COB 1
General
application
COB 1.1
Application and Purpose
- 01/12/2004
Application
COB 1.1.1
See Notes
- 01/12/2001
Purpose
COB 1.1.2
See Notes
- 01/12/2001
COB 1.2
General application: who?
- 01/12/2004
COB 1.2.1
See Notes
COB applies to every firm in respect of the activities set out in COB 1.3.1 R, except that:
- (1) [deleted]
- (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;
- (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;
- (3) COB does not apply to an ICVC;
- (4) COB does not apply to an authorised professional firm with respect to its non-mainstream regulated activities except for:
- (a) COB 2.1 (Clear, fair and not misleading communication);
- (b) COB 3 (Financial promotion); and
- (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
- (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:
- (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;
- (ii) those rules have been approved by the FSA under section 332(5) of the Act; and
- (iii) the firm is subject to the rules in the form in which they were approved;
- 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.
- 14/01/2005
COB 1.2.1A
See Notes
- 14/01/2005
COB 1.2.1B
See Notes
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:
- (a) the IMD minimum implementation provisions; and
- (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.
- 01/12/2004
COB 1.2.2
See Notes
- 01/12/2001
COB 1.2.3
See Notes
- 01/12/2001
COB 1.2.4
See Notes
- 01/12/2001
COB 1.2.5
See Notes
Authorised professional firms should be aware of the following:
- (1) PROF 5 (Non-mainstream regulated activities);
- (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) COB 4.2.3 G which contains guidance for authorised professional firms on the provision of terms of business.
- 09/10/2004
COB 1.3
General application: what?
- 01/12/2004
COB 1.3.1
See Notes
COB applies to firms with respect to the carrying on of:
- (1) all regulated activities except:
- (a) regulated mortgage activities; or
- (b) to the extent that a provision of COB provides for a narrower application; or;
- (c) insurance mediation activities in connection with non-investment insurance contracts; and
- (2) unregulated activities to the extent specified in any provision of COB.
- 14/01/2005
COB 1.3.2
See Notes
- (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) 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) 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) 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) COB 3 (Financial promotion) applies to a firm which communicates or approves a financial promotion, but see (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) MCOB applies to a firm that carries on regulated mortgage activity.
- (8) ICOB applies to a firm in relation to insurance mediation activities in connection with non-investment insurance contracts.
- 14/01/2005
Application for private customers, intermediate customers, market counterparties and retail customers
COB 1.3.3
See Notes
- (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) [deleted]
- (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
See Notes
Only the following provisions of COB apply with respect to the carrying on of inter-professional business:
- (1) this chapter;
- (2) COB 2.4 (Chinese walls);
- (3) COB 4.1 (Client classification);
- (3A) COB 5.5 (Information about the firm), except COB 5.5.1 R - COB 5.5.8 G;
- (4) COB 7.13 (Personal account dealing).
- 01/12/2004
COB 1.3.5
See Notes
Firms are reminded that the definition of inter-professional business does not include:
- (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) [deleted]
- (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) corporate finance business;
- (5) concluding a distance contract with a retail customer; or
- (6) regulated activities relating to life policies.
- 01/12/2004
COB 1.4
General Application: where?
- 01/12/2004
COB 1.4.1
See Notes
- 01/03/2003
UK establishments: general
COB 1.4.2
See Notes
- 01/03/2003
Business with UK clients from non-UK offices
COB 1.4.3
See Notes
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) 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) 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:
- (a) the firm carries on the activity from an establishment maintained by the firm in an EEA State other than the United Kingdom;
- (b) either that EEA State:
- (i) has implemented the DMD; or
- (ii) has obligations in its domestic law corresponding to those provided for by the DMD;
- 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
- (c) the firm is a national of an EEA State or a company or firm mentioned in article 48 of the Treaty.
- 09/10/2004
COB 1.4.4
See Notes
- 01/03/2003
Financial promotions
COB 1.4.5
See Notes
- 01/03/2003
ISD investment firms: compensation information
COB 1.4.6
See Notes
- 01/03/2003
Life policies
COB 1.4.7
See Notes
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) COB 6.3 (Post-sale confirmation: life policies);
- (2) COB 6.9 (With-profits guides); and
- (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.
- 14/01/2005
Electronic commerce activities and communications
COB 1.4.10
See Notes
- 01/03/2003
- 01/03/2003
IMD passported activities
COB 1.4.12
See Notes
- (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) 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) 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) The IMD minimum implementation provisions apply to an activity pursuant to this rule as follows:
- (a) as outlined in the IMD minimum implementation provisions; and
- (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.
- 01/12/2004
COB 1.4.13
See Notes
- (1) The IMD minimum implementation provisions are the minimum provisions required for the implementation of articles 12 and 13 of the IMD.
- (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) 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
See Notes
In the case of OPS activity undertaken by an OPS firm, COB applies with the following general modifications:
- (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) 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
See Notes
- 01/12/2001
COB 1.6.2
See Notes
Provisions of COB applied to stock lending activity
This table belongs to COB 1.6.1 R
COB | Subject |
Chapter 1 | Application and general provisions |
2.1 | Clear, fair and not misleading communication |
2.2 | Inducements and soft commission |
2.3 | Reliance on others |
2.4 | Chinese walls |
2.5 | Exclusion of liability |
2.6 | General provisions related to distance marketing, but only in relation to distance contracts concluded with retail customers |
4.1 | Client classification |
4.2 | Terms of business and client agreements with customers |
5.3 | Suitability |
5.4 | Customers' understanding of risk |
5.5 | Information about the firm |
5.7 | Disclosure of charges, remuneration and commission |
6.7 | Cancellation and withdrawal, but only in relation to distance contracts concluded with retail customers |
7.1 | Conflict of interest and material interest |
7.7 | Aggregation and allocation |
7.8 | Realisation of a private customer's assets |
7.9 | Lending to private customers |
7.12 | Customer order and execution records |
7.13 | Personal account dealing |
8.1 | Confirmation of transactions |
[deleted] | [deleted] |
- 01/12/2004
Corporate finance business
COB 1.6.3
See Notes
- 01/12/2001
COB 1.6.4
See Notes
Provisions of COB applied to corporate finance business
This table belongs to COB 1.6.3 R
COB | Subject |
Chapter 1 | Application and general provisions |
2.1 | Clear, fair and not misleading communication |
2.2 | Inducements and soft commission |
2.3 | Reliance on others |
2.4 | Chinese walls |
2.5 | Exclusion of liability |
2.6 | General provisions related to distance marketing, but only in relation to distance contracts concluded with retail customers |
Chapter 3 | Financial promotion, except COB 3.8.6 G - and COB 3.9 |
4.1 | Client classification |
5.3 | Suitability |
5.4 | Customers' understanding of risk |
5.5 | Information about the firm, except COB 5.5.1 R - COB 5.5.8 G |
5.10 | Corporate finance business issues |
6.4.25 | Entering into a person to accept deposits, but (a) as if corporate finance business was accepting deposits and (b) only in relation to distance contracts concluded with retail customers |
6.7 | Cancellation and withdrawal, but only in relation to distance contracts concluded with retail customers |
7.1 | Conflict of interest and material interest |
7.12 | Customer order and execution records |
7.13 | Personal account dealing |
7.16 | Investment research |
[deleted] | [deleted] |
- 01/12/2004
COB 1.6.5
See Notes
- 01/12/2001
COB 1.6.5A
See Notes
- 01/12/2004
Oil market activity and energy market activity
COB 1.6.6
See Notes
Only the provisions of COB listed in COB 1.6.7 R apply in respect of:
- (1) oil market activity; and
- (2) other energy market activity;
- 01/12/2001
COB 1.6.7
See Notes
Provisions applied to oil market activity and energy market activity
This table belongs to COB 1.6.6 R
COB | Subject |
Chapter 1 | Application and general provisions |
2.1 | Clear, fair and not misleading |
2.3 | Reliance on and responsibility for others |
2.4 | Chinese walls |
2.5 | Exclusion of liability |
Chapter 3 | Financial promotion |
4.1 | Client classification |
7.1 | Conflict of interest and material interest |
7.3 | Dealing ahead |
7.15 | Non-market-price transactions |
8.1 | Confirmation of transactions |
[deleted] | [deleted] |
- 01/12/2004
COB 1.6.8
See Notes
Despite COB 1.6.6 R, only the provisions of COB listed in COB 1.6.9 R apply to:
- (1) oil market activity; or
- (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) article 16 of the Regulated Activities Order (Dealing in contractually based investments); or
- (4) article 22 of the Regulated Activities Order (Deals with or through authorised persons etc.).
- 20/09/2001
COB 1.6.9
See Notes
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 | Subject |
Chapter 1 | Application and general provisions |
2.3 | Reliance on and responsibility for others |
2.4 | Chinese walls |
2.5 | Exclusion of liability |
3.11 | Unregulated collective investment schemes |
7.15 | Non-market-price transactions |
[deleted] | [deleted] |
- 01/12/2004
COB 1.6.10
See Notes
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) with or through an authorised person or, in certain cases, an exempt person; or
- (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
See Notes
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) the transaction is entered into on advice given to the client by an authorised person; or
- (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
See Notes
- 01/04/2004
COB 1.7
Appointed representatives
- 01/12/2004
COB 1.7.1
See Notes
- (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) 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
See Notes
- 01/12/2001
Additional guidance in respect of electronic communication with or for customers
COB 1.8.2
See Notes
For any electronic communication with a customer, a firm should:
- (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) be able to demonstrate that the customer wishes to communicate using this form of media; and
- (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
See Notes
- 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
See Notes
- (1) COB 1.9.1 G and COB 1.9.2 G apply to a firm:
- (a) which is an electronic commerce activity provider, that is, any firm which carries on an electronic commerce activity; and
- (b) in relation to a financial promotion which is an electronic commerce communication.
- (2) Paragraph (1) means that firms need to be aware of this section whenever they are providing a service which:
- (a) is normally provided for remuneration;
- (b) is provided at a distance;
- (c) is so provided by means of electronic equipment for the processing (including digital compression) and storage of data; and
- (d) is so provided at the individual request of a recipient of the service.
- (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
See Notes
The modifications made to COB resulting from the introduction of the E-Commerce Directive are of three kinds:
- (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) ECO 2:
- (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;
- (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
- (c) relieves such a firm of the obligations covered by the derogations in ECO 1.
- otherwise COB applies in the usual way to such a firm.
- (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
See Notes
- 09/10/2004
COB 1.10
Application of the Distance Marketing Directive and the Distance Marketing Regulations
- 01/12/2004
COB 1.10.1
See Notes
- 09/10/2004
Initial service agreement and successive operations
COB 1.10.2
See Notes
This sourcebook adopts the concepts of "initial service agreement" and "successive operations" from the DMD.
- (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:
- (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
- (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.
- Other examples are, in the FSA's view:
- (c) opening a brokerage account for the purposes of trading securities, and transactions under that account;
- (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;
- (e) subscribing to an investment trust savings scheme, and successive purchases or sales of shares under that scheme; and
- (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) 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.
- 09/10/2004
Retail customer
COB 1.10.3
See Notes
- (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:
- (a) as trustee of a trust such as a housing or NHS trust; or
- (b) as member of the governing body of a club or other unincorporated association such as a trade body or a student union; or
- (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) Examples of retail customers are:
- (a) personal representatives, including executors, unless they are acting in a professional capacity, for example, a solicitor acting as executor; or
- (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
See Notes
- (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:
- (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
- (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) So, in the FSA's view, this means that:
- (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
- (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
See Notes
- 01/12/2004
Distance contracts for intermediation services
COB 1.10.6
See Notes
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) 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) the contract is a distance contract; and
- (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
See Notes
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) regulation 12 (Automatic cancellation of an attached distance contract) on which there is guidance in COB 6.7.51A G; and
- (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
See Notes
Table: Application of rules in COB in relation to deposits
COB | Subject matter | Application for cash deposit ISAs and cash deposit CTFs | Application for other deposits |
2.5.5R | Exclusion of liability | Y (distance contract only) | Y (distance contract only) |
2.6 | General provisions related to distance marketing | Y (distance marketing only) | Y (distance marketing only) |
3.5.5R to 3.5.7R, 3.8.4R to 3.8.5E | Financial promotions | Y | Y |
3.8.8R, 3.8.11R, 3.8.15R | Specific non-real time financial promotions | Y (if the financial promotion relates to a structured deposit) | Y (if the financial promotion relates to a structured deposit) |
3.9.6R(1), 3.9.7AR and 3.9.8R | Direct offer financial promotions | Y | X |
3.9.21R | Direct offer financial promotions | Y | X |
3.9.30R | Direct offer financial promotions | Y (cash deposit CTFs only) | X |
6.1.4R, 6.1.5R, 6.2.2R, 6.4.13R, 6.5.2R(2), 6.5.3R | Product disclosure | Y | X |
6.5.42R | Product disclosure | Y (cash deposit ISAs only) | X |
6.5.42AR | Product disclosure | Y (cash deposit CTFs only) | X |
6.4.25R | Pre-contract information when entering into a distance contract for accepting deposits | X | Y (distance contract only) |
6.4.27R to 6.4.31R | Exemptions for telephone sales; certain other means of distance communication; and successive operations | Y (distance contract and other telephone sales only) | Y (distance contract only) |
6.5.40R(7) | Product disclosure | Y (cash deposit CTFs only) | X |
6.7.7R(1), 6.7.17R, 6.7.18R, 6.7.21R | Cancellable contracts | X | Y (distance contract only) |
6.7.7R(3) | Cancellable contracts | Y | X |
6.7.10R(2), 6.7.10AR, 6.7.11R | Cancellation period | Y | Y (distance contract only) |
6.7.42R to 6.7.48R | Exercising the right to cancel | Y | Y (distance contract only) |
6.7.51R to 6.7.53R | Effects of, and obligations on, cancellation | Y | Y (distance contract only) |
6.7.52AR | Effects of, and obligations on, cancellation | Y (cash deposit CTFs only) | X |
Notes: |
- 01/12/2004
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
See Notes
- (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) 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
See Notes
- 01/12/2001
Clear, fair and not misleading communication
COB 2.1.3
See Notes
- 01/12/2001
COB 2.1.4
See Notes
- 01/12/2001
COB 2.1.5
See Notes
- 01/12/2004
COB 2.2
Inducements and soft commission
- 01/12/2004
Application
COB 2.2.1
See Notes
- 01/12/2001
Purpose
COB 2.2.2
See Notes
- 01/12/2004
Prohibition of inducements
COB 2.2.3
See Notes
A firm must take reasonable steps to ensure that it, and any person acting on its behalf, does not:
- (1) offer, give, solicit or accept an inducement; or
- (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
See Notes
- 01/12/2001
Investment research
COB 2.2.4A
See Notes
- 01/05/2004
Restriction in connection with packaged products
COB 2.2.5
See Notes
- (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:
- (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;
- (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;
- (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;
- (d) an arrangement to pay commission other than to the firm responsible for a sale, unless:
- (i) the firm responsible for the sale has passed on its right to receive the commission to the recipient; or
- (ii) another firm has given advice on investments to the same customer after the sale; or
- (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.
