not regulated by the FSA, it should also make clear that those matters are not regulated by the FSA.
  • 01/12/2001

Non-real time financial promotions: clear, fair and not misleading; comparisons; restriction of information on compensation

COB 3.8.4

handbook-rule
  1. (1) A firm must be able to show that it has taken reasonable steps to ensure that a non-real time financial promotion is clear, fair and not misleading.
  2. (2) A non-real time financial promotion which includes a comparison or contrast must:
    1. (a) compare investments or services meeting the same needs or which are intended for the same purpose;
    2. (b) objectively compare one or more material, relevant, verifiable and representative features of those investments or services, which may include price;
    3. (c) not create confusion in the market place between the firm itself (or the person whose financial promotion it approves) and a competitor or between the firm's trademarks, trade names, other distinguishing marks, investments or services (or those of the person whose financial promotion it approves) and those of a competitor;
    4. (d) not discredit or denigrate the trademarks, trade names, other distinguishing marks, investments, services, activities or circumstances of a competitor;
    5. (e) not take unfair advantage of the reputation of a trademark, trade name or other distinguishing marks of a competitor;
    6. (f) not present investments or services as imitations or replicas of investments or services bearing a protected trademark or trade name; and
    7. (g) indicate in a clear and unequivocal way in any comparison referring to a special offer the date on which the offer ends or, where appropriate, that the special offer is subject to the availability of the investments and services, and, where the special offer has not yet begun, the date of the start of the period during which the special price or other specific conditions shall apply.
  3. (3) If a non-real time financial promotion includes any information about the protection available under the compensation scheme or any other compensation scheme established in another EEA State or otherwise, it must restrict this to factual references to the scheme (an example of a factual reference is set out in COB 5.5.11 G).
  • 01/03/2003

COB 3.8.5

handbook-evidential-provisions
  1. (1) A firm should take reasonable steps to ensure that, for a non-real time financial promotion:
    1. (a) its promotional purpose is not in any way disguised or misrepresented;
    2. (b) any statement of fact, promise or prediction is clear, fair and not misleading and discloses any relevant assumptions;
    3. (c) any statement of opinion is honestly held and, unless consent is impracticable, given with the consent of the person concerned;
    4. (d) the facts on which any comparison or contrast is made are verified, or, alternatively, that relevant assumptions are disclosed and that the comparison or contrast is presented in a fair and balanced way, which is not misleading and includes all factors which are relevant to the comparison or contrast.
    5. (e) it does not contain any false indications, in particular as to:
      1. (i) the firm's independence;
      2. (ii) the firm's resources and scale of activities; or
      3. (iii) the scarcity of any investment or service;
    6. (f) the design, content or format does not disguise, obscure or diminish the significance of any statement, warning or other matter which the financial promotion is required by this chapter to contain;
    7. (g) it does not include any reference to approval by the FSA or any government body, unless such approval has been obtained in writing from the FSA or that body (see also GEN 1.2 (Referring to approval by the FSA));
    8. (h) it does not omit any matters the omission of which causes the financial promotion not to be clear, fair and not misleading; and
    9. (i) the accuracy of all material statements of fact in it can be substantiated.
  2. (2)
    1. (a) Compliance with COB 3.8.5 E (1) may be relied on as tending to show compliance with COB 3.8.4 R (1).
    2. (b) Contravention of COB 3.8.5 E (1) may be relied on as tending to show contravention of COB 3.8.4 R (1).
  • 01/12/2001

Non-real time financial promotions: guidance for deposits and pure protection policies which are long-term care insurance contracts

COB 3.8.6

handbook-guidance

When designing non-real time financial promotions relating to deposits or pure protection contracts which are long-term care insurance contracts with a view to complying with the general requirements of COB 3.8.4 R, firms may find it helpful to take account of:

  1. (1) (for deposits) the British Bankers' Association/Building Societies Association Code of Conduct for the Advertising of Interest Bearing Accounts;
  2. (2) [deleted]
  3. (3) (for pure protection contracts which are long-term care insurance contracts) the ABI Life Insurance (Non-Investment Business) Selling Code of Practice.

Non-real time financial promotions: guidance on clear, fair and not misleading

COB 3.8.7

handbook-guidance
  1. (1) It cannot be assumed that recipients necessarily have an understanding of the investment or service being promoted. The use of terms that are ambiguous, or the targeting of an audience which is unlikely to understand the promotion, are matters which are relevant to an assessment of whether the promotion is 'clear, fair and not misleading'. If a non-real time financial promotion is specially designed for a targeted collection of recipients who are reasonably believed to have particular knowledge of the investment or service being promoted, this fact should be made clear.
  2. (2)
    1. (a) Except in relation to life policies providing guaranteed benefits, or deposits, the description of an investment as 'guaranteed' should only be used where there is a legally enforceable arrangement with a third party to meet the claim in full. In such cases sufficient details about the guarantor and the guarantee should be provided before a person enters into a transaction relating to the investment to enable him to make a fair assessment of the value of the guarantee.
    2. (b) Where the investment is in units of an authorised fund the guarantee should be given by a third party other than the authorised fund manager or the depositary. Firms should note that COB 6.5.40 R (3)(m) requires specific information to be included in the key features of an authorised fund in respect of any guarantee or other arrangement intended to result in a particular capital or income return from a holding of units or shares in that authorised fund and in respect of any investment objective of giving protection to the capital value or income return from such a holding. CIS 3.5.2 R 26 requires similar information to be contained in the prospectus of an authorised fund. CIS 2.7.2 G contains guidance on when the name of an authorised fund should not include the word "guaranteed".
    3. (c) A guarantee to the directors of a company that issues an EIS share is not a guarantee to a person invested in the relevant Enterprise Investment Scheme.
  3. (3) The use of any of the following may mean that a non-real time financial promotion does not meet the general requirement of COB 3.8.4 R (1) of being clear, fair and not misleading:
    1. (a) a statement such as 'no initial charges' or 'no entry or redemption charges' where the bid price is not the same as the offer price (for example there is a spread), unless the statement is suitably qualified with information about the additional costs of investment;
    2. (b) the phrase 'frozen pensions', which implies that the pension fund will not remain invested and the pension benefits may not be subject to the possibility of an upward revaluation and will not be upgraded in circumstances where this is not the case (the phrase 'preserved pensions' is recommended as an alternative);
    3. (c) a statement of the amount of authorised share capital of a company without the amount of the issued share capital;
    4. (d) a statement of the amount of a company's total assets without the amount of its liabilities, or the amount of a company's total costs, or income or turnover, without making clear the period to which the statement relates;
    5. (e) an implication that the assets of a whole group can be drawn on by a subsidiary when this is not the case;
    6. (f) a comparison of the performance or the likely performance of an investment in units in a regulated collective investment scheme with an investment in units in an unregulated collective investment scheme.
  4. (4) In relation to quotations of opinion:
    1. (a) where only part of an opinion is quoted, it should nevertheless be a fair representation;
    2. (b) any connection between the holder of the opinion and the firm should be made clear.
  5. (5) Firms should note that the "return" on an investment is the gain or profit; it does not include the original capital invested.
  6. (6) A firm which offers general insurance contracts, providing benefits for the policyholder's care in the event of the policyholder's disability or incapacity, should avoid using terms which state expressly or imply that the policy will be available for the policyholder to claim on in the long-term, that is, for any period beyond the expiry of the policy. So a general insurance contract should not be promoted as being capable of providing long-term care insurance for the policyholder in the long-term, and expressions such as "long-term care" and "lifetime care" should generally be avoided in relation to general insurance contracts. If a general insurance contract provides benefits over the long-term in the event of a claim being made, a firm should make clear that the long-term aspect relates only to the availability of benefits in the event of a claim, not to the duration of the policy itself.

