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), 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.
- 01/07/2005
- Past version of COB 1.2.1 before 01/07/2005
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
- Past version of COB 1.2.1B before 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);
- (3) COB 4.2.3 G which contains guidance for authorised professional firms on the provision of terms of business; and
- (4) COB 7.17 which relates to disclosures required to be made in relation to investment research recommendations as a result of the Market Abuse Directive.
- 01/07/2005
- Past version of COB 1.2.5 before 01/07/2005
Use of third party processors in life insurance mediation activities
COB 1.2.6
See Notes
- (1) Where a firm (or its appointed representative) outsources insurance mediation activities to a third party processor, it is responsible for the acts and omissions of that third party processor conducting those outsourced activities. In these circumstances, any COB rules requiring the third party processor to disclose identity to customers must be interpreted as a requirement to disclose the firm's identity.
- (2) If the third party processor is advising on investments, (1) does not apply.
- 06/12/2006
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) home finance 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.
- 06/04/2007
- Past version of COB 1.3.1 before 06/04/2007
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 home finance activity .
- (8) ICOB applies to a firm in relation to insurance mediation activities in connection with non-investment insurance contracts.
- 06/04/2007
- Past version of COB 1.3.2 before 06/04/2007
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) 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.
- 01/07/2006
- Past version of COB 1.3.5 before 01/07/2006
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 ; or
- (3) (except as set out in (2) and in COB 1.4.12 R (IMD passported activities)) when an incoming EEA firm is providing cross-border services in the United Kingdom under the IMD.
- 06/10/2006
- Past version of COB 1.4.3 before 06/10/2006
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
- Past version of COB 1.4.7 before 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) 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.
- (5) The only provisions in COB that apply to passported activities carried on by an EEA firm under the IMD from a branch in the UK are:
- (a) the IMD minimum implementation provisions, on the basis in (4), unless the firm's Home State regulator imposes measures which implement articles 12 and 13 of the IMD for these activities;
- (b) COB 1.4.5 R (Financial promotions), COB 1.4.4 R (Overseas business for UK private customers) and COB 1.4.10 R (Electronic commerce activities and communications);
- (c) the other provisions in COB relating to articles 12 and 13 of the IMD (beyond the minimum required to implement these articles), unless the firm's Home State regulator imposes measures of like effect for those activities; and
- (d) (if the activities are in connection with a distance contract with a retail customer) the provisions in COB which implement the DMD, unless the firm's Home State imposes measures which implement, or correspond to obligations provided for by, the DMD.
- 06/10/2006
- Past version of COB 1.4.12 before 06/10/2006
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
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 |
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 |
7.16 | Investment research |
7.17 | Investment research recommendations: required disclosures |
8.1 | Confirmation of transactions |
[deleted] | [deleted] |
- 01/07/2006
- Past version of COB 1.6.2 before 01/07/2006
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 |
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 - COB 3.8.20A R 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 |
7.17 | Investment research recommendations: required disclosures |
[deleted] | [deleted] |
- 01/07/2006
- Past version of COB 1.6.4 before 01/07/2006
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 |
7.16 | Investment research |
7.17 | Investment research recommendations: required disclosures |
8.1 | Confirmation of transactions |
[deleted] | [deleted] |
- 01/07/2005
- Past version of COB 1.6.7 before 01/07/2005
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
- Past version of COB 1.6.9 before 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, personal pension scheme 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.
- 06/04/2007
- Past version of COB 1.10.2 before 06/04/2007
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:
|
- 06/04/2007
- Past version of COB 1.11.1 before 06/04/2007
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
- 01/07/2006
- Past version of COB 2.2 before 01/07/2006
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
Allowable benefits provided under a soft commission agreement
Prior disclosure
Periodic disclosure
Exceptions
Record keeping
COB 2.2.20
See Notes
- (1) [deleted]
- (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.
- 01/07/2006
- Past version of COB 2.2.20 before 01/07/2006
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
COB 2.4.1A
See Notes
- 01/01/2007
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 118A(5)(a) of the Act, behaviour conforming with COB 2.2.4R(1) does not amount to market abuse.
- 01/07/2005
- Past version of COB 2.4.4 before 01/07/2005
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, qualifying credit, home purchase plans and home reversion plans;
- (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.
- 06/04/2007
- Past version of COB 3.1.2 before 06/04/2007
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 PERG 8 (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 PERG 8.6 (Communicate);
- (b) "invitation or inducement" and "engage in investment activity" (two elements which, with "communicate", make up the definition of "financial promotion") is in PERG 8.4 (Invitation and inducement) and PERG 8.7 (Engage in investment activity).
- (2) Guidance on the "approval" of a financial promotion is in COB 3.12.1 G (Approval of financial promotions).