- (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.
- (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
See Notes
- (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) A product provider should not take any step which would result in it:
- (a) having a direct or indirect holding in a firm in (1) of its capital or voting power ; or
- (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);
- 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) 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) The conditions referred to in (2) and (3) are that:
- (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;
- (b) the firm (or, if applicable, each of the firms) taking the step has reliable written evidence that (a) is satisfied;
- (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
- (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) 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) 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) 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
See Notes
- (-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:
- (a) the choice of product provider whose products are recommended; or
- (b) the type of product which is recommended.
- (-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.
- (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.
- (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).
- (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.
- (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
See Notes
Reasonable indirect benefits
This Table belongs to COB 2.2.6 G.
Reasonable indirect benefits | |||
Joint marketing exercises | |||
1 | A product provider or its associate may provide generic product literature (that is, letterheading, leaflets, forms and envelopes) that is suitable for use and distribution by or on behalf of another firm if: | ||
(a) | the literature does not feature the recipient firm's name or features it less prominently than that of the product provider and is not used to promote the recipient firm's broker fund service; and | ||
(b) | the total costs (for example, packaging, posting, mailing lists) of distributing such literature to its customer are borne by the recipient firm. | ||
2 | A product provider or its associate may supply another firm with 'freepost' envelopes, for forwarding such items as completed applications, medical reports or copy client agreements , when these are made generally available to all firms from which the provider obtains business. | ||
3 | A product provider or its associate may supply product specific literature (for example, key features, minimum information, direct offer financial promotions) to another firm if: | ||
(a) | the literature is not designed to be used to promote the recipient firm's broker fund service; or | ||
(b) | the literature does not contain the name of any other firm; or | ||
(c) | the name of the recipient firm (if it is included) appears only incidentally in the literature and the supplying firm's name appears with greater prominence. | ||
4 | A product provider or its associate may supply draft articles, news items and financial promotion's for publication in another firm's magazine, only if in each case any costs paid by the product provider or its associate for placing the articles and financial promotions are not more than market rate, and exclude distribution costs. | ||
Seminars and conferences | |||
5 | A product provider or its associate may take part in a seminar organised by another firm or a third party and may pay toward the cost of the seminar, if: | ||
(a) | its participation is for a genuine business purpose; | ||
(b) | the contribution is reasonable and proportionate to its participation and by reference to the time and sessions at the seminar when its staff play an active role; and | ||
(c) | in the case of a seminar organised by a third party, the seminar is open to participation by other firms generally. | ||
Technical services and information technology | |||
6 | A product provider or its associate may supply a 'freephone' link to which it is connected only if it is available to other firms generally. | ||
7 | A product provider or its associate may supply another firm with any of the following: | ||
(a) | quotations and projections relating to its packaged products and, in relation to specific investment transactions (or for the purpose of any scheme for review of past business), advice on the completion of forms or other documents; | ||
(b) | access to data processing facilities, or access to data, that is related to the product provider's business; | ||
(c) | access to third party electronic dealing or quotation systems that are related to the product provider's business; and | ||
(d) | software that gives information about the product provider's packaged products or which is appropriate to its business (for example, for use in a scheme for review of past business or for producing projections or technical product information). | ||
7A | A product provider may pay cash amounts or give other assistance to a firm not in the same immediate group for the development of software or other computer facilities necessary to operate software supplied by the product provider, but only to the extent that by doing so it will generate equivalent cost savings to itself or consumers. | ||
8 | A product provider or its associate may supply a broker fund adviser (and its customer ) with a periodic statement relating to the relevant broker fund if the broker fund adviser is unable to supply the periodic statement. | ||
9 | A product provider or its associate may supply another firm with information about sources of mortgage finance. | ||
10 | A product provider or its associate may supply another firm with generic technical information in writing, not necessarily related to the product provider's business, when this information: | ||
(a) | is made available generally to other firms which give or might give advice on the product provider's packaged products; or | ||
(b) | (i) | is of a specialist nature and is made available to a particular class of firm (that is, one that promotes itself as an expert in the same specialist area); and | |
(ii) | states clearly and prominently that it is produced by the product provider or (if different) supplying firm. | ||
Training | |||
11 | A product provider or its associate may provide another firm with training facilities of any kind (for example, lectures, venue, written material and software) only if these are made available generally to all other firms which give or might give advice on the product provider's packaged products. | ||
Travel and accommodation expenses | |||
12 | A product provider or its associate may reimburse another firm's reasonable travel and accommodation expenses when the other firm: | ||
(a) | participates in market research conducted by or for the product provider; | ||
(b) | attends an annual national event of a UK trade association, hosted or co-hosted by the product provider; | ||
(c) | participates in the product provider's training facilities (see 11); | ||
(d) | visits the product provider's UK office in order to: | ||
(i) | receive information about the product provider's administrative systems; or | ||
(ii) | attend a meeting with the product provider and an existing or prospective customer of the receiving firm. |
- 01/12/2004
Requirements when using a soft commission agreement
COB 2.2.8
See Notes
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) 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) the broker has agreed to provide best execution to the firm;
- (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) 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) 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
See Notes
- 01/12/2001
COB 2.2.10
See Notes
- 01/12/2001
COB 2.2.11
See Notes
- 01/12/2001
Allowable benefits provided under a soft commission agreement
COB 2.2.12
See Notes
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) investment management services;
- (2) advice on dealing in, or on the value of, any designated investment;
- (3) custody services relating to designated investments belonging to, or managed for, customers; or
- (4) services relating to the valuation or performance measurement of portfolios.
- 01/12/2001
COB 2.2.13
See Notes
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) research, analysis and advisory services, including those on economic factors and trends;
- (2) market price services;
- (3) electronic trade confirmation systems;
- (4) third party electronic dealing or quotation systems;
- (5) computer hardware associated with specialised computer software or research services;
- (6) dedicated telephone lines;
- (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) 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
See Notes
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) travel, accommodation or entertainment costs, whether or not related to the conduct of designated investment business;
- (2) any seminar fees not falling within COB 2.2.13 G (7) ;
- (3) any subscription for publications not falling within COB 2.2.13 G (8);
- (4) office administrative computer software, for example, word processing or accounting programmes;
- (5) computer hardware not associated with specialist computer software;
- (6) membership fees to professional associations;
- (7) purchase or rental of standard office equipment or ancillary facilities;
- (8) employees' salaries; and
- (9) direct money payments.
- 01/12/2001
COB 2.2.15
See Notes
- 01/12/2001
Prior disclosure
COB 2.2.16
See Notes
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) the existence of the soft commission agreement; and
- (2) the firm's or, when relevant, its group's policy relating to soft commission agreements.
- 20/09/2001
COB 2.2.17
See Notes
When making the disclosures required by COB 2.2.16 R, a firm should note that:
- (1) it is acceptable to make a general disclosure that soft commission agreements are, or may be, in place;
- (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) 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
See Notes
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) 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:
- (a) the percentage paid under soft commission agreements of the total commission paid by or at the direction of:
- (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:
- (c) a summary of the goods or services received by the firm;
- (d) a list of the brokers which are parties to the soft commission agreements; and
- (e) the total commission paid from the portfolio of that customer;
- (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) 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
See Notes
A firm need not make the periodic disclosures required by COB 2.2.18 R (1) or COB 2.2.18 R (2) if:
- 01/12/2001
Record keeping
COB 2.2.20
See Notes
- (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) 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) 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.
- 01/12/2001
COB 2.3
Reliance on others
- 01/12/2004
Application
COB 2.3.1
See Notes
- 01/12/2001
Purpose
COB 2.3.2
See Notes
- 01/12/2001
Reliance on others
COB 2.3.3
See Notes
- 01/12/2001
COB 2.3.4
See Notes
- (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:
- (a) not connected with the firm; and
- (b) competent to provide the information.
- (2) Compliance with (1) may be relied on as tending to establish compliance with COB 2.3.3 R.
- (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
See Notes
A firm may generally rely on any information provided to the firm in writing by:
- (1) an unconnected authorised person; or
- (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
See Notes
- (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) 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
See Notes
- 01/12/2001
Purpose
COB 2.4.2
See Notes
- 01/12/2001
COB 2.4.3
See Notes
- 01/12/2001
Control of information
COB 2.4.4
See Notes
- (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:
- (a) withhold or not use the information held; and
- (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;
- 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.
- (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.
- (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.
- (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.
- 20/09/2001
Effect of acting in conformity with COB 2.4.4 R
COB 2.4.5
See Notes
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) 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) behaviour conforming with COB 2.4.4 R (1) does not amount to market abuse - see COB 2.4.4 R (4); and
- (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
See Notes
- 01/01/2004
COB 2.4.7
See Notes
- 01/12/2001
COB 2.5
Exclusion of liability
- 01/12/2004
Application
COB 2.5.1
See Notes
- (1) This section applies to a firm that conducts designated investment business.
- (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
See Notes
- 09/10/2004
Limits on the exclusion of liability: designated investment business
COB 2.5.3
See Notes
- 09/10/2004
COB 2.5.4
See Notes
- 09/10/2004
Limits on the exclusion of liability: distance contracts to accept deposits
COB 2.5.5
See Notes
- 09/10/2004
COB 2.6
General provisions related to distance marketing
- 01/12/2004
Application
COB 2.6.1
See Notes
This section applies to a firm which:
- (1) conducts designated investment business with or for a retail customer;
- (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
See Notes
- 09/10/2004
Unsolicited services
COB 2.6.3
See Notes
- (1) Subject to COB 2.6.3R (2), a firm must not:
- (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
- (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) 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
See Notes
- 09/10/2004
Paper copy of contractual terms and conditions
COB 2.6.5
See Notes
- 09/10/2004
Change in means of distance communication
COB 2.6.6
See Notes
- 09/10/2004
COB 3
Financial
promotion
COB 3.1
Application: who?
- 01/12/2004
Firms
COB 3.1.1
See Notes
- 01/12/2001
COB 3.1.2
See Notes
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) financial promotions for deposits, general insurance contracts, pure protection contracts, reinsurance contracts and regulated mortgage contracts;
- (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) financial promotions to persons outside the United Kingdom.
- 31/10/2003
Appointed representatives
COB 3.1.3
See Notes
- 01/12/2001
Nationals of other EEA States
COB 3.1.4
See Notes
- 01/12/2001
Authorised professional firms
COB 3.1.5
See Notes
- (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:
- (a) the firm's main business must be the practice of its profession IPRU(INV) 2.1.2R (3));
- (b) the financial promotion must be made for the purposes of and incidental to the promotion or provision by the firm of:
- (i) its professional services; or
- (ii) its non-mainstream regulated activities (see PROF 5.2); and
- (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) In (1)(b)(i), "professional services" means services:
- (a) which do not constitute a regulated activity; and
- (b) the provision of which is supervised and regulated by a designated professional body.
- 20/09/2001
COB 3.1.6
See Notes
- 01/12/2001
COB 3.2
Application: what?
- 01/12/2004
What do "communicate", "approve" and "financial promotion" mean?
COB 3.2.1
See Notes
- (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:
- (a) "communicate" is in AUTH App 1.6 (Communicate);
- (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) Guidance on the "approval" of a financial promotion is in COB 3.12.1 G (Approval of financial promotions).
- 01/06/2002
Media of communication
COB 3.2.2
See Notes
- (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) Financial promotions may be communicated, for example, by means of:
- (a) product brochures;
- (b) general advertising in magazines, newspapers, radio and television programmes and websites;
- (c) mailshots (whether distributed by post, facsimile, e-mail or other media);
- (d) telemarketing activities, such as telephone calls made by call centres;
- (e) written correspondence, telephone calls and face to face discussions including by representatives;
- (f) sales aids which themselves constitute a financial promotion;
- (g) presentations to groups of individuals;
- (h) tip-sheets; and
- (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
See Notes
- (1) To the extent that a financial promotion relates to:
- (a) a deposit; or
- (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;
- 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
- (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.
- 14/01/2005
Financial promotions for regulated mortgage contracts
COB 3.2.3A
See Notes
- 31/10/2003
Financial promotions for non-investment insurance contracts
COB 3.2.3B
See Notes
- 14/01/2005
Exemptions
COB 3.2.4
See Notes
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) if the financial promotion relates to an unregulated collective investment scheme, COB 3.11 (Unregulated collective investment schemes) applies;
- (2) (except where COB 3.2.3 R applies) if the firm approves the financial promotion, the following apply:
- (a) COB 3.1 to COB 3.5 (Application, General and Purpose).
- (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;
- (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) (except where COB 3.2.3 R applies) if the firm:
- (a) approves a specific non-real time financial promotion relating to an investment or service of an overseas person; and
- (b) the financial promotion is exempt under any of COB 3.2.5 R;
- 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
See Notes
Exemptions
This table belongs to COB 3.2.4 R
Exemptions | ||
This chapter does not apply to the following: | ||
(1) | a financial promotion to a market counterparty or an intermediate customer, that is a financial promotion which: | |
(a) | is made only to recipients who the firm has taken reasonable steps to establish are market counterparties or intermediate customers; or | |
(b) | may reasonably be regarded as directed only at recipients who are market counterparties or intermediate customers; | |
when a person is classified as an intermediate customer under COB 4.1.9 R (Expert private customer classified as intermediate customer), this exemption applies only for a financial promotion that relates to the designated investments or designated investment business for which he has been so classified; | ||
(2) | a financial promotion which can lawfully be communicated by an unauthorised person without approval; | |
(3) | a financial promotion communicated from outside the United Kingdom which would be exempt under articles 30, 31, 32 or 33 of the Financial Promotion Order (Overseas communicators) if the office from which the financial promotion is communicated were a separate unauthorised person (but see COB 5.5.7 R (Overseas business for UK private customers) and GEN 4.4 (Business for private customers from non-UK offices)); | |
(4) | a "one-off" non-real time financial promotion or a "one-off" solicited real time financial promotion; if the conditions set out in (a) to (c) are satisfied, a financial promotion is to be regarded as "one-off"; if not, the fact that any one or more of these conditions is met is to be taken into account in determining if a financial promotion is "one-off", but a financial promotion may be regarded as "one-off" even if none of the conditions are met; the conditions are that : | |
(a) | the financial promotion is communicated only to one recipient or only to one group of recipients in the expectation that they would engage in any investment activity jointly; | |
(b) | the identity of the product or service to which the financial promotion relates has been determined having regard to the particular circumstances of the recipient ; | |
(c) | the financial promotion is not part of an organised marketing campaign; | |
(5) | a financial promotion which contains only one or more of the following: | |
(a) | the name of the firm (or its appointed representative); | |
(b) | the name of an investment; | |
(c) | a contact point (address (including an e-mail address), telephone or facsimile number); | |
(d) | a logo; | |
(e) | a brief, factual description of the firm's (or its appointed representative) activities; | |
(f) | a brief, factual description of the firm's (or its appointed representative's) fees; | |
(g) | a brief, factual description of the firm's investment products; | |
(h) | the price or yields of investments and the charges; | |
(6) | a personal quotation or illustration form; | |
(7) | a financial promotion which is subject to the Takeover Code or the SARs (or exempted from complying with the Takeover Code or the SARs by that Code , those rules , or by a ruling of the Takeover Panel ) or to the requirements relating to takeovers or related operations in another EEA State; | |
(8) | a financial promotion in the form of a decision tree for a stakeholder pension scheme, provided the text, content and format of the decision tree comply with the requirements of COB 6.5.8. |
- 01/03/2003
Combination of exemptions
COB 3.2.6
See Notes
- 01/12/2001
Guidance on the exemptions
COB 3.2.7
See Notes
- (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)
- (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).