Specific non-real time financial promotions: general requirements

COB 3.8.8

handbook-rule

A specific non-real time financial promotion must;

  1. (1) include a fair and adequate description of:
    1. (a) the nature of the investment or service;
    2. (b) the commitment required;
    3. (c) the risks involved; and
  2. (2) if it relates to an investment or service of a person other than the firm, contain the name of that person, in addition to the name and address or contact point of the firm or its appointed representative (see COB 3.8.2 R).
  • 01/11/2002

COB 3.8.9

handbook-guidance
  1. (1) A specific non-real time financial promotion should give a fair and balanced indication of the requirements in COB 3.8.8 R (1)(a) to (c), to meet COB 3.8.4 R (1).
  2. (2) The details of the commitment which is required by COB 3.8.8 R (1)(b) will depend on the nature of the investment being promoted. This could be, for example, the minimum amount which can be invested, minimum or maximum period of investment or, where it is the case, the fact that it could be some time before a person may see a return on his investment. Where an investor's capital would be tied up for more than one month following the last fixed payment due to be made under the contract, this should be made clear in any financial promotion for that product.
  3. (3) In giving a fair and adequate explanation of the investment or service being promoted firms should avoid:
    1. (a) accentuating the potential benefits of an investment without also giving a fair indication of the risks;
    2. (b) failing to describe any benefits under a life policy which are not fixed;
    3. (c) drawing attention to favourable tax treatment without stating that this might not continue in the future; and
    4. (d) drawing attention to an investment or service's past performance, or placing emphasis on past performance, relative to other information given about the product in the financial promotion.
    5. (e) using prominent headline rates of return where these rates are unrealistic and unlikely to be obtained by most investors.
  4. (4) Guidance on the application of COB 3.8.4 R to the internet and other electronic media is provided in COB 3.14.
  5. (5) To assist firms' compliance with COB 3.8.4 R (1) and COB 3.8.8 R(1) in relation to a specific non-real time financial promotion further guidance is given in COB 3 Annex 4 G.
  6. (6) If the financial promotion relates to securities, or to an investment trust savings scheme for dealing in securities, in respect of which the conditions in (a), (b) and (c) are satisfied, then the firm should ensure that the risks associated with the relevant investment approaches in (b) are properly explained. The conditions are that:
    1. (a) the securities are
      1. (i) listed in the United Kingdom under Chapter 21 of the listing rules (Investment entities); or
      2. (ii) issued by an investment trust and listed in an EEA State other than the United Kingdom;
    2. (b) the issuer of the securities in (a):
      1. (i) uses or proposes to use gearing as an investment strategy; or
      2. (ii) invests or proposes to invest in securities that satisfy the conditions in (a) and the issuer of such securities uses or proposes to use gearing as an investment strategy; and
    3. (c) the securities are likely to be subject to fluctuations in value which are significant compared with the likely fluctuations in value of the underlying investments.
  7. (7) In giving a fair and adequate explanation of the risk involved, firms should, where relevent:
    1. (a) have regard to the provisions in COB 5.4.12 E and COB 5.4.13 G; and
    2. (b) identify where there is a possibility of loss of initial capital invested and disclose this as one of the main points in the specific non-real time financial promotion.
  8. (8) Firms are reminded that, when communicating or approving a financial promotion relating to a structured capital-at-risk product, COB 8.2.1 R and COB 8.2.4 R(2) apply.

Specific non-real time financial promotions: non-packaged products

COB 3.8.10

handbook-rule

A specific non-real time financial promotion relating to a designated investment other than a packaged product must, when it is the case, and if it is known, disclose if the firm or its associate:

  1. (1) has or may have a position or holding in the investment concerned or in a related investment; or
  2. (2) has or may have a material interest in any investment concerned, and the nature and extent of that interest; or
  3. (3) is or may be the only market maker where the financial promotion is for a security (excluding units in a collective investment scheme); or
  4. (4) is or may be providing, or has or may have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment.
  • 01/12/2001

Specific non-real time financial promotions: past performance

COB 3.8.11

handbook-rule

A specific non-real time financial promotion which gives information about the past performance of a specified investment or of a firm must include:

  1. (1) suitable text which states unambiguously, and without reservation, that past performance should not be seen as an indication of future performance:
    1. (a) that is specifically designed for the type of financial promotion concerned and its target audience; and
    2. (b) which is presented legibly in the main text of the financial promotion; and
  2. (2) information relating to a relevant and sufficient period of past performance to provide a fair and balanced indication of the performance.
  • 01/06/2004

COB 3.8.12

handbook-guidance
  1. (1) The purpose of COB 3.8.11 R is to:
    1. (a) prevent an investment being promoted in such a way as to induce a person to believe that any previous periods of favourable performance will necessarily be repeated in the future; and
    2. (b) encourage firms to draft warnings which are tailored to fit the design of the financial promotion and the audience to which they are primarily directed; so, for example, text used in a warning included in a specialist magazine may not be appropriate in a financial promotion in the popular press.
  2. (2) Any of the following may mean that a specific non-real time financial promotion does not meet the requirement of COB 3.8.4 R (1) of being clear, fair and not misleading:
    1. (a) an unfair comparison with the performance of another type of investment;
    2. (b) the selection of an inappropriate or irrelevant investment period;
    3. (c) the selection of an unreasonably short time period;
    4. (d) the selection of inconsistent time periods for a range of funds;
    5. (e) a comparison with deposits without an indication in clear terms, and with equal prominence, that the investment does not include the security of capital which is characteristic of a deposit with a bank or building society.
  3. (3) Firms need to take special care when presenting euro-based information as new factors should be taken into account in the calculation or comparison of the performance of some products. There may be some techniques of presenting past performance data which can no longer be used if the factoring in of euro conversion produces a misleading result. Guidance cannot deal with all the circumstances in which performance data are used, and it is therefore important for firms to look at the end result and the context in which the information is presented to ensure it does not breach COB 3.8.4 R (1) (clear, fair and not misleading).
  4. (4) Information on the past performance of a conventional with-profits contract may be relevant to a unitised contract to give potential policyholders access to information relating to the performance of a contract within the with-profit fund of a product provider. Any differences between the two systems and any factors which reduce the relevance of the past performance of the conventional contract, including differences in bonus policy and the level of charges and expenses, should be clearly explained.
  5. (5) Firms are reminded of the guidance in COB 3.6.4 G (2) about ensuring that specific non-real time financial promotions remain compliant with COB 3. To meet COB 3.8.11 R (2), a specific non-real time financial promotion that contains past performance information and is intended for use over a period of time should make clear:
    1. (a) the period of time to which the past performance information relates;
    2. (b) where relevant, the fact that this information may not be current; and
    3. (c) if (b) applies, an explanation of where up-to-date past performance information may be found.
  6. (6) Where a specific non-real time financial promotion, such as a brochure or a promotion on the Internet, includes past performance information that is presented over a number of pages, the past performance warning required by COB 3.8.11 R (1) should be included on each page on which past performance information is presented.
  7. (7) Information about past performance should normally be based on the actual performance of a fund or funds for the entire period. Where past performance information for the actual fund does not exist, a firm may only include hypothetical past performance information in the promotion if the result will be clear, fair and not misleading. Past performance information that is based entirely on hypothetical past performance information will be acceptable only where it relates to a fund that is not and has not been actively managed, and where prices on the relevant markets are unlikely to have been influenced by the operation of the fund had it been in existence.
  8. (8) In (7), hypothetical past performance information means information that has been constructed about the performance of a fund during a period for which no actual performance information is available, using the terms of the product and historical financial information. This would not include past performance information that is based on the actual performance of a fund (for example, where the pricing structure or other terms surrounding a product change but the underlying fund remains the same; where an existing fund is merging with another; or where a fund is cloned.)
  • 01/06/2004