- 01/07/2005
- Past version of COB 3.2.1 before 01/07/2005
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
- Past version of COB 3.2.3 before 14/01/2005
Financial promotions for home finance transactions
COB 3.2.3A
See Notes
- 06/04/2007
- Past version of COB 3.2.3A before 06/04/2007
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 exempted from complying with the Takeover Code by that Code , 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. |
- 06/02/2007
- Past version of COB 3.2.5 before 06/02/2007
Combination of exemptions
COB 3.2.6
See Notes
- 01/12/2001
Guidance on the exemptions
COB 3.2.7
See Notes
- (1) Under COB 3.2.5 R(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 PERG 8 (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. PERG 8.14.3G (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). PERG 8.4.20G (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). PERG 8.4.13G (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. PERG 8.21.11G (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 PERG 8.12.2G (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 PERG 8.20 (Additional restriction on the promotion of collective investment schemes)).
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
- Past version of COB 3.2.8 before 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 PERG 8.12.2G (Financial promotions to overseas recipients (article 12)), the exemptions for overseas communicators (see COB 3.2.5 R(3) and PERG 8.14.14G (Overseas communications (articles 30 to 33)) and the exemption for incoming electronic commerce communications (see PERG 8.12.38G (Incoming electronic commerce communications (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.
- 01/10/2005
- Past version of COB 3.3.2 before 01/10/2005
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 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.
- 01/10/2005
- Past version of COB 3.3.6 before 01/10/2005
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 PERG 8.20 (Additional restriction on the promotion of collective investment schemes).
- 01/07/2005
- Past version of COB 3.4.1 before 01/07/2005
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. PERG 8 (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.
- 01/07/2005
- Past version of COB 3.4.2 before 01/07/2005
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) [deleted] and;
- (4) the Privacy and Electronic Communications (EC Directive) Regulations (SI 2003/2426).
- 01/07/2005
- Past version of COB 3.5.3 before 01/07/2005
"Real time" and "non-real time" financial promotions
COB 3.5.4
See Notes
- 01/07/2005
- Past version of COB 3.5.4 before 01/07/2005
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, personal pension scheme or stakeholder pension scheme;
- (c) three years in any other case.
- 06/04/2007
- Past version of COB 3.7.1 before 06/04/2007
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
- 01/10/2005
- Past version of COB 3.8.1 before 01/10/2005
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
- Past version of COB 3.8.6 before 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.
- (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.
- 01/10/2005
- Past version of COB 3.8.7 before 01/10/2005
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 LR 15; 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.
- 01/07/2005
- Past version of COB 3.8.9 before 01/07/2005
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) or a simplified prospectus drawn up in accordance with the requirements of COB 6.2 (Provision of key features or simplified prospectus).
- 01/05/2005
- Past version of COB 3.8.13 before 01/05/2005
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
- Past version of COB 3.8.19 before 06/04/2005
COB 3.8.20
See Notes
- 01/12/2001
Specific non-real time financial promotions: simplified prospectus schemes and equivalent recognised schemes
COB 3.8.20A
See Notes
- 01/10/2005
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
- Past version of COB 3.8.22 before 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 or short-term annuities | 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 |
- 06/04/2006
- Past version of COB 3.9.3 before 06/04/2006
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
- Past version of COB 3.9.4 before 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
- (1) A direct offer financial promotion relating to a packaged product other than a simplified prospectus scheme or a recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) must contain the information required by COB 6.5.2 R (1), (3) and (5) as applicable (Contents of key features).
- (2) A direct offer financial promotion relating to a simplified prospectus scheme must contain the information required by COB 6.2.37 (Table: Contents of the simplified prospectus).
- (3) A direct offer financial promotion relating to a recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) must contain the information which the competent authority of the recognised scheme's Home State requires a simplified prospectus to contain.
- (4) Where a direct offer financial promotion relates to a funds supermarket service, the promotion may, instead of meeting the requirements in (1), (2) and (3), take the form of a composite key features document that complies with the requirements of COB 6.5 (Content of key features) provided that it contains a clear statement that the simplified prospectus of each simplified prospectus scheme and simplified prospectus of each recognised scheme to which the service relates is available free of charge on request.
- 01/10/2005
- Past version of COB 3.9.10 before 01/10/2005
COB 3.9.11
See Notes
- (1) The information should follow, where possible, the same order as key features or, as the case may be, the simplified prospectus. But adjustments may be made to the order, where this would assist design and understanding of the material.
- (2) Where the direct offer financial promotion relates to more than one key features scheme, simplified prospectus scheme or recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) or any combination of them, the information to be provided in the promotion may be presented on a composite basis.
- 01/10/2005
- Past version of COB 3.9.11 before 01/10/2005
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 under Part VI of the Act, the information specified in 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.
- 01/07/2005
- Past version of COB 3.9.26 before 01/07/2005
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 and short-term annuity
COB 3.9.29
See Notes
A direct offer financial promotion relating to, or offering a facility for, income withdrawals or a short-term annuity must include the following explanations:
- (1) the value of the fund may be eroded, especially if investment returns are poor and a high level of income is taken; this could result in a lower income in the future;
- (2) the investment returns may be less than those shown in the illustrations;
- (3) annuity or scheme pension rates may be at a worse level in the future;
- (4) when maximum withdrawals are taken or the maximum short-term annuity is purchased, high levels of income may not be sustainable; and
- (5) the maximum income that can be withdrawn under an alternatively secured pension after age 75 is significantly less than the maximum that applies before age 75.