- (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) In COB 3.2.5 R:
- (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.
- (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.
- (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.
- (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) 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) 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) 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)).
- 01/04/2005
Other Handbook rules relevant to financial promotions
COB 3.2.8
See Notes
- (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) 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 or provides basic advice on a stakeholder product, rules on advising and selling in COB 5 or, as the case may be, COB 5A, apply.
- (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.
- 06/04/2005
COB 3.3
Application: where?
- 01/12/2004
Territorial scope
COB 3.3.1
See Notes
This chapter applies to a firm only in relation to:
- (1) the communication of a financial promotion to a person inside the United Kingdom;
- (2) the communication of an unsolicited real time financial promotion to a person outside the United Kingdom, unless:
- (a) it is made from a place outside the United Kingdom; and
- (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) the approval of a non-real time financial promotion for communication to a person inside the United Kingdom;
- 09/10/2004
COB 3.3.2
See Notes
- (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) 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) 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.
- 01/06/2002
Exceptions to territorial scope: rules without territorial limitation
COB 3.3.3
See Notes
The following parts of this chapter apply without any territorial limitation, subject to COB 3.3.4A R:
- (1) COB 3.11 (Unregulated collective investment schemes);
- (2) if a firm approves a financial promotion:
- (a) COB 3.1 to COB 3.5 (Application, General and Purpose);
- (b) COB 3.8.4 R (1) (Non-real time financial promotions: clear, fair and not misleading);
- (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
See Notes
- 20/09/2001
Exceptions to territorial scope: distance contracts
COB 3.3.4A
See Notes
- (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) The conditions are that:
- (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;
- (b) either that EEA State:
- (i) has implemented the DMD; or
- (ii) has obligations in its domestic law corresponding to those provided for by the DMD;
- (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
- (d) the firm is a national of an EEA State or a company or firm mentioned in article 48 of the Treaty.
- (3) The rules which continue to apply, notwithstanding this rule, are:
- (a) COB 3.8.4 R (Non-real time financial promotions: clear, fair and not misleading; comparisons; restriction of information on compensation);
- (b) COB 3.8.22 R (1) and (2) (Real time financial promotions);
- (c) COB 3.9.5 R (Prohibited types of direct offer financial promotion);
- (d) COB 3.10 (Unsolicited real time financial promotions);
- (e) COB 3.11 (Unregulated collective investment schemes and qualified investor schemes); and
- (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
See Notes
For the purposes of this chapter:
- (1) a financial promotion is communicated to a person outside the United Kingdom if it is:
- (a) made to a person who receives it outside the United Kingdom; or
- (b) directed only at persons outside the United Kingdom; and
- (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
See Notes
- (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) 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) 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) The conditions are that:
- (a) the financial promotion is accompanied by an indication that it is directed only at persons outside the United Kingdom;
- (b) the financial promotion is accompanied by an indication that it must not be acted upon by persons in the United Kingdom;
- (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;
- (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;
- (e) the financial promotion is included in:
- (i) a website, newspaper, journal, magazine or periodical publication which is principally accessed in or intended for a market outside the United Kingdom;
- (ii) a radio or television broadcast or teletext service transmitted principally for reception outside the United Kingdom.
- 01/12/2001
COB 3.4
Purpose
- 01/12/2004
COB 3.4.1
See Notes
- (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:
- (a) he is an authorised person; or
- (b) the content of the financial promotion is approved by an authorised person.
- (2) However, the Financial Promotion Order exempts from the restriction created by section 21(1) of the Act certain types of financial promotion.
- (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).
- 01/06/2002
COB 3.4.2
See Notes
- (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) This chapter amplifies, for activities within its scope:
- (a) Principle 6 (Customers' interests) which requires a firm to pay due regard to the interests of its customers and treat them fairly; and
- (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.
- 01/06/2002
COB 3.5
General
- 01/12/2004
Topics covered in this chapter
COB 3.5.1
See Notes
- 01/12/2001
COB 3.5.2
See Notes
Areas of particular relevance to types of financial promotion.
This table belongs to COB 3.5.1 G
Areas of particular relevance to types of financial promotion | |||
(1) | Provisions applying to all financial promotions | Application - who? | COB 3.1 |
Application - what? | COB 3.2 | ||
Application - where? | COB 3.3 | ||
Purpose | COB 3.4 | ||
General | COB 3.5 | ||
(2) | Provisions applying only to non-real time financial promotions | Confirmation of compliance | COB 3.6 |
Records | COB 3.7 | ||
Form and content of financial promotions: non-real time financial promotions | COB 3.8.2 R to COB 3.8.7 G | ||
Form and content of financial promotions: specific non-real time financial promotions | COB 3.8.8 R to COB 3.8.20 G | ||
(3) | Provisions applying only to real time financial promotions | Form and content of financial promotions: real time financial promotions | COB 3.8.21 G to COB 3.8.25 G |
Unsolicited real time financial promotions | COB 3.10 | ||
(4) | Provisions applying only to certain types of financial promotions | Direct offer financial promotions | COB 3.9 |
Unregulated collective investment schemes | COB 3.11 | ||
Communication and approval of financial promotions for an overseas or unauthorised person | COB 3.12 | ||
Additional requirements for financial promotions for an overseas long-term insurer | COB 3.13 | ||
The internet and other electronic media | COB 3.14 |
- 01/12/2001
Other regulations and guidelines
COB 3.5.3
See Notes
A firm communicating a financial promotion may also be subject to other regulations and guidelines, outside the remit of the FSA, such as:
- (1) the codes adopted or issued from time to time by the Advertising Standards Authority and Office of Communications (OFCOM);
- (2) regulations from any overseas regulator (where relevant) if the firm intends to market from the United Kingdom into any other country;
- (3) the POS Regulations and;
- (4) the Privacy and Electronic Communications (EC Directive) Regulations (SI 2003/2426).
- 01/05/2004
"Real time" and "non-real time" financial promotions
COB 3.5.4
See Notes
- 01/06/2002
COB 3.5.5
See Notes
- (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) 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) The following are to be regarded as indications that a financial promotion is a non-real time financial promotion:
- (a) the financial promotion is communicated to more than one person in identical terms (save for details of the recipient's identity);
- (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;
- (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
See Notes
(In accordance with article 6 of the Financial Promotion Order (Interpretation: communications)) any reference in this chapter to:
- (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) 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) 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
See Notes
- (1) This rule applies for the purposes of determining whether a communication is directed:
- (a) only at market counterparties or intermediate customers under COB 3.2.5 R; or
- (b) in a way that complies with paragraph 2(b) in COB 3 Annex 5 R.
- (2) If all the conditions set out in (4) are met, a communication is to be regarded as directed as in (1).
- (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) The conditions are that:
- (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;
- (b) the communication includes an indication that persons of any other description should not rely upon it;
- (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
See Notes
- (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) 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
See Notes
- (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) 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
See Notes
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) ceasing to communicate it;
- (2) withdrawing its approval (if applicable); and
- (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
See Notes
- (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) 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) 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
See Notes
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) 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) 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) so far as A is, or ought reasonably to be, aware:
- (a) the financial promotion has not ceased to be clear, fair and not misleading since that time; and
- (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
See Notes
- (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) A record in (1) must be retained for the following periods:
- (a) indefinitely in the case of a financial promotion relating to a pension transfer, pension opt-out or FSAVC;
- (b) six years in the case of a financial promotion relating to a life policy, pension contract or stakeholder pension scheme;
- (c) three years in any other case.
- 01/12/2001
Content of records
COB 3.7.2
See Notes
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) the name of the individual or individuals who confirmed that the financial promotion complied with the rules in this chapter;
- (2) the date of confirmation and (where appropriate) approval;
- (3) details of the medium for which the financial promotion was authorised;
- (4) the evidence supporting any material factual statement about an investment matter in the financial promotion.
- 01/12/2001
COB 3.7.3
See Notes
- (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) Records which should be retained include:
- (a) any written financial promotion used by a representative;
- (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) 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
See Notes
- 01/12/2001
COB 3.7.5
See Notes
- 01/09/2003
COB 3.8
Form and content of financial promotions
- 01/12/2004
Application
COB 3.8.1
See Notes
This section applies as follows:
- (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) COB 3.8.21 G to COB 3.8.25 G apply to a firm which communicates a real time financial promotion.
- 01/12/2001
Non-real time financial promotions: name and contact point
COB 3.8.2
See Notes
- 01/11/2002
COB 3.8.3
See Notes
- (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) 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) 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
See Notes
- (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) A non-real time financial promotion which includes a comparison or contrast must:
- (a) compare investments or services meeting the same needs or which are intended for the same purpose;
- (b) objectively compare one or more material, relevant, verifiable and representative features of those investments or services, which may include price;
- (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;
- (d) not discredit or denigrate the trademarks, trade names, other distinguishing marks, investments, services, activities or circumstances of a competitor;
- (e) not take unfair advantage of the reputation of a trademark, trade name or other distinguishing marks of a competitor;
- (f) not present investments or services as imitations or replicas of investments or services bearing a protected trademark or trade name; and
- (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) 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
See Notes
- (1) A firm should take reasonable steps to ensure that, for a non-real time financial promotion:
- (a) its promotional purpose is not in any way disguised or misrepresented;
- (b) any statement of fact, promise or prediction is clear, fair and not misleading and discloses any relevant assumptions;
- (c) any statement of opinion is honestly held and, unless consent is impracticable, given with the consent of the person concerned;
- (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.
- (e) it does not contain any false indications, in particular as to:
- (i) the firm's independence;
- (ii) the firm's resources and scale of activities; or
- (iii) the scarcity of any investment or service;
- (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;
- (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));
- (h) it does not omit any matters the omission of which causes the financial promotion not to be clear, fair and not misleading; and
- (i) the accuracy of all material statements of fact in it can be substantiated.
- (2)
- (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).
- (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
See Notes
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) (for deposits) the British Bankers' Association/Building Societies Association Code of Conduct for the Advertising of Interest Bearing Accounts;
- (2) [deleted]
- (3) (for pure protection contracts which are long-term care insurance contracts) the ABI Life Insurance (Non-Investment Business) Selling Code of Practice.
- 14/01/2005
Non-real time financial promotions: guidance on clear, fair and not misleading
COB 3.8.7
See Notes
- (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)
- (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.
- (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".
- (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) 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:
- (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;
- (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);
- (c) a statement of the amount of authorised share capital of a company without the amount of the issued share capital;
- (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;
- (e) an implication that the assets of a whole group can be drawn on by a subsidiary when this is not the case;
- (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) In relation to quotations of opinion:
- (a) where only part of an opinion is quoted, it should nevertheless be a fair representation;
- (b) any connection between the holder of the opinion and the firm should be made clear.
- (5) Firms should note that the "return" on an investment is the gain or profit; it does not include the original capital invested.
- (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.
- 01/06/2004
Specific non-real time financial promotions: general requirements
COB 3.8.8
See Notes
A specific non-real time financial promotion must;
- (1) include a fair and adequate description of:
- (a) the nature of the investment or service;
- (b) the commitment required;
- (c) the risks involved; and
- (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
See Notes
- (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) 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) In giving a fair and adequate explanation of the investment or service being promoted firms should avoid:
- (a) accentuating the potential benefits of an investment without also giving a fair indication of the risks;
- (b) failing to describe any benefits under a life policy which are not fixed;
- (c) drawing attention to favourable tax treatment without stating that this might not continue in the future; and
- (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.
- (e) using prominent headline rates of return where these rates are unrealistic and unlikely to be obtained by most investors.
- (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) 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) 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:
- (a) the securities are
- (i) listed in the United Kingdom under Chapter 21 of the listing rules (Investment entities); or
- (ii) issued by an investment trust and listed in an EEA State other than the United Kingdom;
- (b) the issuer of the securities in (a):
- (i) uses or proposes to use gearing as an investment strategy; or
- (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
- (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) In giving a fair and adequate explanation of the risk involved, firms should, where relevent:
- (a) have regard to the provisions in COB 5.4.12 E and COB 5.4.13 G; and
- (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) 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.
- 01/01/2004
Specific non-real time financial promotions: non-packaged products
COB 3.8.10
See Notes
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) has or may have a position or holding in the investment concerned or in a related investment; or
- (2) has or may have a material interest in any investment concerned, and the nature and extent of that interest; or
- (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) 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
See Notes
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) suitable text which states unambiguously, and without reservation, that past performance should not be seen as an indication of future performance:
- (a) that is specifically designed for the type of financial promotion concerned and its target audience; and
- (b) which is presented legibly in the main text of the financial promotion; and
- (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
See Notes
- (1) The purpose of COB 3.8.11 R is to:
- (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
- (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) 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:
- (a) an unfair comparison with the performance of another type of investment;
- (b) the selection of an inappropriate or irrelevant investment period;
- (c) the selection of an unreasonably short time period;
- (d) the selection of inconsistent time periods for a range of funds;
- (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) 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) 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) 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:
- (a) the period of time to which the past performance information relates;
- (b) where relevant, the fact that this information may not be current; and
- (c) if (b) applies, an explanation of where up-to-date past performance information may be found.
- (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) 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) 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
See Notes
- (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:
- (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
- (b) in the case of a packaged product which is not within (a) that:
- (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
- (ii) has a fixed term, the performance over the whole period of the product term;
- 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).
- (2) The information included in accordance with COB 3.8.13 R (1) should be no less prominent than any other past performance information.
- (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).
- (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.
- (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).
- 01/06/2004
COB 3.8.13A
See Notes
Specimen table of disclosure of discrete past performance.
This table belongs to COB 3.8.13 R.