Standardised past performance information

COB 3.8.13

handbook-rule
  1. (1) If a firm includes in a specific non-real time financial promotion information referring to the past performance of a packaged product, it must also include:
    1. (a) in the case of a scheme, unit-linked life policy or unit-linked stakeholder pension scheme (other than a unitised with-profits life policy or stakeholder pension scheme) past performance information calculated and presented in accordance with COB 3.8.13A R; or
    2. (b) in the case of a packaged product which is not within (a) that:
      1. (i) does not have a fixed term, the performance over the previous five years (or the whole period if the product has been offered for less than this); or
      2. (ii) has a fixed term, the performance over the whole period of the product term;
  2. ending with the date on which the firm confirms compliance with the rules in this chapter under COB 3.6.1 R (or as near as is reasonably practicable).
  3. (2) The information included in accordance with COB 3.8.13 R (1) should be no less prominent than any other past performance information.
  4. (3) A specific non-real time financial promotion must not contain any past performance information, including hypothetical past performance information, unless past performance information exists for the previous twelve months (or where COB 3.8.13R(1)(a) applies, for the previous four full quarters).
  5. (4) For the purposes of COB 3.8.13 R (1)(a), firms should use single pricing, or (if this is not available) bid to bid prices, unless the firm has reasonable grounds to be satisfied that another basis would better reflect the past performance of the fund.
  6. (5) This rule does not apply to a prospectus drawn up in accordance with CIS 3.2.1 R (Drawing up of prospectus) or COLL 4.2.2 R (Publishing the prospectus).

COB 3.8.13A

handbook-rule

Specimen table of disclosure of discrete past performance.

This table belongs to COB 3.8.13 R.

  • 01/06/2004

COB 3.8.14

handbook-guidance
  1. (1) The information required by COB 3.8.13 R (1)(b) should be given on:
    1. (a) an offer to bid basis (which should be stated) where there is an actual return or comparison of performance with other investments; or
    2. (b) an offer to offer, bid to bid or offer to bid basis (which should be stated) where there is a comparison of performance with an index or with movements in the price of units; or
    3. (c) a single pricing basis with allowance for charges.
  2. (2) Where the pricing policy of the investment has changed, the prices used to comply with COB 3.8.13 R should include such adjustments as are necessary to remove any distortions resulting from the pricing method.
  3. (3) Where the performance relates to a different investment vehicle, any material differences should be stated in the financial promotion.
  • 01/06/2004

COB 3.8.15

handbook-rule

Information about past performance in a specific non-real time financial promotion must not be presented in such a manner as to suggest that:

  1. (1) it constitutes a projection illustrating the possible future value of an investment contract or fund; or
  2. (2) similar returns will be achieved in the future.
  • 01/06/2004

COB 3.8.16

handbook-guidance

In determining whether COB 3.8.15 R has been satisfied, the FSA will take into account:

  1. (1) the way in which the information about past performance has been presented;
  2. (2) how it is positioned in the financial promotion; and
  3. (3) the wording which accompanies it.

Paragraph headings, or the positioning of information about past performance and current yields next to each other, can sometimes contribute to an overall impression that past performance and future prospects are linked.

  • 01/06/2004

Specific non-real time financial promotions: projections for life policies or schemes

COB 3.8.17

handbook-rule
A specific non-real time financial promotion relating to a life policy, or a scheme, and which includes a projection must comply with the detailed projection rules in COB 6.6 (Projections).
  • 01/12/2001

Specific non-real time financial promotions: projections for EIS shares

COB 3.8.18

handbook-rule
A specific non-real time financial promotion must not contain a projection of the possible investment return on a direct or indirect investment in EIS shares.
  • 01/12/2001

Specific non-real time financial promotions: packaged products

COB 3.8.19

handbook-rule
  1. (1) A firm must not communicate or approve a specific non-real time financial promotion containing or offering advice on packaged products unless the promotion discloses information to show whether the scope of the advice which is given or offered is or will be based upon a selection made from:
    1. (a) the whole market (or from the whole of a named sector of the market); or
    2. (b) a limited number of product providers; or
    3. (c) a single product provider.
  2. (2) A firm must not communicate or approve a specific non-real time financial promotion offering packaged products produced by a person, A:
    1. (a) that holds out any person other than A as the packaged product producer; or
    2. (b) that does or says anything which might reasonably lead a private customer to be mistaken as to the identity of the product's producer; or
    3. (c) in which the prominence of A's brand is less than that of other brands included in the promotion.

COB 3.8.20

handbook-guidance
Firms are reminded that COB 3.8.19 R does not apply to image advertising (see COB 3.2.5 R (Exemptions) and COB 3.2.7 G (3)(b) (Guidance on the exemptions)).
  • 01/12/2001

Real time financial promotions

COB 3.8.21

handbook-guidance
A firm should note that COB 3.10.3 R prevents a firm from communicating an unsolicited real time financial promotion other than an exempt financial promotion (which is outside the scope of this chapter) or where one of COB 3.10.3 R (1), COB 3.10.3 R (2) and COB 3.10.3 R (3) applies. Many solicited real time financial promotions will be exempt financial promotions (and, therefore, outside the scope of this chapter). Accordingly, COB 3.8.22 R applies only to solicited real time financial promotions which are not exempt financial promotions and to unsolicited real time financial promotions within COB 3.10.3 R (1).
  • 01/09/2002

COB 3.8.22

handbook-rule

A firm must take reasonable steps to ensure that an individual who makes a real time financial promotion on the firm's behalf:

  1. (1) does so in a way which is clear, fair and not misleading;
  2. (2) does not make any untrue claims;
  3. (3) makes clear the purpose (or purposes) of the financial promotion at the initial point of communication, and identifies himself and the firm which he represents;
  4. (4) if the time and method of communication were not previously agreed by the recipient:
    1. (a) checks that the recipient wishes him to proceed;
    2. (b) terminates the communication if the recipient does not wish him to proceed (but may ask for another appointment);
    3. (c) recognises and respects, promptly, the right of the recipient to:
      1. (i) end the communication at any time; and
      2. (ii) refuse any request for another appointment;
  5. (5) gives any recipient with whom he arranges an appointment a contact point;
  6. (6) does not communicate with a person:
    1. (a) at an unsocial hour, unless the person has previously agreed to such a communication;
    2. (b) on an unlisted telephone number, unless the person has previously agreed to such calls on that number;
  7. (7) if applicable, acts in conformity with the rules in COB 4.3 (Disclosing information about services, fees and commission - packaged products) and COB 5.1 (Advising on packaged products).