Percentage growth | |||||
[Fund name] | Quarter/Year - Quarter/Year pgr% | Quarter/Year - Quarter/Year pgr% | Quarter/Year - Quarter/Year pgr% | Quarter/Year - Quarter/Year pgr% | Quarter/Year - Quarter/Year pgr% |
Notes: 1. The table must show performance information for five (or if performance information for fewer than five is available, all) complete 12-month periods, the most recent of which ends with the last full quarter preceding the date on which the firm confirms compliance with the rules in this chapter under COB 3.6.1 R. 2. For products with performance data for less than five 12-month periods, firms should clearly indicate that performance data does not exist for the relevant periods. 3. No allowance must be made for tax recoveries on income for pension contracts, individual savings accounts or PEPs. 4. pgr is the percentage growth rate for the year, where: pgr = ((P1 - P0)/PO)*100 and rounded to the nearest 0.1%, with exact 0.05% rounded to the nearest even 0.1%; and where P0 is the price at the start of the 12-month period and P1 is the price on the same day in the following 12-month period. 5. The prices must allow for any net distributions to be reinvested. 6. The price at P1 must be adjusted for any charges since the date of P0 which are based on a proportion of the fund and are levied by the cancellation of units. |
- 01/06/2004
COB 3.8.14
See Notes
- (1) The information required by COB 3.8.13 R (1)(b) should be given on:
- (a) an offer to bid basis (which should be stated) where there is an actual return or comparison of performance with other investments; or
- (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
- (c) a single pricing basis with allowance for charges.
- (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) 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
See Notes
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) it constitutes a projection illustrating the possible future value of an investment contract or fund; or
- (2) similar returns will be achieved in the future.
- 01/06/2004
COB 3.8.16
See Notes
In determining whether COB 3.8.15 R has been satisfied, the FSA will take into account:
- (1) the way in which the information about past performance has been presented;
- (2) how it is positioned in the financial promotion; and
- (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
See Notes
- 01/12/2001
Specific non-real time financial promotions: projections for EIS shares
COB 3.8.18
See Notes
- 01/12/2001
Specific non-real time financial promotions: packaged products
COB 3.8.19
See Notes
- (1) A firm must not communicate or approve a specific non-real time financial promotion containing or offering advice on packaged products, or providing basic advice on a stakeholder product, 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:
- (a) the whole market (or from the whole of a named sector of the market); or
- (b) a limited number of product providers; or
- (c) a single product provider.
- (2) A firm must not communicate or approve a specific non-real time financial promotion offering packaged products or stakeholder products produced by a person, A:
- (a) that holds out any person other than A as the packaged product producer; or
- (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
- (c) in which the prominence of A's brand is less than that of other brands included in the promotion.
- 06/04/2005
COB 3.8.20
See Notes
- 01/12/2001
Real time financial promotions
COB 3.8.21
See Notes
- 01/09/2002
COB 3.8.22
See Notes
A firm must take reasonable steps to ensure that an individual who makes a real time financial promotion on the firm's behalf:
- (1) does so in a way which is clear, fair and not misleading;
- (2) does not make any untrue claims;
- (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) if the time and method of communication were not previously agreed by the recipient:
- (a) checks that the recipient wishes him to proceed;
- (b) terminates the communication if the recipient does not wish him to proceed (but may ask for another appointment);
- (c) recognises and respects, promptly, the right of the recipient to:
- (i) end the communication at any time; and
- (ii) refuse any request for another appointment;
- (5) gives any recipient with whom he arranges an appointment a contact point;
- (6) does not communicate with a person:
- (a) at an unsocial hour, unless the person has previously agreed to such a communication;
- (b) on an unlisted telephone number, unless the person has previously agreed to such calls on that number;
- (7) if applicable, acts in conformity with the rules in COB 4.3 (Disclosing information about services, fees and commission - packaged products), COB 5A.1 (Providing basic advice on Stakeholder Products) and COB 5.1 (Advising on packaged products).
- 06/04/2005
COB 3.8.23
See Notes
- 01/12/2001
COB 3.8.24
See Notes
The requirements of COB 3.8.22 R:
- (1) apply in respect of all individuals who initiate the communication, including representatives, call centre operators and introducers;
- (2) apply to all forms of real time financial promotion, including face to face and telephone financial promotion;
- (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
See Notes
- 01/12/2001
COB 3.9
Direct offer financial promotions
- 01/12/2004
Application
COB 3.9.1
See Notes
- 01/12/2001
COB 3.9.2
See Notes
- (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) COB 3.8.2 R to COB 3.8.20 G also apply to direct offer financial promotions.
- (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
See Notes
Location of the provisions applicable to direct offer financial promotions
This table belongs to COB 3.9.2 G
(1) | Exemptions for deposits, pure protection contracts which are long-term insurance contracts and reinsurance contracts | COB 3.9.4 G | |
(2) | Prohibited types of direct offer financial promotions | COB 3.9.5 R | |
(3) | Direct offer financial promotions: general requirements | COB 3.9.6 R | |
(3A) | Contractual terms and conditions for distance contracts | COB 3.9.7A R | |
(4) | Cash deposit ISAs | COB 3.9.8 R | |
(5) | Electronic media | COB 3.9.9 G | |
(6) | Packaged products | COB 3.9.10 R to COB 3.9.11 G | |
(7) | Execution-only dealing service | COB 3.9.12 R to COB 3.9.13 G | |
(8) | Potential problem areas | COB 3.9.14 G | |
(9) | Information to be contained in direct offer financial promotions regarding: | COB 3.9.14 G | |
(a) | investments which can fluctuate in value | COB 3.9.15 R | |
(b) | life policies | COB 3.9.18 R | |
(c) | taxation | COB 3.9.19 R to COB 3.9.20 R | |
(d) | EIS or non-packaged products, ISAs or PEPs with no right of withdrawal | COB 3.9.21 R | |
(e) | charges for regulated collective investment schemes | COB 3.9.23 R | |
(f) | penny shares | COB 3.9.24 R | |
(g) | branded funds | COB 3.9.25 R | |
(h) | Enterprise Investment Schemes | COB 3.9.26 R to COB 3.9.28 R | |
(i) | income withdrawals | COB 3.9.29 R | |
(j) | structured capital-at-risk products | COB 3.9.31 R | |
(k) | CTFs | COB 3.9.8 R COB 3.9.30 R |
- 14/01/2005
Exemptions
COB 3.9.4
See Notes
Firms are reminded that under COB 3.2.3 R:
- (1) COB 3.9 does not apply to a direct offer financial promotion relating to:
- (a) a deposit (except a cash deposit ISA or cash deposit CTF); or
- (b) a pure protection contract which is a long-term care insurance contract or reinsurance contracts; and
- (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.
- 14/01/2005
Prohibited types of direct offer financial promotion
COB 3.9.5
See Notes
- (1) A direct offer financial promotion must not relate to a broker fund.
- (2) A direct offer financial promotion must not relate to:
- (a) a derivative; or
- (b) a warrant;
- 15/11/2001
Direct offer financial promotions: general requirements
COB 3.9.6
See Notes
- (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) In particular, a direct offer financial promotion must contain:
- (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);
- (b) where it is the case that no advice on investments has been given, a prominent statement that:
- (i) no advice on investments has been given; and
- (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).
- (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;
- (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
See Notes
- (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) Exemption: means of distance communication
- 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.
- (3) Exemption: successive or separate operations under an initial service agreement
- 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)).
- (4) Exemption: other successive or separate operations
- This exemption applies if:
- (a) the firm has no initial service agreement with the retail customer;
- (b) the firm has performed an operation with the retail customer within the last year; and
- (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
See Notes
- 09/10/2004
Electronic media
COB 3.9.9
See Notes
- 01/12/2001
Packaged products
COB 3.9.10
See Notes
- 09/10/2004
COB 3.9.11
See Notes
- 01/12/2001
Execution-only dealing services
COB 3.9.12
See Notes
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) 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) 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
See Notes
- 01/12/2001
Potential problem areas for direct offer financial promotions.
COB 3.9.14
See Notes
- 01/12/2001
Investments which can fluctuate in value
COB 3.9.15
See Notes
- (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) 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
See Notes
- 01/12/2001
COB 3.9.17
See Notes
Examples of explanations which could meet COB 3.9.15 R are:
- (1) 'You are not certain to make a profit; you may lose money/make a loss';
- (2) 'You may not get back the full amount of your investment';
- (3) (for investment income): 'The income is not fixed - it can go up or down';
- (4) (for contingent liabilities): 'You could lose all the money you invested and you may have to pay more later';
- (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) (for property funds):
- (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';
- (b) 'The value of property is generally a matter of a valuer's opinion rather than fact';
- (7) (for an Enterprise Investment Scheme):
- (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';
- (b) 'These are unquoted securities which may have more risks than quoted securities or shares';
- (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';
- (d) 'Proper information for working out the current value of investments may not be available';
- (8) (for property enterprise trusts and Enterprise Zone Property Unit Trusts):
- (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';
- (b) 'There is no established market in this investment';
- (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';
- (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) (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) (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) (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) (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) (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) (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) (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
See Notes
A direct offer financial promotion which relates to a life policy must state:
- (1) which benefits (if any) are fixed amounts, and what those amounts are; and
- (2) which benefits are not fixed amounts.
- 01/12/2001
COB 3.9.18A
See Notes
- 01/12/2004
Taxation
COB 3.9.19
See Notes
- 01/12/2001
COB 3.9.20
See Notes
A firm must include in a direct offer financial promotion:
- (1) a warning that taxation levels, bases and (if relevant) reliefs can change;
- (2) the assumed rate of taxation;
- (3) (where taxation reliefs are mentioned) statements:
- (a) distinguishing between reliefs which apply directly to investors and anyone else;
- (b) that the reliefs are the ones which currently apply; and
- (c) that the value depends upon the circumstances of the investor; and
- (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
See Notes
- 09/10/2004
Charges for regulated collective investment schemes
COB 3.9.23
See Notes
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) whether all or part of the scheme expenses will be taken out of capital or income; and
- (2) the likely long-term effect on capital or income.
- 01/12/2001
Penny shares
COB 3.9.24
See Notes
- 01/12/2001
Branded funds
COB 3.9.25
See Notes
- 01/12/2001
Enterprise Investment Schemes
COB 3.9.26
See Notes
A direct offer financial promotion relating to an Enterprise Investment Scheme must contain:
- (1) the information specified in COB 3 Annex 2 R;
- (2)
- (a) either a copy of the prospectus; or
- (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) 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) a prominent explanation of any right to withdraw (under COB 6.7) or, where it is the case, that such rights will not apply.
- 01/12/2001
COB 3.9.27
See Notes
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) assets and liabilities;
- (2) financial position;
- (3) profits and losses;
- (4) prospects; and
- (5) rights attaching to the EIS shares.
- 01/09/2003
COB 3.9.28
See Notes
- 01/12/2001
Income withdrawal
COB 3.9.29
See Notes
A direct offer financial promotion relating to, or offering a facility for, income withdrawals must include the following explanations:
- (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) the investment returns may be less than those shown in the illustrations;
- (3) annuity rates may be at a worse level when annuity purchase eventually takes place; and
- (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.
- 01/12/2001
Child trust funds
COB 3.9.30
See Notes
- 01/12/2004
Structured capital at risk products
COB 3.9.31
See Notes
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) an explanation of the types of capital-at-risk products generally available and how they would typically work;
- (2) an explanation of the risks associated with investing in these capital-at-risk products;
- (3) details of the key issues that consumers should consider before investing in a capital-at-risk product; and
- (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
See Notes
- (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:
- (a) reference to the different risk profiles of generally available capital-at-risk products when compared with capital secure products such as deposits;
- (b) reference to the fact that, because of the risk to capital, capital-at-risk products should only form part of an investment portfolio;
- (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
- (d) contact details for the FSA's consumer helpline and website.
- (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) 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
See Notes
- (1) An unsolicited real time financial promotion is a real time financial promotion which is not solicited as described in (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:
- (a) was initiated by the recipient of the financial promotion; or
- (b) takes place in response to an express request from the recipient of the financial promotion;
- 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.
- (3) In (2), a person is not to be treated as expressly requesting a call, visit or dialogue:
- (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;
- (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.
- (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
See Notes
- 01/06/2002
Restriction of unsolicited real time financial promotions
COB 3.10.3
See Notes
A firm must not make an unsolicited real time financial promotion unless:
- (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) the financial promotion relates to a generally marketable packaged product which is not:
- (a) a higher volatility fund; or
- (b) a life policy with a link (including a potential link) to a higher volatility fund; or
- (3) the financial promotion:
- (a) relates to a controlled activity to be carried on by an authorised person or exempt person; and
- (b) the only controlled investments involved or which reasonably could be involved are:
- (i) readily realisable securities (other than warrants); and
- (ii) generally marketable non-geared packaged products.
- 01/12/2001
COB 3.10.4
See Notes
- 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
See Notes
- (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) 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) 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) 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) 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).
- 01/03/2003
Exemptions from the scheme promotion restriction
COB 3.11.2
See Notes
- 01/12/2001
COB 3.11.3
See Notes
- (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:
- (a) the communication falls within COB 3 Annex 5 R; or
- (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) 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
See Notes
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) the communication is permitted by COB 3.11.2 R;
- (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) 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
See Notes
- 01/03/2003
Promotion of qualified investor schemes
COB 3.11.6
See Notes
A firm may communicate or approve an invitation or inducement to participate in a qualified investor scheme only if:
- (1) the communication falls within COB 3 Annex 5 R; or
- (2) the communication is exempt under the Financial Promotion Order (see COB 3 Annex 1 G).
- 01/04/2004
COB 3.11.7
See Notes
- 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
See Notes
- (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) 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:
- (a) if COB 3.6.1 R applies, confirm that the financial promotion complies with the rules in this chapter; and
- (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) 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) 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)).
- 01/06/2002
No approval of real time financial promotions
COB 3.12.2
See Notes
- 01/12/2001
Approval of financial promotions when not all the rules apply
COB 3.12.3
See Notes
- 01/12/2001
COB 3.12.4
See Notes
- 01/12/2001
COB 3.12.5
See Notes
- 01/12/2001
Specific non-real time financial promotions for overseas persons
COB 3.12.6
See Notes
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) the financial promotion makes clear which firm has approved or communicated it and, where relevant, explains:
- (a) that the rules made under the Act for the protection of private customers do not apply;
- (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
- (c) if the communicator wishes, the protection or compensation available under another system of regulation; and
- (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
See Notes
- 01/12/2001
COB 3.13
Additional requirements for financial promotions for an overseas long-term insurer
- 01/12/2004
COB 3.13.1
See Notes
- (1) A firm must not communicate or approve a financial promotion to enter into a life policy with a person who is not:
- (a) an authorised person; or
- (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
- (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
- (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
- (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) The countries or territories referred to in (1)(e) are:
- (a) the Bailiwick of Guernsey;
- (b) the Isle of Man;
- (c) the Commonwealth of Pennsylvania;
- (d) the State of Iowa; and
- (e) the Bailiwick of Jersey.
- (3) For the purposes of (1), Gibraltar shall be regarded as if it were an EEA State.
- 01/12/2001
COB 3.13.2
See Notes
A financial promotion for an overseas long-term insurer, which has no establishment in the United Kingdom, must include:
- (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) 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) 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
See Notes
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) 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) 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) the registered office of any such trustee and of any investment manager and of his principal office (if different); and
- (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:
- (a) the full name of the overseas long-term insurer;
- (b) the registered or head office in the United Kingdom; and,
- (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
See Notes
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) 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) if it also refers to other investments it must make this clear.