COB 3.8.23

handbook-guidance
In COB 3.8.22 R (6)(a) an unsocial hour usually means on a Sunday or before 9am or after 9pm on any other day. It could also mean other days of the week or other times if the firm knows that a particular recipient would not wish to be called on that day or at that time for reasons of, for example, religious faith or night shift working.
  • 01/12/2001

COB 3.8.24

handbook-guidance

The requirements of COB 3.8.22 R:

  1. (1) apply in respect of all individuals who initiate the communication, including representatives, call centre operators and introducers;
  2. (2) apply to all forms of real time financial promotion, including face to face and telephone financial promotion;
  3. (3) but do not prevent, for example, a telephone call centre which has received a call from a person at an hour generally regarded as unsocial, either responding to that call or asking during the call if the person would like details of other investment products.
  • 01/12/2004

COB 3.8.25

handbook-guidance
SYSC 3.2.20 R (Records) requires a firm to take reasonable care to make and retain certain records. For a telemarketing campaign to which COB 3.8.22 R applies, those records should include copies of any scripts used.
  • 01/12/2001

COB 3.9

Direct offer financial promotions

  • 01/12/2004

Application

COB 3.9.1

handbook-rule
This section applies to a firm which communicates or approves a direct offer financial promotion.
  • 01/12/2001

COB 3.9.2

handbook-guidance
  1. (1) This section includes provisions which apply to all direct offer financial promotions and other provisions which apply only to certain kinds of direct offer financial promotions. COB 3.9.3 G is intended to help firms locate the paragraphs which are relevant to them.
  2. (2) COB 3.8.2 R to COB 3.8.20 G also apply to direct offer financial promotions.
  3. (3) Material communicated as one package, such as by direct mail, may be regarded as one financial promotion for the purposes of this section.
  • 01/12/2001

COB 3.9.3

handbook-guidance

Location of the provisions applicable to direct offer financial promotions

This table belongs to COB 3.9.2 G

Exemptions

COB 3.9.4

handbook-guidance

Firms are reminded that under COB 3.2.3 R:

  1. (1) COB 3.9 does not apply to a direct offer financial promotion relating to:
    1. (a) a deposit (except a cash deposit ISA or cash deposit CTF); or
    2. (b) a pure protection contract which is a long-term care insurance contract or reinsurance contracts; and
  2. (2) a direct offer financial promotion relating to a cash deposit ISA must comply with COB 3.9.6 R (1) and COB 3.9.8 R.

Prohibited types of direct offer financial promotion

COB 3.9.5

handbook-rule
  1. (1) A direct offer financial promotion must not relate to a broker fund.
  2. (2) A direct offer financial promotion must not relate to:
    1. (a) a derivative; or
    2. (b) a warrant;
unless the firm itself has adequate evidence to suggest that the investment may be suitable for the person to whom the promotion is communicated.
  • 15/11/2001

Direct offer financial promotions: general requirements

COB 3.9.6

handbook-rule
  1. (1) A direct offer financial promotion must be in a durable medium and contain sufficient information to enable a person to make an informed assessment of the investment or service to which it relates.
  2. (2) In particular, a direct offer financial promotion must contain:
    1. (a) the information set out in COB App 1 (the information in and (4) must be provided in relation to the person offering the investment or service and, if different, the firm communicating or approving the financial promotion);
    2. (b) where it is the case that no advice on investments has been given, a prominent statement that:
      1. (i) no advice on investments has been given; and
      2. (ii) if a person has any doubt about the suitability of the agreement which is the subject of the financial promotion he should contact the firm for advice on investments (or another appropriate firm if the firm does not offer advice on investments).
    3. (c) if the financial promotion is communicated by a firm whose permission includes a requirement that it must not hold client money, the name of the person to whom payment (if any) should be made;
    4. (d) details of the basis or amount of any commission or remuneration which might be payable by the person who is offering the investment or service to another person.
  • 09/10/2004

Contractual terms and conditions for distance contracts

COB 3.9.7A

handbook-rule
  1. (1) A firm must ensure that a retail customer is provided with all the contractual terms and conditions on which its service will be provided in a durable medium in good time before the retail customer is bound to the firm by a distance contract or offer resulting from a direct offer financial promotion, unless an exemption in (2), (3) or (4) applies:
  2. (2) Exemption: means of distance communication
  3. This exemption applies if the contract is concluded at the retail customer's request using a means of distance communication which does not enable provision of the contractual terms and conditions in a durable medium in accordance with (1). In that case, the firm must provide the retail customer with the information in a durable medium immediately after conclusion of the distance contract.
  4. (3) Exemption: successive or separate operations under an initial service agreement
  5. This exemption applies if the firm has an initial service agreement with the retail customer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COB 1.10.2 G (1)).
  6. (4) Exemption: other successive or separate operations
  7. This exemption applies if:
    1. (a) the firm has no initial service agreement with the retail customer;
    2. (b) the firm has performed an operation with the retail customer within the last year; and
    3. (c) the contract is in relation to a successive operation or separate operation of the same nature (see COB 1.10.2 G (2)).
  • 09/10/2004

Cash deposit ISAs and cash deposit CTFs

COB 3.9.8

handbook-rule
A direct offer financial promotion relating to a cash deposit ISA or cash deposit CTF must contain the information required by whichever of COB 6.5.42 (1) to COB 6.5.42 (8) or COB 6.5.42A applies to it and COB App 1.
  • 09/10/2004

Electronic media

COB 3.9.9

handbook-guidance
Guidance, including information on direct offer financial promotions on the internet and other electronic media, is provided in COB 3.14 (The internet and other electronic media).
  • 01/12/2001

Packaged products

COB 3.9.10

handbook-rule
A direct offer financial promotion relating to a packaged product must contain the information required by COB 6.5.2 R (1), (3) and (5) as applicable (Contents of key features).

COB 3.9.11

handbook-guidance
The information should follow, where possible, the same order as key features. But adjustments may be made to the order, where this would assist design and understanding of the material.

Execution-only dealing services

COB 3.9.12

handbook-rule

A direct offer financial promotion relating to an execution-only dealing service must in particular, if it is the case, contain a clear statement that:

  1. (1) the firm's procedures are such that there may be a delay in the execution of a customer order, including the reason for and the normal maximum extent of any such delay;
  2. (2) customer orders may on occasion be aggregated (in which case the statement must comply with COB 7.7.4 R).
  • 01/12/2004

COB 3.9.13

handbook-guidance
The purpose of COB 3.9.12 R (1) is to ensure that explanations are given when firms' procedures might, for example, involve dealing every hour or at certain times of the day. Details of external factors over which the firm has no control are not required.
  • 01/12/2001

Potential problem areas for direct offer financial promotions.

COB 3.9.14

handbook-guidance
To assist firms' compliance with COB 3.8.4 R (1) and COB 3.8.8 R(1) in relation to a direct offer financial promotion, further guidance is given in COB 3 Annex 4 G.
  • 01/12/2001

Investments which can fluctuate in value

COB 3.9.15

handbook-rule
  1. (1) A direct offer financial promotion relating to an investment which can fluctuate in value, or which offers income distributions which may fluctuate, must make this clear in terms which are likely to be understood by the kind of recipient to whom the financial promotion is communicated.
  2. (2) The explanation given in conformity with (1) must be set out with due prominence and in a print size no smaller than that used in the main text of the financial promotion.
  • 01/12/2001

COB 3.9.16

handbook-guidance
The FSA will expect the explanation required by COB 3.9.15 R to be contained within the main body of the financial promotion, and not in small print at the very end. Firms which choose to include it in a separate stand-alone statement should satisfy themselves on reasonable grounds that this is likely to offer the best prospect of it being seen and read and should record such reasons for the purposes of COB 3.7 (Records).
  • 01/12/2001

COB 3.9.17

handbook-guidance

Examples of explanations which could meet COB 3.9.15 R are:

  1. (1) 'You are not certain to make a profit; you may lose money/make a loss';
  2. (2) 'You may not get back the full amount of your investment';
  3. (3) (for investment income): 'The income is not fixed - it can go up or down';
  4. (4) (for contingent liabilities): 'You could lose all the money you invested and you may have to pay more later';
  5. (5) (for higher volatility funds): 'This investment may be subject to sudden and large falls in value, you could get back nothing at all';
  6. (6) (for property funds):
    1. (a) 'This fund invests in property and land. This can be difficult to sell - so you may not be able to sell/cash in this investment when you want to. We may have to delay acting on your instructions to sell your investment';
    2. (b) 'The value of property is generally a matter of a valuer's opinion rather than fact';
  7. (7) (for an Enterprise Investment Scheme):
    1. (a) 'It may be difficult to sell your investment, or to get accurate information about how much it is worth or how risky it is';
    2. (b) 'These are unquoted securities which may have more risks than quoted securities or shares';
    3. (c) 'Investments in unquoted securities may be difficult to sell. Market makers may not be prepared to deal in them. This scheme may invest in private companies and restrictions may apply to the transfer of these private company securities';
    4. (d) 'Proper information for working out the current value of investments may not be available';
  8. (8) (for property enterprise trusts and Enterprise Zone Property Unit Trusts):
    1. (a) 'The value of the property in these schemes can go down as well as up. The initial price of Enterprise Zone property may be distorted as a result of the tax allowances and other benefits available - it may often be necessary to pay a higher price for this property compared with other property';
    2. (b) 'There is no established market in this investment';
    3. (c) 'This investment is designed to be held for a very long time (normally 25 years). You may have difficulty selling it. You should not invest in this if you may need to sell early';
    4. (d) 'Do not invest in this investment unless you have carefully thought about whether you can afford it and whether it is right for you';
  9. (9) (for non-readily realisable investments): You may have difficulty selling this investment at a reasonable price and, in some circumstances, it may be difficult to sell it at any price. Do not invest in this unless you have carefully thought about whether you can afford it and whether it is right for you;
  10. (10) (for front end loaded contracts): We take most of our charges in the early years of this investment. This means that if you withdraw during this time you may lose money/get back less than you invested;
  11. (11) (for with-profit life policies): The value of this policy depends on how much profit we make and how we may decide to distribute this profit;
  12. (12) (for penny shares): There is an extra risk of losing money when shares are bought in some smaller companies including penny shares. There is a big difference between the buying price and the selling price of these shares. If they have to be sold immediately, you may get back much less than you paid for them. The price may change quickly and it may go down as well as up;
  13. (13) (for foreign currency denominated investments): Changes in the rates of exchange between currencies may cause your investment/the income to go down or up;
  14. (14) (for investments where the market is restricted): There is only one market maker', and/or `the only market maker is the communicator of the financial promotion or an associate of the issuer;
  15. (15) (for a security or an investment trust savings scheme which satisfies the conditions specified in COB 3.8.9 G (6)): 'This investment may be subject to sudden and large falls in value and you could get back nothing at all'.
  • 01/01/2004

Life policies

COB 3.9.18

handbook-rule

A direct offer financial promotion which relates to a life policy must state:

  1. (1) which benefits (if any) are fixed amounts, and what those amounts are; and
  2. (2) which benefits are not fixed amounts.
  • 01/12/2001

COB 3.9.18A

handbook-guidance
Firms are reminded of the provisions in COB 4.3, COB 5.2 and COB 5.3 requiring particular disclosures to clients in relation to life policies.
  • 01/12/2004

Taxation

COB 3.9.19

handbook-rule
A direct offer financial promotion must include a summary of the taxation of any investment to which it relates and the taxation consequences for investors generally.
  • 01/12/2001

COB 3.9.20

handbook-rule

A firm must include in a direct offer financial promotion:

  1. (1) a warning that taxation levels, bases and (if relevant) reliefs can change;
  2. (2) the assumed rate of taxation;
  3. (3) (where taxation reliefs are mentioned) statements:
    1. (a) distinguishing between reliefs which apply directly to investors and anyone else;
    2. (b) that the reliefs are the ones which currently apply; and
    3. (c) that the value depends upon the circumstances of the investor; and
  4. (4) where the words 'free from tax liability', or similar are used and it is the case, a statement making clear that this describes the benefits when paid to the investor, and a statement with equal prominence that the income is payable out of a fund which has already paid income tax, corporation tax or capital gains tax (whichever applies).
  • 01/12/2001

EIS or non-packaged product, ISA, PEP or CTF with no right of withdrawal

COB 3.9.21

handbook-rule
A direct offer financial promotion which relates to an EIS or non-packaged product ISA, PEP or CTF for which no right to withdraw is given under case 8 of row 2, COB 6.7.17 R, must include the statement required by that provision.
  • 09/10/2004

Charges for regulated collective investment schemes

COB 3.9.23

handbook-rule

A direct offer financial promotion relating to a regulated collective investment scheme must give an adequate explanation of the charging structure and make clear:

  1. (1) whether all or part of the scheme expenses will be taken out of capital or income; and
  2. (2) the likely long-term effect on capital or income.
  • 01/12/2001

Penny shares

COB 3.9.24

handbook-rule
If an indication of the price of a particular penny share is included in a direct offer financial promotion, the bid-offer spread must also be included (based on the best price available in the relevant market at the time for transactions of the largest bid or offer price of that share).
  • 01/12/2001

Branded funds

COB 3.9.25

handbook-rule
A direct offer financial promotion relating to a branded fund must include a statement that the firm responsible for the promotion does not manage the investments in the branded fund, together with the name and address of the manager.
  • 01/12/2001

Enterprise Investment Schemes

COB 3.9.26

handbook-rule

A direct offer financial promotion relating to an Enterprise Investment Scheme must contain:

  1. (1) the information specified in COB 3 Annex 2 R;
  2. (2)
    1. (a) either a copy of the prospectus; or
    2. (b) if no prospectus is required by the POS Regulations COB 3.9.27 G relating to each company in which the Enterprise Investment Scheme manager has a material interest and intends to acquire interests on behalf of the scheme;
  3. (3) a prominent statement that applications may only be made and accepted subject to the terms and conditions of the Enterprise Investment Scheme particulars and prospectus (if applicable); and
  4. (4) a prominent explanation of any right to withdraw (under COB 6.7) or, where it is the case, that such rights will not apply.