- 01/03/2003
COB 3.13.5
See Notes
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) made immediately after the full name;
- (2) alongside the full name; or
- (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
See Notes
- 01/12/2001
Approach and general guidance
COB 3.14.2
See Notes
- 01/06/2002
COB 3.14.3
See Notes
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) 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) 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
See Notes
- (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) 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
See Notes
- (1) Key features, initial disclosure document and written contractual terms
- (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.
- (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.
- (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.
- (d) Local printing of information by the user should be allowed, where feasible. Firms should endeavour to provide hard copy on request.
- (2) Application forms
- (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.
- (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) 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) 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) 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) 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.
- 01/12/2004
COB 3 Annex 1
An overview of some of the main exemptions contained in the Financial Promotion Order
- 01/12/2004
See Notes
This annex belongs
to COB 3.2.7 G (2) and summarises some
of the main exemptions in the Financial
Promotion Order. It is not an exhaustive list, and does not
seek to replace the Order itself. The first column contains the article number,
and the name of the exemption as set out in the Financial Promotion Order, the second column
indicates to which type of financial promotions the exemption applies (unsolicited
real time, solicited real time or non-real time), the third column indicates
to which controlled activities and controlled investments the
exemption applies and the final column gives a brief summary of the principal
conditions required by the exemption. In all cases, firms wishing to use an exemption should
consult the Order and in particular take note of the conditions which apply. References to articles are to articles of the Financial Promotion Order and to paragraphs are to paragraphs of Schedule 1 to the Financial Promotion Order. For non-investment insurance contracts, firms should refer to ICOB. |
Article no. and name of exemption | Type of promotion: Unsolicited real time, solicited real time, non-real time | Controlled activity/controlled investment | Other conditions |
16(2) Exempt persons | Unsolicited real time | All | Made by a person who is an appointed representative carrying on the business for which his principal has accepted responsibility for the purposes of section 39 of the periodic statement; and in relation to which the appointed representative is exempt from the general prohibition; and where the communication is one which, if made by the principal, would comply with the financial promotion rules relevant to a communication of that kind |
17 Generic promotions | All | All | Does not identify (directly or indirectly) a person who provides the controlled investment to which the financial promotion relates; and does not identify directly or indirectly any person as a person who carries on a controlled activity in relation to that controlled investment |
18 Mere conduits | All | All | Made by a person who acts as a mere conduit for it (other than electronic commerce communications) |
18A Electronic commerce communications: mere conduits, caching and hosting | All | All | Where the making of the communication constitutes the provision of an information society service of a kind described as 'mere conduit', 'caching' or 'hosting' under the E-Commerce Directive and the conditions mentioned in the directive are met |
19 Investment professionals | All | All | Made only to recipients whom the person making the communication believes on reasonable grounds to be investment professionals; or may reasonably be regarded as directed only at such recipients |
20B Incoming electronic commerce communications | Non-real time | All | Incoming
electronic commerce communications other
than: (1) a communication which constitutes an advertisement by the operator of a UCITS scheme of units in that scheme; or (2) a communication consisting of an invitation or inducement to enter into a contract of insurance, where made by an undertaking with authorisation in accordance with article 6 of the First Life Directive or the First Non-Life Directive, and the insurance falls within the scope of any of the Insurance Directives; or (3) an unsolicited communication made by electronic mail. |
22 Deposits: non-real time communications | Non-real time | Accepting deposits within paragraph 1 | Accompanied by information specified in article 22(2) |
23 Deposits: real time communications | Real time | Accepting deposits within paragraph 1 | None |
24 Relevant insurance activity: non-real time communications | Non-real time | Effecting and carrying out contracts of insurance within paragraph 2 in relation to contracts of insurance other than life policies | Accompanied by information specified in article 24(2) |
26 Relevant insurance activity: real time communications | Real time | Effecting and carrying out contracts of insurance within paragraph 2 in relation to contracts of insurance other than life policies | None |
28 One-off non-real time communications and solicited real time communications | Solicited real time Non real time | Note 1 | One-off communication |
28A One-off unsolicited real time communications | Unsolicited real time | Note 1 | One-off communication where the communicator believes on reasonable grounds that the recipient understands the risks associated with engaging in the investment activity to which the communication relates; and at the time that the communication is made the communicator believes on reasonable grounds that the recipient would expect to be contacted by him in relation to the investment activity to which the communication relates |
38 Persons in business of placing promotional material | All | Note 1 | Made to a person whose business it is to place, or arrange for the placing of, promotional material provided that it is communicated so that he can place or arrange for placing it |
40 Participants in certain recognised collective investment schemes | Solicited real time Non-real time | Note 1 | Made by a person who is the operator of a scheme recognised under section 270 or 272 of the Act; and to persons in the United Kingdom who are participants in any such recognised scheme operated by the person making the communication; and which relates only to such recognised schemes as are operated by that person or to units in such schemes |
48 Certified high net worth individuals | Solicited real time Non-real time | Note 2 | (1)
Made to a certified high net worth individual (as defined by article 48(2)); and (2) does not invite or induce the recipient to engage in investment activity with the person who signed the certificate of high net worth; and (3) accompanied by an indication of the matters specified by article 48(4). |
49 High net worth companies, unincorporated associations etc | All | Note 1 | Either: (1) made only to recipients whom the person making the financial promotion believes on reasonable grounds to be persons to whom the conditions set out in the article apply; or (2) may reasonably be regarded as directed only at such persons. |
50 Sophisticated investors | All | Note 1 | (1)
Made to a certified sophisticated investor (as defined by article 50(1)); (2) does not invite or induce the recipient to engage in investment activity with the person who has signed the certificate; (3) relates only to a description of investment in respect of which that investor is certified; and (4) accompanied by an indication of the matters specified by article 50 (3) |
51 Associations of high net worth or sophisticated investors | Solicited real time Non-real time | Note 1 | (1)
Made to an association, the membership of which the person making the financial promotion believes
on reasonable grounds comprises wholly or predominantly persons who are certified high net worth
individuals within article 48, high net worth persons within article 49(2)(a)
to (d) and certified sophisticated
investors within article 50 ; and (2) relates only to an investment under the terms of which a person cannot incur a liability or obligation to pay or contribute more than he commits by way of investment |
59 Annual accounts and directors' report | All | Note 3 | Made by a body corporate (other than an open-ended investment company) which consists of, or is accompanied by, the whole or any part of the annual accounts, or is accompanied by the report, and complies with the requirements specified by article 59 |
62 Sale of body corporate | All | Note 1 | (1)
Made by a company,
a partnership,
a single individual or a group of connected individuals; (2) relates to a transaction to acquire or dispose of shares in a company (other than an open-ended investment company) or is entered into for the purposes of such an acquisition or disposal, and (3) either certain conditions are satisfied or the object of the transaction may reasonably be regarded as being the acquisition of day to day control of the affairs of the company |
67 Promotions required or permitted by market rules | Solicited real time Non-real time | Note 4 | Financial promotion is required or permitted to be communicated by the rules of the relevant market, a body which regulates the market, or a body which regulates offers or issues of investments to be traded on such a market |
70 Promotions in connection with listing applications | Solicited real time Non-real time | Note 1 | Financial promotion to which listing rules apply |
71-73 Promotions included in listing particulars and prospectuses | Non-real time | Note 1 | These articles contain details of exemptions relating to financial promotions included in listing particulars and prospectuses for public offers of listed securities and financial promotions relating to prospectuses for public offers of unlisted securities |
- 14/01/2005
COB 3 Annex 2
Contents of Enterprise Investment Scheme particulars (R)
- 01/12/2004
See Notes
The following statements, to be included with particular prominence: | ||
(1) | that applications may only be made and accepted subject to the terms and conditions of the EIS particulars; | |
(2) | that the applicant is advised not to subscribe to the EIS unless he has taken appropriate independent advice; | |
(3) | the name and business address of: | |
(a) | every person acting in a professional capacity in relation to the EIS; | |
(b) | every person likely to take part in any decision or recommendation relating to investment of monies subscribed to the EIS; | |
(4) | any arrangements under which any preferential treatment will or may be given in relation to subscription to the EIS to particular persons or classes of person subscribing to the EIS; | |
(5) | the circumstances in which persons or particular classes of person are excluded from participation in the EIS or in any particular investment of EIS monies; | |
(6) | the manner in which shares in companies in which EIS monies are to be invested are to be held on behalf of participants in the EIS and the manner in which, according to their EIS subscriptions, interests in such shares are to be allocated to each participant; | |
(7) | any arrangements for registering shares in the names of participants in the EIS at or after the end of the period during which shares must be held in order to obtain tax relief; | |
(8) | the circumstances in which a person's participation in the EIS may be terminated; | |
(9) | any arrangements for dealing with EIS monies which become available as a result of a sale of EIS investments by the EIS manager; | |
(10) | whether the EIS manager remains free to subscribe for shares, or to hold options to do so, in companies in which the EIS funds are invested and, if so, an indication of the price or the formula by which a price is determined at which it may subscribe and the maximum proportion of the ordinary share capital of those companies for which it may subscribe or which may be the subject of options in its favour, or both; | |
(11) | whether the EIS manager proposes to establish another EIS and, if so, whether or not arrangements exist to ensure that the EIS manager does not discriminate between one EIS and another and, if so, what they are; | |
(12) | a summary of the fiscal provisions concerning the EIS; | |
(13) | either a description of the arrangements which exist for: | |
(a) | securing that any person who knowingly has a material interest in any decision or recommendation concerning the investment of EIS subscriptions which are not subject to independent approval is excluded from participation in the making of that decision or recommendation; and | |
(b) | for securing independent approval of decisions and recommendations concerning the investment of EIS subscriptions which may be made by persons who have a material interest in them; | |
or a statement that no such arrangements exist; | ||
(14) | where the arrangements described in (13) above do not cover any of the following interests: | |
(a) | an interest of the EIS manager or of its associates arising by way of remuneration in connection with the management or operation of the EIS or any other EIS; | |
(b) | an interest arising from investment of subscriptions of the EIS or of any other EIS managed by the EIS manager or its associates; | |
(c) | an interest of a bank resulting from a loan made by such an institution; | |
(d) | an interest arising from the formation by the EIS manager, or its associates, of a company with a view to an interest in that company being acquired on behalf of an EIS, of which it, or its associates, is the scheme manager; | |
a statement that investment may be made despite the existence of such an interest; | ||
(15) | particulars of any material interest or duty of the EIS manager which would conflict with the interests of participants in the EIS or its duty to those participants; | |
(16) | any arrangements to enable participants in the EIS to notify the EIS manager of companies with which they are connected within the meaning of Sections 291, 291A and 291B of the Income and Corporation Taxes Act 1988; | |
(17) | the investment policies and objectives of the EIS; | |
(18) | the periodic reports made available to participants and how frequently those reports will be made in accordance with the EIS. |
- 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
See Notes
The following statements are to be included with particular prominence: | ||
(1) | "The [firm] [scheme manager] [and its directors] [has] [have] taken all reasonable care to ensure that all the facts stated in this document are true and accurate in all material respects and that there are no other material facts, or opinions, which have been omitted, which would make any part of this promotion misleading. The [firm] [scheme manager] [and its directors] accept[s] responsibility accordingly"; | |
(2) | The name and business address of: | |
(a) | the EIS manager; | |
(b) | the promoter of the EIS ( if any); | |
(3) | the opening and closing dates for receipt of EIS subscriptions; | |
(4) | the maximum and minimum sizes, if any for; permitted individual subscriptions to the scheme; | |
(5) | the arrangements: | |
(a) | for the holding of EIS subscriptions pending investment; | |
(b) | for the return of subscriptions should the EIS be over-subscribed or the monies not be accepted for other reasons; | |
(c) | for the return of EIS subscriptions remaining uninvested at the time when the final investment of the EIS has been made or the final date for investment has passed; | |
(6) | any arrangements for the payment of dividends, if any, to participants in the EIS. |
- 01/12/2001
COB 3 Annex 4
Additional guidance on particular types of financial promotion
- 01/12/2004
See Notes
Section I: Guidance relevant to specific non-real time financial promotions for particular product types | |
A | AVC Schemes (including FSAVCs) |
B | Bond Funds |
C | With-profits bonds |
D | Pensions - phased retirement |
Section II: Guidance relevant to direct offer financial promotions for PEP, ISA or CTF transfers and personal pensions and stakeholder pension schemes | |
E | PEP, ISA or CTF transfer |
F | Personal pensions and stakeholder pension schemes |
Section III: Guidance relevant to specific non-real time financial promotions for products with identified characteristics | |
G | Guaranteed or protected products |
H | High income products |
I | Stock market products |
J | [deleted] |
Additional Voluntary Contribution Schemes (including Free Standing Additional Voluntary Contributions) |
A financial promotion for an AVC scheme or FSAVC contract should contain a prominent warning that as an alternative: |
(1) (for FSAVC promotions) an AVC exists, and that details can be obtained from the scheme administrator; |
(2) (for AVC promotions) FSAVC contracts are available. |
Bond Funds |
A firm constructing a financial promotion for corporate bond funds or similar contracts should take account of the following: |
(1) Clear description
of the risk Yields offered by bonds often reflect in part the risk rating of the issuer. Investment in such bonds brings an increased risk of default on repayment and this in turn translates into a risk that the capital value of the fund will be affected. Financial promotions for funds which invest in riskier bonds should clearly explain this point to recipients. The prominence and wording of the explanation should reflect both the risk profile of the portfolio held by the fund, and the prominence given to information about the yield on the fund. The main body of the financial promotion should state that the yield or the capital value of the fund (or both) can fluctuate, as the case may be. |
(2) Quoting
out of date yields Financial promotions often feature prominently the yield on the fund. In some cases the actual yield being paid at the time the promotion is communicated is materially different to the yield quoted. Owing to lead times, inaccuracies can occur if the market is moving rapidly, but yields several weeks or months out of date are misleading. The promotion should quote the date at which the rate applied. It is misleading for financial promotions with a long shelf life to prominently feature a rate which may become invalid. |
(3) Funds not
fully invested Yield figures should reflect the overall position of the fund allowing for any monies held in cash. Yields quoted on the assumption that the fund is 100% invested in bonds where a proportion is invested in cash would be misleading. |
(4) Running
and redemption yields If a yield figure is to be quoted, then both the gross redemption yield and the running yield should be mentioned with equal prominence. This is to ensure that a balanced impression is given of both the short-term and the long-term prospects for the fund. When quoting the gross redemption yield, the main body of the financial promotion should also mention the fact that it is a prediction, and is not guaranteed. A firm should take into account, and explain, any material differences between the yield figures. |
(5) Describing
the yield and growth prospects A firm needs to be careful when describing the future yield or growth prospects of a fund. The prominence and tone given to descriptions of future prospects should reflect a reasonable assessment of the fund taking into account, for example, the redemption yield, whether charges are taken from capital, and the general economic climate. |
With-profits bonds | |
1. | Particular areas
of concern about financial promotion of with profit bonds are: (a) failure to make it clear that a whole life with profits bond is unsuitable as a short term investment; (b) unclear statements as to what factors will determine the cash-in value of the bond; (c) reservation of the right to adjust the value of the contract by means such as Market Value Adjustment Factors without adequately explaining the significance or likelihood of such a procedure; (d) use of a rate of bonus in a way that implies such a rate will apply; (e) quotation of values based on existing bonus rates to lead recipients to anticipate receiving such amounts; (f) reference to building society accounts in comparison with the bond without adequately explaining the differences between the two types of investment. |
2. | Quoting a high
initial bonus rate may suggest that it is achievable for all investors, whereas
for example, the rate may only be available to investors who make a sizeable
investment or who make their investment considerably earlier than the closing
date. In addition, initial bonus rates are frequently subject to limiting
factors, such as: (a) establishment charges; (b) monthly policy charges; (c) fund management or investment charges; (d) early surrender penalties or discontinuance charges; (e) market adjustment factors. Therefore where applicable firms should not include terms such as 'guaranteed', 'return' and fixed for the first year' without making it clear that the bonus rate may not be achievable. |
Pensions - phased retirement | |
1. | Some promotions
for phased retirement pensions tend to emphasise the various advantages but
do not give adequate risk warnings, some of the important assumptions, or
detail potential disadvantages. The following failures are typical: (a) not including risk warnings in respect of performance and value of underlying units. (b) not indicating that future annuity rates are not guaranteed and may be higher or lower. (c) not disclosing any information about additional charges linked to the plan. (d) not making any reference to protected rights being deferred to age 65 or 60 (in illustrations of pensions commencing earlier). (e) not indicating how a surviving spouse is provided for. |
2. | Four particular
areas that need to be made clear are: (a) Mortality Compared with a conventional annuity, phased retirement normally provides higher residual sums on death. For survivors to age 75, this can result in a strain, as annuities will not have been purchased at an earlier age. This risk should be made clear. If a spouse's pension is to be provided, it needs to be made clear whether each annuity is bought on a joint life basis and whether the annuity is bought on death or at age 75. If protected rights pensions at age 65 or 60 are to be provided, it needs to be made clear how these are to be provided. (b) Investment The future investment returns on the residual funds and the future immediate annuity rates are unknown. The risk of this to the investor needs to be made clear. Care needs to be taken to ensure that the impression is not given that postponing the purchase of an annuity will automatically be to the investor's advantage. (c) Tax Most of the financial advantage in phased retirement derives from utilising tax free cash sums to provide part of the investors pension payment. Therefore the investor does not have the benefit of the tax free cash sum at retirement, which can be a disadvantage. Any comparison with a conventional annuity should allow for the use of a purchased life annuity purchased with the tax free cash, or include a statement that the effect of the option to use the tax free cash to secure a purchased life annuity has been ignored. Because the pension will usually constitute most of a investor's income, it will generally be correct to assume basic rate tax. Where the level of income makes it appropriate, higher rate tax may be allowed for; this can be done assuming an average tax rate or taking account of specific tax bands. If tax thresholds are assumed to increase, the rate must be consistent with the investment return assumed and the rate of increase in the target pension. (d) Expenses The costs in operating phased retirement are usually higher than for conventional annuities. These costs need to be disclosed, especially as they are relevant to any comparison with a conventional annuity. Particular reference should be made to the level of initial charge and annual management charge on unit-linked funds. |
PEP, ISA or CTF transfers |
A direct offer financial promotion for a PEP, ISA or CTF transfer should include details of the likely advantages and disadvantages of transferring an existing PEP, ISA or CTF holding, including: |
(1) exit charges and any other costs associated with the transfer; |
(2) initial set up charges; |
(3) transaction details (ie are holdings liquidated or transferred intact), as permitted by the terms and conditions; |
(4) the possibility (and likely effects) of shortfall, following cancellation; |
(5) potential for loss of income or growth, following a rise in the markets, whilst the PEP, ISA or CTF transfer remains pending. |
Personal pensions and stakeholder pension schemes |
Firms promoting personal pension schemes through direct offer financial promotions are reminded of the provisions of COB 5.3. |
Guaranteed or protected products | |
1. | Equal prominence
to guaranteed and not guaranteed benefits Firms should give equal prominence to the description of benefits which are guaranteed and of benefits which are not. |
2. | Guaranteed income
but not capital (a) A clear statement should be made where relevant benefits are not guaranteed. (b) If any guarantee is given, the guarantor should be named. (c) An equivalent annualised rate of return should be quoted if the cash rate is quoted. |
3. | Guaranteed or
protected amount payable at the end of the term The words 'guarantee', 'protected element' or similar may be used to describe the minimum amount payable at the end of the term. This is usually provided at some cost to the investor and financial promotions therefore need to make clear what that cost is and how it is imposed. |
4. | Counterparty
risk Firms should ensure that financial promotions for products with a protected element to them, which is not guaranteed, include an explanation of the associated risk of counterparty failure. Firms should avoid giving a misleading impression of the capital security. |
High income products | |
1. | Income Term |
If the word 'income' is used, it will be difficult for the promotion to avoid being misleading unless it: | |
(a) is used to indicate payments comprised solely of interest or dividend earnings; or | |
(b) is clearly defined at an early point in the promotion as having a different meaning, and in particular specifies the risk to capital necessary to achieve the payment. | |
2. | Problem of disclosure of risks |
(a) If the rate of income available is at some capital risk or at the expense of growth, or the income or a portion of it comprises a return of capital, these facts should be clearly explained. | |
(b) If direct or indirect comparison is made with a deposit, there should be a prominent statement that the investment does not include the security of capital which is afforded under a deposit. | |
3. | High income bonds, high income unit trusts and similar types of collective investment schemes |
(a) Some unit trusts achieve a high income by the use of derivatives such as put and call options. Firms should provide a statement to the effect that the high income is achieved at the expense of most of the potential capital gain. | |
(b) If it is claimed that the downside potential is less than that of a conventional unit trust, it should be made clear with equal prominence that if the fund goes down its potential recovery will be less than that of a conventional unit trust. | |
(c) Where an income figure is shown a clear statement should be made that the income is not guaranteed. |
Stock market products |
Stock market products are those investments which offer returns linked to the price of equities or an index such as the FTSE 100. |
(1) Potential for Growth |
(a) Expressions like 'stock market growth' or 'the growth of the FTSE 100 Index' are frequently used and are potentially misleading if the product will not be investing in all the stocks which make up the index. |
(b) Promotion of a product which is linked to growth in the FTSE 100 index should make clear that it does not include an allowance for any return or reinvestment of dividend income. |
(c) Promotions should therefore make it clear that references to 'stock market growth' exclude any form of income payment. |
(2) Amount invested Some promotions quote returns in excess of the percentage increase in the FTSE 100 index, without mentioning that 100% of capital is not invested at outset. |
(3) Gross returns
and tax on underlying fund Promotions showing guaranteed returns against the FTSE 100 index expressed in 'gross' terms are potentially misleading where the underlying funds of the firm concerned are taxable and the returns quoted are therefore unavailable to the investor because he will receive the benefits after tax has been deducted and which he cannot reclaim. |
(4) Taxation
of investor The tax treatment in the hands of the investor should be made clear, in particular, whether the return will be treated as income or as capital gains where the investor may be entitled to a tax free exemption limit with the added benefit of indexation. |
(5) Early Encashment |
(a) The terms for early encashment need to be fully explained. |
(b) Despite the minimum amount at the end of the specified term, an appropriate risk warning should be included where the value of the investment can fall if an investor wishes to encash the contract before the end of the term. |
(6) Averaging Contracts are normally based on the assumption that the index being used will rise. The use of the average level of the index will reduce the investment potential of the contract. Where the averaging periods cover more than the last six months of the contract term, it should not be implied that averaging is to protect against falls at the end of the term. It should be made clear that investors benefit only from some of the performance of the index and that one effect of averaging is likely to be to constrain the final level of the index used to calculate benefits. |
(7) Maximum
benefits These should not be promoted as a particular feature if the economic circumstances required to meet those benefits require investment conditions more favourable than those which would need to prevail to achieve the higher of the growth assumptions specified by the FSA. |
- 01/12/2004
COB 3 Annex 5
Permitted promotion of unregulated collective investment schemes and qualified investor schemes. (R)
- 01/12/2004
See Notes
1 | This annex forms part of COB 3.11.2 R and COB 3.11.6 R. | |
2 | Where the left-hand column in the table refers to promotion to a category of person, this means that the invitation or inducement: | |
(a) | is made only to recipients who the firm has taken reasonable steps to establish are persons in that category; or | |
(b) | is directed at recipients in a way that may reasonably be regarded as designed to reduce, so far as possible, the risk of participation in the collective investment scheme by persons who are not in that category; | |
and see COB 3.5.6 R and COB 3.5.7 R, which amplify this paragraph. | ||
3 | A firm may rely on more than one exemption in relation to the same invitation or inducement. |
Promotion to: | Promotion of an unregulated collective investment scheme or qualified investor scheme which is: |
Category 1 person (1) a person who is already a participant in an unregulated collective investment scheme or a qualified investor scheme; or (2) a person who has been, in the last 30 months, a participant in an unregulated collective investment scheme or a qualified investor scheme |
A. that collective investment scheme; or B. any other collective investment scheme whose underlying property and risk profile are both 'substantially similar' (see Note 1) to those of that collective investment scheme; or C. a collective investment scheme which is intended to absorb or take over the assets of that collective investment scheme; or D. a collective investment scheme, units in which are being offered by its operator as an alternative to cash on the liquidation of that collective investment scheme |
Category 2 person (1) a person (a) for whom the firm has taken reasonable steps to ensure that investment in the collective investment scheme is suitable; and (b) who is an 'established' or 'newly accepted' customer of the firm or of a person in the same group as the firm (see Notes 2 & 3). |
Any collective investment scheme |
Category 3 person: a person who is eligible to participate in a scheme constituted under: (1) the Church Funds Investment Measure 1958; (2) section 24 of the Charities Act 1993; or (3) section 25 of the Charities Act (Northern Ireland) 1964. |
Any such collective investment scheme |
Category 4 person: An eligible employee, that is, a person who is: (1) an officer, (2) an employee, (3) a former officer or employee, or |
1. A collective investment scheme the instrument constituting which: A. restricts the property of the scheme, apart from cash and near cash, to (1) (where the employer is a company) shares in and debentures of company or any other connected company (see Note 4) |
(4) a member of the immediate family of any of (1)-(3) of an employer which is (or is in the same group as) the firm, or which has accepted responsibility for the activities of the firm in carrying out the designated investment business in question | (2) (in any case), any property, provided that the scheme takes the form of: (i) a limited partnership, under the terms of which the employer (or connected company) will be the unlimited partner and the eligible employees will be some or all of the limited partners; or (ii) a trust which the firm reasonably believes not to contain any risk that any eligible employee may be liable to make any further payments (other than charges) for investment transactions earlier entered into, which the eligible employee was not aware of at the time he entered into them; and B. (in a case falling within A(1) above) restricts participation in the scheme to eligible employees, the employer and any connected company. 2. Any collective investment scheme provided that the participation of eligible employees is to facilitate their co-investment: (i) with one or more companies in the same group as their employer (which may include the employer) and/or (ii) with one or more clients of such a company |
Category 5 person A person admitted to membership of the Society of Lloyd's or any person by law entitled or bound to administer his affairs |
A scheme in the form of a limited partnership which is established for the sole purpose of underwriting insurance business at Lloyd's |
Category 6 person An exempt person (other than a person exempted only by section 39 of the Act (Exemption of appointed representatives)) if the financial promotion relates to a regulated activity in respect of which the person is exempt from the general prohibition | Any collective investment scheme |
Category 7 person A market counterparty or an intermediate customer. | Any collective investment scheme |
Notes to the table | |
Note 1. The property of a collective investment scheme is 'substantially similar' to that of another collective investment scheme if in both cases the objective is to invest in the same one of the following sectors: |
|
(a) | on-exchange derivatives or warrants; |
(b) | on-exchange (or quoted) securities; |
(c) | the property market (whether in security of property companies or in property itself); |
(d) | collectable items of a particular description (such as works of art, antique vehicles, etc); |
(e) | artistic productions (such as films, television, opera, theatre or music); |
(f) | unlisted investments (including unlisted debt securities). |
The risk profile of a scheme will be substantially similar to that of another scheme only if there is such similarity in relation to both liquidity and volatility. | |
Note 2. A person is an 'established customer' of another person if he has been and remains an actual customer of that person in relation to designated investment business done with or through that other person. |
|
Note 3. A person is a 'newly accepted' customer of a firm if: |
|
a written agreement relating to designated investment business exists between the customer and the firm (or, if the customer is normally resident outside the United Kingdom, an oral or written agreement); and | |
that agreement has been obtained without any contravention of section 238 or 240 of the Act, or of any rule in COB applying to the firm or (as far as the firm is reasonably aware) any other authorised person. | |
Note 4. A company is 'connected' with another company if: |
|
(a) | they are in the same group; or |
(b) | one company is entitled either alone or with another company in the same group, to exercise or control the exercise of a majority of the voting rights attributable to the share capital, which are exercisable in all circumstances at any general meeting of the other company or of its holding company. |
- 01/12/2004
COB 4
Accepting
customers
COB 4.1
Client classification
- 01/12/2004
Application
COB 4.1.1
See Notes
- (1) This section applies to a firm intending to conduct, or conducting designated investment business or ancillary business relating to designated investment business (but not to a firm which in relation to any customer intends only to provide basic advice on a stakeholder product).
- (2) For the purposes of COB only, the following provisions in COB 4.1 also apply to a firm intending to carry on, or carrying on, any other regulated activity to which COB applies:
- (a) COB 4.1.12 R and COB 4.1.13 G (Large intermediate customer classified as a market counterparty); and
- (b) COB 4.1.14 R (Client classified as a private customer).
- 06/04/2005
COB 4.1.2
See Notes
- 01/12/2001
Purpose
COB 4.1.3
See Notes
- (1) This section requires a firm to classify the persons with or for whom it intends to carry on designated investment business, to achieve appropriate application of the rules in COB and MAR 3 (Inter-professional conduct). Its purpose is to ensure that clients are appropriately categorised so that regulatory protections are focused on those classes of client that need them most, while allowing an appropriately "light-touch" approach for inter-professional business.
- (2) Some of the rules in COB relating to activities other than designated investment business are disapplied if the activity is carried on with or for a market counterparty rather than a customer, for example rules in COB 6.8 (Insurance contracts: life policies). For guidance on how a firm carrying on these other activities may approach client classification, see PRIN 1.2.4 G (Classification: other activities).
- 14/01/2005
Requirement to classify
COB 4.1.4
See Notes
- (1) Before conducting designated investment business with or for any client, a firm must take reasonable steps to establish whether that client is a private customer, intermediate customer or market counterparty.