COB 3.9.27

handbook-guidance

To meet the requirements of COB 3.9.26 R, a direct offer financial promotion relating to an Enterprise Investment Scheme should include the following information about the company issuing the EIS shares:

  1. (1) assets and liabilities;
  2. (2) financial position;
  3. (3) profits and losses;
  4. (4) prospects; and
  5. (5) rights attaching to the EIS shares.
  • 01/09/2003

COB 3.9.28

handbook-rule
In addition to the requirements of COB 3.9.26 R, a direct offer financial promotion relating to a private offer of EIS shares must include the information specified in COB 3 Annex 3 R.
  • 01/12/2001

Income withdrawal

COB 3.9.29

handbook-rule

A direct offer financial promotion relating to, or offering a facility for, income withdrawals must include the following explanations:

  1. (1) taking withdrawals may erode the capital value of the fund, especially if investment returns are poor and a high level of income is taken; this could result in a lower income when the annuity is eventually purchased;
  2. (2) the investment returns may be less than those shown in the illustrations;
  3. (3) annuity rates may be at a worse level when annuity purchase eventually takes place; and
  4. (4) if the maximum withdrawals permitted by Inland Revenue regulations are to be taken, high income withdrawals may not be sustainable during the deferral period.

Child trust funds

COB 3.9.30

handbook-rule
A direct offer financial promotion relating to a CTF must contain the information referred to in COB 6.5.40 R (7).
  • 01/12/2004

Structured capital at risk products

COB 3.9.31

handbook-rule

When communicating or approving a direct offer financial promotion for a structured capital-at-risk product a firm must ensure that the following information is included in the mailing pack or included by a clearly visible electronic link if using email, the Internet or other electronic media:

  1. (1) an explanation of the types of capital-at-risk products generally available and how they would typically work;
  2. (2) an explanation of the risks associated with investing in these capital-at-risk products;
  3. (3) details of the key issues that consumers should consider before investing in a capital-at-risk product; and
  4. (4) information about how to complain to the firm and how complaints can subsequently be referred to the Financial Ombudsman Service.
  • 16/07/2004

COB 3.9.32

handbook-guidance
  1. (1) When a firm complies with its obligations under COB 3.9.31 R it should ensure that the information it provides includes in particular the following:
    1. (a) reference to the different risk profiles of generally available capital-at-risk products when compared with capital secure products such as deposits;
    2. (b) reference to the fact that, because of the risk to capital, capital-at-risk products should only form part of an investment portfolio;
    3. (c) reference to the fact that, before buying, investors should check they understand the way the product is priced, the charges involved, the length of time their money will be tied up and the consequences of cashing in the product early; and
    4. (d) contact details for the FSA's consumer helpline and website.
  2. (2) The FSA would regard a firm that provides a copy of the FSA's factsheet about capital-at-risk products entitiled 'Capital-at-risk products' as complying with its obligations under COB 3.9.31 R. Firms can obtain copies or buy the artwork by using the FSA's online order form at www.fsa.gov.uk/pubs, Consumer publications.
  3. (3) Where a firm provides a copy of the FSA's factsheet, it may wish to include the following wording in its covering literature: "The enclosed factsheet about capital-at-risk products is from the Financial Services Authority (FSA), the independent watchdog set up by Parliament. Please read this document carefully.".
  • 01/12/2004

COB 3.10

Unsolicited real time financial promotions

  • 01/12/2004

Meaning of "solicited" and "unsolicited" real time financial promotion

COB 3.10.1

handbook-rule
  1. (1) An unsolicited real time financial promotion is a real time financial promotion which is not solicited as described in (2).
  2. (2) A solicited real time financial promotion is a real time financial promotion which is solicited, that is, it is made in the course of a personal visit, telephone call or other interactive dialogue if that call, visit or dialogue:
    1. (a) was initiated by the recipient of the financial promotion; or
    2. (b) takes place in response to an express request from the recipient of the financial promotion;
  3. and it is clear from all the circumstances when the call, visit or dialogue is initiated or requested that during the course of the visit, call or dialogue financial promotions would be made concerning the kind of controlled activities or controlled investment to which the financial promotion relates.
  4. (3) In (2), a person is not to be treated as expressly requesting a call, visit or dialogue:
    1. (a) because he omits to indicate that he does not wish to receive any or any further visits or calls or to engage in any or any further dialogue;
    2. (b) because he agrees to standard terms that state that such visits, calls or dialogues will take place unless he has signified clearly that, in addition to agreeing to the terms, he is willing for them to take place.
  5. (4) If a real time communication is solicited by a person ("R") it is treated as also having been solicited by any other person to whom it is made at the same time as R if that other person is a close relative of R or is expected to engage in any investment activity jointly with R.
  • 01/03/2003

COB 3.10.2

handbook-guidance
COB 3.10.1 R is based on article 8 of the Financial Promotion Order. Guidance on whether a real time financial promotion is solicited is contained in AUTH App 1.10 (Types of financial promotion).

Restriction of unsolicited real time financial promotions

COB 3.10.3

handbook-rule

A firm must not make an unsolicited real time financial promotion unless:

  1. (1) the recipient has an established existing customer relationship with the firm and the relationship is such that the recipient envisages receiving unsolicited real time financial promotions; or
  2. (2) the financial promotion relates to a generally marketable packaged product which is not:
    1. (a) a higher volatility fund; or
    2. (b) a life policy with a link (including a potential link) to a higher volatility fund; or
  3. (3) the financial promotion:
    1. (a) relates to a controlled activity to be carried on by an authorised person or exempt person; and
    2. (b) the only controlled investments involved or which reasonably could be involved are:
      1. (i) readily realisable securities (other than warrants); and
      2. (ii) generally marketable non-geared packaged products.
  • 01/12/2001

COB 3.10.4

handbook-guidance
Firms are reminded of the exemptions in COB 3.2.5 R; COB 3.10.3 R does not prohibit an exempt unsolicited real time financial promotion.
  • 01/12/2001

COB 3.11

Unregulated collective investment schemes and qualified investor schemes

  • 01/12/2004

Unregulated collective investment schemes

COB 3.11.1

handbook-guidance
  1. (1) Under section 238 of the Act (Restrictions on promotion), an authorised person must not communicate an invitation or inducement to participate in an unregulated collective investment scheme ("the scheme promotion restriction"). This applies in the case of a communication originating outside the United Kingdom only if the communication is capable of having an effect in the United Kingdom.
  2. (2) However, the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (SI 2001/1060) exempts from the scheme promotion restriction certain types of communications relating to unregulated collective investment schemes.
  3. (3) In addition, section 238(5) of the Act gives the FSA power to make rules exempting from the scheme promotion restriction certain promotions relating to unregulated collective investment schemes, provided that they are not made to the general public. The purpose of COB 3.11.2 R is to make appropriate use of the power which the FSA has under section 238(5) of the Act.
  4. (4) Under section 240 of the Act (Restriction on approval of promotion), an authorised person cannot approve, for the purposes of section 21, the content of a communication relating to an unregulated collective investment scheme if he would not have been able, under section 238(1), to communicate it himself.
  5. (5) AUTH App 1.20 (Additional restriction on the promotion of collective investment schemes) provides further guidance on the restriction under section 238(1) of the Act (Restrictions on promotion).