- (2) A firm which takes reasonable steps to classify its clients, as required by the rules in this section, and treats a client in accordance with the classification it has established for that purpose, does not breach any other rule in COB to the extent that the breach arises only from inappropriate classification of that client.
- 01/12/2001
Agent as client
COB 4.1.5
See Notes
- (1) If a firm ("F") is aware that a person ("C1") with or for whom it is conducting designated investment business, or related ancillary activities, is acting as agent for another person ("C2") in relation to that business, C1, and not C2, is the client of F in respect of that business, if:
- (a) C1 is another firm or an overseas financial services institution; or
- (b) C1 is any other person, provided that avoidance of duties which F would otherwise owe to C2 is not the main purpose of the arrangements between the parties.
- (2) Paragraph (1) does not apply if F has agreed with C1 in writing to treat C2 as its client.
- (3) If there is an agreement under (2) in relation to more than one client (C2) represented by C1, F may discharge any requirement to notify, obtain instructions or consent from, or enter into an agreement with each C2 by sending to, or receiving from, C1, a single communication which is expressed to cover each C2, except that:
- (a) separate risk warnings under COB 5.4 (Customers' understanding of risk);
- (b) confirmations under COB 8.1 (Confirmation of transactions); and
- (c) periodic statements under COB 8.2 (Periodic statements) are required for each C2
- are required for each C2.
- (4) If paragraph (1) does not apply, because of the proviso in (1)(b) or an agreement under (2), C2, and not C1, is the client of F in respect of that business.
- 15/11/2001
COB 4.1.6
See Notes
Firms are reminded that COB 4.1.5 R:
- (1) does not relieve them of any obligation under the Money Laundering sourcebook relating to C2 (there is a different definition of "client" in that sourcebook);
- (2) is not relevant to the question of who is the firm's counterparty for the purposes of the Interim Prudential sourcebook; and
- (3) does not relieve them of any obligation the firm may owe to C2 under the general law relating to principals and agents; if a firm is in any doubt about such obligations, it is advised to take appropriate legal advice.
- 01/12/2001
Classification of another firm or an overseas financial services institution
COB 4.1.7
See Notes
- (1) When a firm ("F") conducts designated investment business, or related ancillary activities, with or for:
- (a) another firm; or
- (b) an overseas financial services institution;
- ("C1"), C1 is a market counterparty of F, unless (2), (3) or (4) applies.
- (2) C1 is an intermediate customer of F when the activity carried on by F would be inter-professional business (if C1 were a market counterparty), and:
- (a) C1 is acting for an underlying customer ("C2"); and
- (b) [deleted]
- (c) F and C1 have agreed that F should classify C1 as an intermediate customer when C1 is acting for C2.
- (3) C1 is an intermediate customer of F when the activity carried on would not be inter-professional business (if C1 were a market counterparty) and:
- (a) C1 has not indicated that it is acting on its own behalf in relation to that activity; or
- (b) C1 is a long-term insurer acting on behalf of its life fund.
- (4) If C1 is a collective investment scheme, C1 is an intermediate customer of F.
- (5) [deleted]
- 01/09/2003
Classification of a collective investment scheme
COB 4.1.7A
See Notes
- (1) COB 4.1.7 R, paragraph (1)(b)(iii) of the definition of client and paragraph (1)(j) of the definition of intermediate customer together have the effect that a collective investment scheme, whether it has separate legal personality or not, will always be classified as an intermediate customer, unless classified as a private customer under COB 4.1.14 R or (if an unregulated collective investment scheme) as a market counterparty under COB 4.1.12 R. This means that, for a firm acting as the trustee of a unit trust, for example, the client for these purposes will be the scheme and therefore an intermediate customer.
- (2) The application of COB to an operator, trustee or depositary is governed by COB 10 (Operators of collective investment schemes) and COB 11 (Trustee and depositary activities).
- (3) In many cases, a firm such as an investment manager or custodian will carry on activities with or for an operator, trustee or depositary of the scheme rather than with or for a scheme.
- 01/09/2003
COB 4.1.8
See Notes
- (1) Any agreement under COB 4.1.7 R (2)(c) may be in relation to a particular underlying customer of C1's or in relation to all cases in which C1 acts on behalf of its customers.
- (2) When deciding whether it should be classified as an intermediate customer under COB 4.1.7 R (2), C1 should have regard to the fact that it will be responsible to C2 for delivering applicable protections under COB (or, if C1 is an overseas financial services institution, under any relevant overseas provisions). C1 should also remember that F is entitled to refuse to agree to classify C1 as an intermediate customer; and, in such a case, it may be appropriate for C1 to obtain services from a different firm.
- (3) C1 may be an intermediate customer under COB 4.1.7 R (2) or (3), but remains a market counterparty for other purposes. For example, for designated investment business which is not inter-professional business, C1 is a market counterparty for transactions for C1's own account.
- (4) In relation to activities other than designated investment business, and related ancillary activities, C1 is a market counterparty in accordance with the definition of "market counterparty".
- (5) When C1 is a market counterparty, then only limited parts of COB will apply to F's business with C1. The Principles (other than 6, 8 and 9 and most of 7) will also apply, as will MAR 3 (Inter-professional conduct) for inter-professional business. See MAR 3 Annex 1 for further guidance on the application of the Principles, COB and MAR 3 for inter-professional business.
- (6) COB 4.1.7 R does not preclude F from offering C1 protections over and above those that are owed to C1 as a market counterparty. However, any such protections would be a matter between F and C1 (for example, in contract) and would not confer the benefits owed to an intermediate or private customer under COB.
- 01/09/2002
Classification of an exchange or clearing house
COB 4.1.8A
See Notes
- 01/09/2002
Expert private customer classified as an intermediate customer
COB 4.1.9
See Notes
- (1) A firm may classify a client who would otherwise be a private customer as an intermediate customer if:
- (a) the firm has taken reasonable care to determine that the client has sufficient experience and understanding to be classified as an intermediate customer; and
- (b) the firm:
- (i) has given a written warning to the client of the protections under the regulatory system that he will lose;
- (ii) has given the client sufficient time to consider the implications of being classified as an intermediate customer; and
- (iii) has obtained the client's written consent, or is otherwise able to demonstrate that informed consent has been given.
- (2) For the purposes of (1), a client's consent to being classified as an intermediate customer may be limited to one or more types of:
- (a) designated investment; or
- (b) designated investment business.
- 01/12/2001
COB 4.1.10
See Notes
- (1) To take reasonable care to determine that a client has sufficient experience and understanding to be classified as an intermediate customer for the purposes of COB 4.1.9 R (1)(a), the firm should have regard to:
- (a) the client's knowledge and understanding of the relevant designated investments and markets, and of the risks involved;
- (b) the length of time the client has been active in these markets, the frequency of dealings and the extent to which he has relied on the advice on investments of the firm;
- (c) the size and nature of transactions that have been undertaken for the client in these markets;
- (d) the client's financial standing, which may include an assessment of his net worth or of the value of his portfolio.
- (2) It is likely that a firm will need to have regard to more than one of these criteria, or to other criteria, before it can be satisfied that a client, who would otherwise be a private customer, is eligible to be classified as an intermediate customer.
- 01/12/2001
COB 4.1.11
See Notes
- (1) In the written warning required by COB 4.1.9 R (1)(b)(i), a firm should, where relevant:
- (a) advise the client that he will lose the protection afforded by the following rules in COB applicable to private customers:
- (i) COB 3 (Financial promotion);
- (ii) COB 4.3 (Disclosing information about services, fees and commissions - packaged products);
- (iii) COB 5.1 (Advising on packaged products);
- (iv) COB 5.4 (Customers' understanding of risk);
- (v) COB 5.7 (Disclosure of charges, remuneration and commission);
- (vi) COB 6.1 (Packaged product and ISA disclosure);
- (vii) COB 7.9 (Lending to private customers);
- (viii) COB 7.10 (Margin requirements);
- (ix) COB 7.11 (Non-exchange traded securities);
- (b) explain any consequences to the client in respect of the following rules in COB which are limited or modified in their application to intermediate customers:
- (c) explain possible consequences to the client in respect of the following rules which are capable of modification in their application to intermediate customers:
- (d) warn the client that he will also lose the right of access to the Financial Ombudsman Service; and
- (e) warn the client that the firm may have regard to his expertise when complying with requirements under the regulatory system that communications must be clear, fair and not misleading.
- (2) Contravention of any part of COB 4.1.11 E (1) may be relied upon as tending to establish contravention of COB 4.1.9 R (1)(b)(i).
- 01/04/2004
Large intermediate customer classified as a market counterparty
COB 4.1.12
See Notes
A firm may classify a client (other than another firm, regulated collective investment scheme, or an overseas financial services institution) who would otherwise be an intermediate customer as a market counterparty if:
- (1) the client at the time he is classified is one of the following:
- (a) a body corporate (including a limited liability partnership) which has (or any of whose holding companies or subsidiaries has) called up share capital of at least £10 million (or its equivalent in any other currency at the relevant time);
- (b) a body corporate that meets (or any of whose holding companies or subsidiaries meets) two of the following tests:
- (i) a balance sheet total of 12.5 million euros (or its equivalent in any other currency at the relevant time);
- (ii) a net turnover of 25 million euros (or its equivalent in any other currency at the relevant time);
- (iii) an average number of employees during the year of 250;
- (c) a local authority or public authority;
- (d) a partnership or unincorporated association which has net assets of at least £10 million (or its equivalent in any other currency at the relevant time) (and calculated, in the case of a limited partnership, without deducting loans owing to any of the partners);
- (e) a trustee of a trust (other than an occupational pension scheme, SSAS, personal pension scheme or stakeholder pension scheme) with assets of at least £10 million (or its equivalent in any other currency), calculated by aggregating the value of the cash and designated investments forming part of the trust's assets, but before deducting its liabilities;
- (f) a trustee of an occupational pension scheme, SSAS or stakeholder pension scheme where the trust has (or has had at any time during the previous two years):
- (i) at least 50 members; and
- (ii) assets under management of not less than £10 million (or its equivalent in any other currency at the relevant time); and
- (2) the firm has, before commencing business with the client on a market counterparty basis:
- (a) advised the client in writing that he is being classified as a market counterparty;
- (b) given a written warning to the client that he will lose protections under the regulatory system;
- (c) for a client falling under (1)(a) or (b):
- (i) taken reasonable steps to ensure that the written notices required by (2)(a) and (b) have been delivered to a person authorised to take such a decision for the client; and
- (ii) not been notified by the client that the client objects to being classified as a market counterparty;
- (d) for a client falling under (1)(c), (d), (e) or (f):
- 01/12/2001
COB 4.1.13
See Notes
- 01/12/2001
Client classified as a private customer
COB 4.1.14
See Notes
- (1) A firm may classify as a private customer any client (other than a firm, unless it is an ICVC, or an overseas financial services institution) who would otherwise be a market counterparty or an intermediate customer, and must notify any such client accordingly.
- (2) A notice under (1) must advise the client that he may not necessarily have rights under the Financial Ombudsman Service or the compensation scheme as a result of such classification.
- 01/09/2003
Review of classification
COB 4.1.15
See Notes
- (1) If a firm classifies:
- (a) a client as an intermediate customer under COB 4.1.9 R (Expert private customer classified as an intermediate customer); or
- (b) a client as a market counterparty under COB 4.1.12 R (Large intermediate customer classified as a market counterparty);
- it must review that classification at least annually to ensure that it remains appropriate to the designated investment business which the firm carries on with or for that client, unless (2) applies.
- (2) If a firm has not conducted designated investment business with or for a client during the previous 12 month period, the firm may defer the review referred to in (1) until the firm next conducts designated investment business with or for the client.
- 01/12/2001
Record keeping
COB 4.1.16
See Notes
- (1) A firm must make a record of the classification established for each client under this section, including sufficient information to support that classification.
- (2) A firm must retain the record referred to in (1) for a minimum period after the date on which the firm ceases to carry on business with or for that client, as follows:
- (a) indefinitely, if relevant to a pension transfer, pension opt-out or FSAVC;
- (b) for a period of at least six years, if relevant to a life policy or pension contract;
- (c) for a period of at least three years in any other case.
- 01/09/2002
COB 4.2
Terms of business and client agreements with customers
- 01/12/2004
Application
COB 4.2.1
See Notes
- 09/10/2004
Meaning of 'private customer'
COB 4.2.2
See Notes
- 09/10/2004
Authorised professional firms
COB 4.2.3
See Notes
If an authorised professional firm conducts non-mainstream regulated activity for a customer (whether with or without any other regulated activity for the customer) then, subject to COB 4.2.8 G, the effect of COB 1.2.1 R (4) and PROF 5.4 is that:
- (1) terms of business must be provided in accordance with COB 4.2.5 R;
- (2) with respect to the non-mainstream regulated activity, the terms of business should satisfy COB 4.2 as to content if it contains the disclosure in COB 4 Ann 2E (25); and
- (3) the Distance Marketing Regulations may apply and require the provision of pre-contractual information in certain circumstances (see PROF 5.4).
- 01/12/2004
Purpose
COB 4.2.4
See Notes
- 09/10/2004
Requirement to provide terms of business to a customer
COB 4.2.5
See Notes
- 09/10/2004
COB 4.2.6A
See Notes
- (1) Terms of business will be provided in 'good time' for the purposes of COB 4.2.5 R if provided in sufficient time to enable the customer to consider properly the service or investment on offer before he is bound.
- (2) COB 4.2.5 R does not require the same information to be provided again if the customer already has it (for example through a direct offer financial promotion).
- 01/12/2004
Requirement to enter into a client agreement with a private customer
COB 4.2.7
See Notes
- (1) If a firm intends to conduct any of the following designated investment business with or for a private customer:
- (a) managing investments on a discretionary basis;
- (b) designated investment business relating to a contingent liability investment;
- (c) stock lending activity; or
- (d) designated investment business involving underwriting (except in respect of a life policy);
- its terms of business for the customer must, unless (2) applies, take the form of a client agreement, and the firm must not enter into this client agreement unless it has taken reasonable care to ensure that the private customer has had a proper opportunity to consider the terms.
- (2) A firm need not enter into a client agreement with a private customer if the private customer is habitually resident outside the United Kingdom and the firm has taken reasonable steps to establish that the private customer does not wish to enter into a client agreement.
- 01/12/2001
COB 4.2.8
See Notes
- 01/12/2001
Content of terms of business
COB 4.2.10
See Notes
A firm must ensure that its terms of business (including a client agreement with a customer) provided in accordance with this section, COB 4.2:
- (1) set out in adequate detail the basis on which it will conduct designated investment business with the customer; and
- (2) (in respect of distance contracts with retail customers) include all contractual terms and conditions and the information set out in COB App 1.
- 09/10/2004
COB 4.2.11
See Notes
- (1) A firm should, in order to provide adequate detail, include in its terms of business provided to a customer:
- (a) a provision about each item set out in COB 4 Ann 2E and COB 4 Ann 3E; and
- (b) any further or alternative provisions that the customer has asked for and on his own initiative agreed with the firm;
- to the extent that each such provision is relevant in the circumstances and that it is practicable to provide it.
- (1A) In relation to a service company, or a firm that is undertaking oil market activity or other energy market activity, that operates an ATS, the references in paragraph (1)(a) to COB 4.2.15 E and COB 4.2.16 E do not apply.
- (2) Compliance with (1) may be relied on as tending to establish compliance with COB 4.2.10 R (1).
- (3) Contravention of (1) may be relied on as tending to establish contravention of COB 4.2.10 R (1).
- 01/04/2004
Information not available at time of issue of terms of business
COB 4.2.11A
See Notes
- 09/10/2004
COB 4.2.11B
See Notes
- 09/10/2004
Terms of business provided in more than one document
COB 4.2.12
See Notes
- 09/10/2004
Contents of terms of business: non-mainstream regulated activities of an authorised professional firm
COB 4.2.12A
See Notes
- (1) An authorised professional firm should include, in its terms of business, the information in COB 4 Annex 2.
- (2) For an authorised professional firm, with respect to its non-mainstream regulated activities and as to the content only of its terms of business:
- (a) compliance with (1) may be relied on as tending to establish compliance with COB 4.2.5 R; and
- (b) contravention of (1) may be relied on as tending to establish contravention with COB 4.2.5 R.
- 09/10/2004
Amendment of terms of business
COB 4.2.13
See Notes
- 01/12/2001
Records
COB 4.2.14
See Notes
- (1) A firm must make a record of each terms of business it provides to a customer, and any amendment to them, as soon as the terms of business come into force.
- (2) A firm must retain each record referred to in (1):
- (a) indefinitely, where the terms of business relate to a pension transfer, pension opt-out or FSAVC;
- (b) for six years, where the terms of business relate to a life policy, pension contract or stakeholder pension scheme; and
- (c) for three years in any other case.
- (3) For the purposes of (2), the appropriate time period runs in each case from the date on which the customer ceases to be a customer of the firm.
- 09/10/2004
COB 4.2.17
See Notes
Content of terms of business provided to a customer: Operating an ATS
Operating an ATS | ||
Additional contents in respect of operating an ATS | ||
An ATS operator should also ensure that the terms of business provided to a customer contain information about the following: | ||
(1) | how the ATS operates, including any order handling and order execution processes; | |
(2) | the status of other users of the ATS, for example whether market counterparties, intermediate customers or private customers and whether based within or outside the United Kingdom; | |
(3) | arrangements for the clearing and settlement of transactions, including the respective obligations and responsibilities (if any) of the ATS operator and the customer in relation to clearing and settlement; | |
(4) | if investments that are not listed are traded on the ATS: | |
(a) | that unlisted investments are traded on the ATS; and | |
(b) | that the ATS operator will advise the customer on request where publicly available information about such investments can be obtained; | |
(5) | whether transactions executed using the ATS are reportable transactions; | |
(6) | trading procedures (if any) that may be adopted in the event of system malfunction; | |
(7) | the circumstances in which the ATS operator can terminate the customer's access to the ATS; | |
(8) | procedures (if any) to be adopted in the case of trading errors or disputes; and | |
(9) | whether investments traded on the ATS are qualifying investments for the purposes of the market abuse regime. |
- 01/12/2004
COB 4.3
Disclosing information about services, fees and commission - packaged products
- 01/12/2004
Application
COB 4.3.1
See Notes
- (1) COB 4.3 applies:
- (a) to a firm when carrying on with or for private customers any of the following in relation to packaged products:
- (b) to a firm, other than an insurer, that carries on in relation to a life policy any of the activities in (1) with or for an intermediate customer or a market counterparty.
- (2) COB 4.3, other than COB 4.3.7R (1) and (2), does not apply to a firm when providing basic advice on a stakeholder product.
- 06/04/2005
Purpose
COB 4.3.2
See Notes
- 01/12/2004
Disclosure to private customers on first making contact
COB 4.3.3
See Notes
- (1)
- (a) A firm must take reasonable steps to ensure that its representatives on first making contact with a private customer with a view to:
- (i) advising on investments on packaged products; or
- (ii) dealing as agent in packaged products; or
- (iii) arranging (bringing about) deals in packaged product; or
- (iv) making arrangements with a view to transactions in life policies;
- provide the customer, in a durable medium, with information concerning:
- (b)
- (i) the firm and the scope of and nature of its services (an initial disclosure document); and
- (ii) where (a)(i) applies, the firm's arrangements for charging and receiving fees and commission (a fees and commission statement);
- in both cases being information which the firm reasonably considers will be, or is likely to be, appropriate for the customer having regard to the type of service which the firm may provide or business which the firm may conduct.
- (2) A firm must also provide a private customer with an initial disclosure document if, in relation to the amendment of a life policy for that private customer, it:
- (a) advises on investments on packaged products; or
- (b) deals as agent in packaged products; or
- (c) arranges.
- (3)
- (a) The requirements in (1) and (2) do not apply:
- (i) to the extent that the appropriate information has already been given to the customer on a previous occasion and that information is still likely to be accurate and appropriate for the customer; or
- (ii) if COB 4.3.16 G (initial contact by telephone) applies; or
- (iii) to a firm when it carries out an execution only transaction in non-life packaged products; or
- (iv) to an insurer for those customers in respect of which it is not advising on investments.
- (b) A firm that reasonably expects it will not be advising on investments in respect of products falling within any of the product groups set out in Note 14 to COB 4 Annex 6R does not have to comply with the requirements in (1)(b)(ii) but if it does advise on investments on these products the rules will apply to the firm in respect of the fees and commission statement as if it was required by (1)(b)(ii) to provide the statement.
- (4) The requirements in (1) and (2) will apply to:
- (a) a firm that is acting as a discretionary investment manager for private customers; or
- (b) a firm which is effecting execution-only transactions in packaged products for private customers;
- only if the firm is carrying on an insurance mediation activity in relation to life policies for those private customers, in which case the requirements in (1) and (2) will only apply to the extent of requiring the firm to provide those private customers with an initial disclosure document.
- (5) A firm which acts for a private customer under a non-discretionary management agreement need not comply with the requirements in (1) above to provide an initial disclosure document or a fees and commission statement if the following are satisfied:
- (a) the firm is remunerated by the customer by the payment of a fee; and
- (b) the agreement provides that the firm may recommend securities as well as packaged products for inclusion in the customer's portfolio and that in respect of packaged products the firm will make selections from the whole market;
- but such a firm must, if it is carrying on an insurance mediation activity for a private customer in relation to life policies, comply with the requirements in (1) as to the provision of an initial disclosure document to the private customer.
- (6) A firm which is required in accordance with this rule to provide an initial disclosure document to a private customer may instead provide the customer with a combined initial disclosure document if it has reasonable grounds to be satisfied that the services which it is likely to provide to the customer will, in addition to packaged products, relate to one or more of the following:
- (a) regulated mortgage contracts;
- (b) regulated lifetime mortgage contracts;
- (c) non-investment insurance contracts.
- (7) The information contained in the initial disclosure document may be provided orally if a firm has not made a personal recommendation to a private customer, and:
- (a) the customer requests it; or
- (b) immediate cover is necessary;
- but in both cases the firm must provide the initial disclosure document immediately after the conclusion of the contract, in a durable medium.
- 01/12/2004
COB 4.3.4
See Notes
- 01/12/2004
Provision of fees and commission statement on request
COB 4.3.5
See Notes
- 01/12/2004
Firms which charge fees
COB 4.3.6
See Notes
- (1) A firm must before starting to act for a private customer on the basis of a fee charging arrangement:
- (a) secure the customer's agreement to the particular rate or amount which the firm will charge for its services; and
- (b) provide the customer with a record in a durable medium of the particular fee charging arrangement which will apply unless the firm starts to act for the private customer during a telephone call, in which case this record must be forwarded to the customer on conclusion of the call.
- (2) A firm which charges a private customer a fee must do so on the basis that it will, in respect of any commission which it receives in respect of transactions in packaged products for that customer (and to which the particular fee charging arrangement relates), ensure the value of that commission is transferred to the customer by one or more of the following:
- (a) reducing the amount of its fee;
- (b) arranging for the amount invested by the customer to be increased; or
- (c) refunding the amount of the commission to the customer;
- except that this does not prohibit such a firm from agreeing with the customer (in writing) that it will retain an amount or rate of trail or renewal commission up to an amount each year specified in the agreement and so small, relative to the overall amount of fees paid by the customer, that it would be manifestly disproportionate for the firm to be required to account to the customer in one of the ways outlined in (a) to (c).
- 01/12/2004
Ongoing disclosure
COB 4.3.7
See Notes
- (1) A firm which has started to provide a private customer with services in relation to packaged products following the provision of a fees and commission statement must not (at least until the completion of those services):
- (a) increase the rate or amount of the fees it is charging the customer; or
- (b) subject to (4), arrange to retain any commission which exceeds the maximum amount or rate disclosed ;
- without first providing a further appropriate statement and obtaining the customer's prior consent to the proposed alteration in a durable medium.
- (2) A firm which in accordance with (1) secures a private customer's agreement to retain an increased rate or amount of commission must ensure that, if it subsequently provides the customer with a suitability letter, it includes an explanation of why it was necessary for the principal to recommend a packaged product in respect of which the firm will retain such higher commission or fees.
- (3) If a firm decides to provide a private customer with advice on investments on a type of packaged product (which falls within a product group specified in Note 14 to COB 4 Annex 6R) in relation to which the fees and commission statement previously given to the customer does not contain the information required in Note 14 to COB 4 Annex 6R, it must issue a new and appropriate statement to that customer.
- (4)
- (a) Notwithstanding (1)(b) a firm is not required to provide a further fees and commission statement for the purposes of (1) if:
- (i) the maximum amounts or rates disclosed in the statement already provided to the customer only apply to policies of the example term or age of policyholder given in the fees and commission statement, or to policies with shorter terms; and
- (ii) the firm arranges a policy for a term longer than the example term in the statement (or longer than the term deemed for the example age given) and the increase in the commission which the firm arranges to retain over the maximum disclosed in the statement is not more than an amount that is directly proportional to the increase in the duration of the term of the policy(or to the term deemed from the age of policyholder ).
- (b) If requested by a customer, a firm must explain the basis of the higher maximum commission or fees charged in accordance with (4)(a)(ii).
- 01/12/2004
COB 4.3.8
See Notes
- (1) COB 4.3.7R (4) is intended to allow firms to arrange policies for a longer term than that given as the example in the fees and commission statement without requiring any further disclosure but only if the commissions the firm arranges to retain are directly proportional to the maximum commissions disclosed in the statement having regard to the duration of the policy. For example, if the statement disclosed a maximum commission of 10% on a 10 year policy, then on a 20 year policy the maximum commission the firm could arrange to retain is 20% without further disclosure.
- (2) The maximum commissions that apply to policies of a particular term also apply as the relevant maxima for policies with a shorter duration. The rule is of no application in circumstances where a firm arranges to retain commission exceeding the maximum disclosed in the fees and commission statement if the policy arranged has a term shorter than the example given in the statement.
- (3) Long-term care and whole of life policies, for which the example given in the fees and commission statement refers to the age of the policyholder, are deemed to have a term equal to the difference between the age of the policyholder (at the time that the policy is taken out) and the age of 85.
- 01/12/2004
Initial disclosure document
COB 4.3.9
See Notes
- (1) An initial disclosure document must contain the keyfacts logo, headings and text in the order shown in COB 4 Annex 4R and in accordance with the Notes.
- (2) A combined initial disclosure document must contain the keyfacts logo, headings and text in the order shown in COB 4 Annex 5R and in accordance with the Notes.
- (3) If a private customer so requests, a firm should be able to provide an explanation of the basis on which it has chosen to market the particular packaged products within the range from which advice on investments will be given to that customer including an explanation of why the firm has selected particular product providers.
- (4) Information given in the initial disclosure information about compensation arrangements made by an investment firm must:
- (a) (if it relates to the activities of an establishment in the United Kingdom) be in English; or
- (b) (if it relates to the activities of a branch in another EEA State) be in an official language of that EEA State.
- (5) Information given in the initial disclosure information about the insurance mediation activities of a firm must be in English, unless the customer requests it to be, and the firm agrees to it being, in another language.
- 01/12/2004
COB 4.3.10
See Notes
- 01/12/2004
Fees and commission statement
COB 4.3.11
See Notes
- (1) A fees and commission statement must contain the keyfacts logo, heading and text in the order shown in COB 4 Annex 6R and in accordance with the Notes.
- (2) A firm must maintain as many versions of the fees and commission statement set out at COB 4 Annex 6R as are appropriate to the different bases on which it may conduct business with private customers:
- (a) fee only (version 1);
- (b) commission (or equivalent) only (version 2);
- (c) fee or commission (or equivalent) (version 3);
- (d) fee or commission (or equivalent); or combination of commission (or equivalent) and fee (version 4);
- (e) commission (or equivalent); or combination of commission (or equivalent) and fee(version 5);
- (f) fee; or combination of commission (or equivalent) and fee (version 6).
- (3) A firm must keep its fees and commission statements up to date and keep a record of each fees and commission statement for a period of six years from the date on which it was updated or replaced.
- (4) A firm must maintain a record of each particular fees and commission statement which it provides to a private customer (other than when given merely in response to a request).
- 01/12/2004
COB 4.3.12
See Notes
- 01/12/2004
COB 4.3.13
See Notes
- (1) COB 4.3.11 R requires a firm to maintain statements showing the amount it may charge its customers by way of fees, or which it may receive from others by way of commission, in either case in respect of the services it provides in relation to the sale of packaged products. Consistent with COB 5.1 and COB 5.5 the basis on which a firm may provide such services may differ from customer to customer (for example as to whether the firm will select from the whole market, or a limited number of product providers).
- (2) A firm may maintain more than one version of the fees and commission statement but if it does, it must take reasonable steps to ensure that the statement provided to each customer in their initial contact is consistent with the description of the services given to the customer in the firm's initial disclosure document (as required by COB 4.3.3 R) and with the record of the range of packaged products which the firm has supplied to the customer or which it would supply on request to the customer in accordance with COB 4.3.15 R.
- (3) If a firm alters the nature of the services it provides for any customer then it may also change the basis or amount by which it will be remunerated whether by fees or commission. A firm proposing to make such a change should first provide the customer with a new fees and commission statement and explain its proposed altered basis for charging and receiving commission and seek the customer's consent to proceeding on that basis. A firm may when conducting further and separate services with a customer seek to do so on the basis of different arrangements for its remuneration.
- 01/12/2004
Record for distribution of range of packaged products
COB 4.3.14
See Notes
- 01/12/2004
COB 4.3.15
See Notes
- 01/12/2004
keyfacts information, terms of business and telephone sales
COB 4.3.16
See Notes
- (1) COB 4.3.17 R and COB 4.3.18 R enable provision by a firm of an initial disclosure document to a