Exemptions from the scheme promotion restriction

COB 3.11.2

handbook-rule
A firm may communicate an invitation or inducement to participate in an unregulated collective investment scheme if the communication falls within COB 3 Annex 5 R.
  • 01/12/2001

COB 3.11.3

handbook-guidance
  1. (1) A firm may communicate an invitation or inducement to participate in an unregulated collective investment scheme, which originates in the United Kingdom or is capable of having an effect in the United Kingdom, only if either:
    1. (a) the communication falls within COB 3 Annex 5 R; or
    2. (b) the communication is exempt from the scheme promotion restriction under the Financial Services and Market Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001.
  2. (2) Firms are reminded that, even if an invitation or inducement is within COB 3 Annex 5 R, other rules in this chapter may still apply.
  • 01/03/2003

Limited disapplication of this chapter

COB 3.11.4

handbook-rule

In relation to the communication by a firm of an invitation or inducement to participate in an unregulated collective investment scheme, this chapter applies only if:

  1. (1) the communication is permitted by COB 3.11.2 R;
  2. (2) in the case of a communication originating outside the United Kingdom, the communication is capable of having an effect in the United Kingdom; and
  3. (3) the communication is not exempted by the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001.
  • 01/03/2003

COB 3.11.5

handbook-guidance
The purpose of COB 3.11.4 R is to give effect to the limitation of the FSA's rule-making power in section 145(3)(b) of the Act (Financial promotion rules). It also ensures that this chapter does not apply to an invitation or inducement communicated by a firm under an exemption from the scheme promotion restriction in the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001.
  • 01/03/2003

Promotion of qualified investor schemes

COB 3.11.6

handbook-rule

A firm may communicate or approve an invitation or inducement to participate in a qualified investor scheme only if:

  1. (1) the communication falls within COB 3 Annex 5 R; or
  2. (2) the communication is exempt under the Financial Promotion Order (see COB 3 Annex 1 G).
  • 01/04/2004

COB 3.11.7

handbook-guidance
COLL 8 provides for a type of authorised fund (qualified investor scheme) which is intended for particular non-retail investors. COB 3.11.6 R restricts the promotion of such schemes.
  • 01/04/2004

COB 3.12

Communication and approval of financial promotions for an overseas person or an unauthorised person

  • 01/12/2004

Approval of financial promotions

COB 3.12.1

handbook-guidance
  1. (1) Section 21(1) of the Act (Restrictions on financial promotion) prohibits an unauthorised person from communicating a financial promotion, in the course of business, unless an exemption applies or the financial promotion is approved by a firm. An overview of the main exemptions in the Financial Promotion Order is in COB 3 Annex 1 G and further guidance is provided in AUTH App 1 (Financial promotion and related activities), in particular, AUTH App 1.9 (Circumstances where the restriction in section 21 does not apply).
  2. (2) Most of the rules in this chapter apply when a firm approves a financial promotion in the same way as when a firm communicates a financial promotion itself. A firm therefore has a similar responsibility for a financial promotion that it approves as for one that it communicates. For example, a firm which approves a non-real time financial promotion must:
    1. (a) if COB 3.6.1 R applies, confirm that the financial promotion complies with the rules in this chapter; and
    2. (b) if COB 3.8.4 R (1) applies, be able to show that it has taken reasonable steps to ensure that the financial promotion is clear, fair and not misleading.
  3. (3) A firm may also wish to approve a financial promotion that it communicates itself. This would ensure that an unauthorised person who then also communicates the financial promotion to another person will not contravene the restriction on financial promotion in section 21(1) of the Act (Restrictions on financial promotion).
  4. (4) A firm which approves a financial promotion that is exempt under COB 3.2.5 R (Exemptions) or COB 3.3.1 R (Application; where?) must still comply with certain rules in this chapter (see COB 3.2.4 R (2) and COB 3.3.3 R (2)).

No approval of real time financial promotions

COB 3.12.2

handbook-rule
  • 01/12/2001

Approval of financial promotions when not all the rules apply

COB 3.12.3

handbook-rule
If a firm approves a financial promotion in circumstances in which one or more of the rules in this chapter, or the prohibition in section 240(1) of the Act (Restriction on approval), are expressly disapplied, the approval must be given on terms that it is limited to those circumstances.
  • 01/12/2001

COB 3.12.4

handbook-guidance
For example, if a firm approves a financial promotion relating to an unregulated collective investment scheme under one or more of the exemptions in the table in COB 3 Annex 5 R, the approval must be limited to communication of the financial promotion to the relevant class of person in the left hand column of the table. Similarly, if a firm approves a financial promotion for communication to market counterparties and intermediate customers (see COB 3.2.5 R), the approval must be limited to communication to such persons.
  • 01/12/2001

COB 3.12.5

handbook-guidance
If an approval is limited in accordance with COB 3.12.3 R, and an unauthorised person communicates the financial promotion to persons not covered by the approval, the unauthorised person may commit an offence under section 21(1) of the Act (Restrictions on financial promotion). A firm giving a limited approval may wish to advise the unauthorised person accordingly.
  • 01/12/2001

Specific non-real time financial promotions for overseas persons

COB 3.12.6

handbook-rule

A firm must not communicate or approve a specific non-real time financial promotion which relates to an investment or service of an overseas person, unless:

  1. (1) the financial promotion makes clear which firm has approved or communicated it and, where relevant, explains:
    1. (a) that the rules made under the Act for the protection of private customers do not apply;
    2. (b) the extent and level to which the compensation scheme will be available, or if the scheme will not be available, a statement to that effect; and
    3. (c) if the communicator wishes, the protection or compensation available under another system of regulation; and
  2. (2) the firm has no reason to doubt that the overseas person will deal with private customers in the United Kingdom in an honest and reliable way.
  • 01/12/2001

COB 3.12.7

handbook-guidance
In considering which points are relevant for the purposes of COB 3.12.6 R (1), the activities, and the associated products or services of the overseas person will need to be separately considered.
  • 01/12/2001

COB 3.13

Additional requirements for financial promotions for an overseas long-term insurer

  • 01/12/2004

COB 3.13.1

handbook-rule
  1. (1) A firm must not communicate or approve a financial promotion to enter into a life policy with a person who is not:
    1. (a) an authorised person; or
    2. (b) an exempt person who is exempt in relation to effecting or carrying out contracts of insurance of the class to which the financial promotion relates; or
    3. (c) a company which has its head office in an EEA State other than the United Kingdom and which is entitled under the law of that State to carry on there insurance business of the class to which the financial promotion relates; or
    4. (d) a company which has a branch or agency in an EEA State other than the United Kingdom and is entitled under the law of that State to carry on there insurance business of the class to which the financial promotion relates; or
    5. (e) a company authorised to carry on insurance business of the class to which the financial promotion relates in any country or territory which is listed in (2).
  2. (2) The countries or territories referred to in (1)(e) are:
    1. (a) the Bailiwick of Guernsey;
    2. (b) the Isle of Man;
    3. (c) the Commonwealth of Pennsylvania;
    4. (d) the State of Iowa; and
    5. (e) the Bailiwick of Jersey.
  3. (3) For the purposes of (1), Gibraltar shall be regarded as if it were an EEA State.
  • 01/12/2001

COB 3.13.2

handbook-rule

A financial promotion for an overseas long-term insurer, which has no establishment in the United Kingdom, must include:

  1. (1) the full name of the overseas long-term insurer, the country where it is registered, and, if different, the country where its head office is situated;
  2. (2) a prominent statement that 'holders of policies issued by the company will not be protected by the Financial Services Compensation Scheme if the company becomes unable to meet its liabilities to them'; and,
  3. (3) where any trustee, investment manager or United Kingdom agent of the overseas long-term insurer is named which is not independent of the overseas long-term insurer, a prominent statement of that fact.
  • 01/12/2001

COB 3.13.3

handbook-rule

A financial promotion for an overseas long-term insurer which is authorised to carry on long-term insurance business in any country or territory listed in COB 3.13.1 R (2) must also include:

  1. (1) the full name of any trustee of property of any description which is retained by the overseas long-term insurer in respect of the promoted contracts;
  2. (2) an indication whether the investment of such property (or any part of it) is managed by the overseas long-term insurer or by another person and the full name of any investment manager;
  3. (3) the registered office of any such trustee and of any investment manager and of his principal office (if different); and
  4. (4) where any person in the United Kingdom takes, or may take, any steps on behalf of the overseas long-term insurer to enter into a promoted contract, the following details about that person:
    1. (a) the full name of the overseas long-term insurer;
    2. (b) the registered or head office in the United Kingdom; and,
    3. (c) if there is more than one such person, the principal or main person in the United Kingdom.
  • 01/12/2001

COB 3.13.4

handbook-rule

If a financial promotion relates to a life policy with an overseas long-term insurer but does not name the overseas long-term insurer by giving its full name or its business name:

  1. (1) it must include the following prominent statement: "This financial promotion relates to an insurance company which does not, and is not authorised to, carry on in any part of the United Kingdom the class of insurance business to which this promotion relates. This means that the management and solvency of the company are not supervised by the Financial Services Authority. Holders of policies issued by the company will not have the right to complain to the Financial Ombudsman Service if they have a complaint against the company and will not be protected by the Financial Services Compensation Scheme if the company should become unable to meet its liabilities to them"; and
  2. (2) if it also refers to other investments it must make this clear.
  • 01/03/2003

COB 3.13.5

handbook-guidance

For the purposes of COB 3.13.2 R (2) and COB 3.13.4 R (1) a prominent statement is one that is:

  1. (1) made immediately after the full name;
  2. (2) alongside the full name; or
  3. (3) where the name is stated more than once, the most prominent or the first if equally prominent.
  • 01/12/2001

COB 3.14

The internet and other electronic media

  • 01/12/2004

COB 3.14.1

handbook-guidance
This section contains guidance on the use of the internet and other electronic media to communicate financial promotions. Firms are also referred to the guidance in COB 1.8 (Application to electronic media).
  • 01/12/2001

Approach and general guidance

COB 3.14.2

handbook-guidance
Any material which meets the definition of a financial promotion, including any video or moving image material incorporated in any website containing a financial promotion, should comply with the rules in this chapter. See AUTH App 1.22 (The Internet) for further guidance on financial promotions on the internet, including the treatment of hyperlinks and banners.

COB 3.14.3

handbook-guidance

As indicated in COB 3.5.4 G for the purposes of the financial promotion rules, there are two types of approach to financial promotions communicated via the internet and other electronic media:

  1. (1) real time financial promotions where the communication is in the form, for example, of a telephone conversation or other form of interactive dialogue; and
  2. (2) non-real time financial promotions, where the recipient may, for example, choose from reading a description of an investment or service, through to the completion of a contract via a direct offer financial promotion in a similar way to browsing through a leaflet rack. The rules in this chapter relating to hard copy financial promotions such as advertisements in magazines or newspapers apply equally to such promotions.

E-mails, material displayed on a website and sound and television broadcasts are non-real time financial promotions (see COB 3.5.5 R).

  • 01/12/2001

COB 3.14.4

handbook-guidance
  1. (1) Before using the internet, digital or any other form of interactive television or other electronic media to promote its services a firm should refer to legislation such as the Data Protection Act 1998 and the Computer Misuse Act 1990, as well as to this chapter.
  2. (2) When designing websites and other electronic media, firms should be aware of the difficulties that can arise when reproducing certain colours and printing certain types of text. These difficulties could cause problems with the presentation and retrieval of required information. Any financial promotion communicated by the internet, digital or other forms of interactive television is subject to the requirements set out in COB 3.6 to COB 3.9 as applicable.
  • 01/12/2001

Specific guidance

COB 3.14.5

handbook-guidance
  1. (1) Key features, initial disclosure document and written contractual terms
    1. (a) To meet the requirements of COB 3.9.10 R, a firm should make it clear that the information is available to a recipient of the direct offer financial promotion, and easily obtainable, before any application is made.
    2. (b) It is important that recipients should have the opportunity to view the full text of the relevant key features, initial disclosure document, terms and conditions, customer agreement and any other applicable risk information required by the rules.
    3. (c) This can be achieved through the use of a hypertext link, as long as it is not hidden away in the body of the text where a recipient could miss it when browsing through the pages.
    4. (d) Local printing of information by the user should be allowed, where feasible. Firms should endeavour to provide hard copy on request.
  2. (2) Application forms
    1. (a) It is not necessary for access to an application form to be denied until the recipient has read key features and other contractual terms, but firms should ensure that on the application form, or in the preceding text, they draw attention to the existence of this material and the importance of reading it, as relevant business will be conducted on the basis of the key features and written contractual terms.
    2. (b) A financial promotion may be a direct offer financial promotion even if the firm is unable to provide a copy of the application form electronically.
  3. (3) Exemptions COB 3.2.3A R (Application: what?: Exemptions) and COB 3.3.1 R (Territorial scope) contain exemptions from this chapter which depend on a particular financial promotion being made or directed only at certain persons. COB 3.5.6 R sets out the meaning of "made" and "directed at" in this context. COB 3.5.7 R and COB 3.3.6 R (respectively) set out various conditions relevant for determining whether a financial promotion will be regarded as directed only at such persons.
  4. (4) Unregulated collective investment schemes A firm which communicates an invitation or inducement to participate in an unregulated collective investment scheme by means of a website it may take advantage of the exemptions in COB 3 Annex 5 R. But if it does so, it must in accordance with that annex design the website to reduce, as far as possible, the risk of participation by persons to whom the invitation or inducement may not be promoted (as described in COB 3.11). COB 3.5.7 R sets out various conditions relevant for determining whether that test is satisfied.
  5. (5) The FSA website The FSA's website http://www.fsa.gov.uk contains a wide range of information including pages of specific relevance to customers. Firms may, if they wish, include a reference or hyperlink to the FSA's site; this will not however, replace any requirements of the financial promotion rules.
  6. (6) Record-keeping: continuously updated market information COB 3.7.1 R requires a firm to make and retain an adequate record of a non-real time financial promotion. If the non-real time financial promotion includes market information that is updated continuously in line with the relevant market, the record will be adequate without recording that information. But see COB 7.12.9 G and COB 7.12.10 G (Orders received over the Internet) regarding giving a customer access to such information in conjunction with the ability to place a customer order by relying on such information.

COB 3 Annex 1

An overview of some of the main exemptions contained in the Financial Promotion Order

  • 01/12/2004

handbook-guidance

COB 3 Annex 2

Contents of Enterprise Investment Scheme particulars (R)

  • 01/12/2004

handbook-rule
This annex forms part of COB 3.9.26 R (1) .
  • 01/12/2001

COB 3 Annex 3

Additional contents of Enterprise Investment Scheme particulars (Private Offer of Enterprise Investment Scheme Shares) (R)

  • 01/12/2004

handbook-rule
This annex forms part of COB 3.9.28 R.
  • 01/12/2001

COB 3 Annex 4

Additional guidance on particular types of financial promotion

  • 01/12/2004

handbook-guidance
This annex forms part of COB 3.8.9 G (5) and COB 3.9.14 G. More than one table may be relevant to any one financial promotion.