- 06/04/2006
- Past version of COB 3.9.29 before 06/04/2006
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
- 01/07/2005
- Past version of COB 3.10.2 before 01/07/2005
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) PERG 8.20 (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).
- 01/07/2005
- Past version of COB 3.11.1 before 01/07/2005
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 PERG 8 (Financial promotion and related activities), in particular, PERG 8.9 (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)).
- 01/07/2005
- Past version of COB 3.12.1 before 01/07/2005
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
- 01/07/2005
- Past version of COB 3.14.2 before 01/07/2005
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, simplified prospectus, 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, simplified prospectus, 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 or the simplified prospectus, 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 or simplified prospectus, 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.
- 01/05/2005
- Past version of COB 3.14.5 before 01/05/2005
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
person who the communicator reasonably
believes to be a certified high net worth individual (as defined by article 48(2)); and (2) accompanied by the giving of a warning as specified by article 48(7). |
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) |
50A Self-certified sophisticated investors | All | Note 2 | (1)
Made to a person who
the communicator reasonably
believes to be a self-certified sophisticated investor (as defined by article
50A (1)); and (2) accompanied by the giving of a warning as specified by article 50A (4) |
51 Associations of high net worth or sophisticated investors | Solicited real time Non-real time | Note 1 | (1)
Made to an association, or to a member of 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), certified sophisticated
investors within article 50 and self-certified sophisticated investors within article 50A; 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 and 71 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 |
72 Pension products offered by employers | All | Note 5 | Made
by an employer to an employee about a group
personal pension scheme or a stakeholder pension scheme where: (1) the employer will make a contribution to the scheme in the event of the employee joining the scheme and the financial promotion informs the employee of this fact: (2) the employer has not and will not receive any direct financial benefit from the scheme; (3) the employer informs the employee in writing prior to his becoming a member of the scheme of the amount of his contributions to the scheme in respect of that employee; and (4) where the communication is a non-real time financial promotion, the employee is informed of his right to seek advice from a regulated person. |
73 Advice centres | All | Note 6 | Made by an adviser for or employee of an advice centre (as defined in article 73(3)) in the course of carrying out his duties as such. |
Notes to Annex 1G | |
References in these notes to paragraphs are to paragraphs of Schedule 1 to the Financial Promotion Order. The controlled investments italicised in these notes are defined in the same way in both the Financial Promotion Order and the Regulated Activities Order. | |
Note
1: The following controlled activities: | |
(1) | effecting and carrying out contracts of insurance within paragraph 2 in relation to life policies; |
(2) | dealing in securities and contractually based investments within paragraph 3; |
(3) | arranging deals in investments within paragraph 4; |
(4) | managing investments within paragraph 5; |
(5) | safeguarding and administering investments within paragraph 6; |
(6) | advising on investments within paragraph 7; |
(7) | advising on syndicate participation at Lloyd's within paragraph 8; |
(8) | providing funeral plan contracts within paragraph 9; |
(9) | agreeing to carry on any of (2) to (8) within paragraph 11. |
Note
2: The controlled activities specified in Note 1 carried on in relation to one or more of: | |
(1) | shares (paragraph 14) being stock or shares in an unlisted company; |
(2) | debentures (paragraph 15) acknowledging the indebtedness of an unlisted company; |
(3) | warrants (paragraph 17) and certificates representing certain securities paragraph 18) conferring entitlements or rights with respect to (1) or (2); |
(4) | units (paragraph 19) in a collective investment scheme which invests wholly or predominantly in (1) or (2); |
(5) | options (paragraph 21) to acquire or dispose of (1), (2) or (3); |
(6) | futures (paragraph 22) which are rights under a contract for the sale of (1), (2) or (3); |
(7) | contracts for differences (paragraph 23) which relate to or to fluctuations in the value or price of (1), (2) or (3) |
provided that in each case the investor cannot under the terms of the investment incur a liability or obligation to pay or contribute more than he commits by way of investment. | |
Note
3: The controlled activities specified in Note 1 carried on in relation to one or more of: | |
(1) | shares (paragraph 14) |
(2) | debentures (paragraph 15) |
(3) | warrants (paragraph 17) and certificates representing certain securities (paragraph 18) so far as relating to (1) or (2). |
Note
4: The controlled activities specified in Note 1 carried on in relation to one or more of: | |
(1) | shares (paragraph 14); |
(2) | debentures (paragraph 15); |
(3) | government and public securities (paragraph 16); |
(4) | warrants (paragraph 17); |
(5) | certificates representing certain securities (paragraph 18); |
in each case which is permitted to be traded or dealt in on a relevant market (as defined in article 67(2)). | |
Note 5: The controlled activities specified in Note 1 carried on in relation to either: | |
(1) | life policies (paragraph 13); or |
(2) | stakeholder pension schemes (paragraph 20). |
In both cases, only where relating to a group personal pension scheme or stakeholder pension scheme that the employer is promoting to his employees. | |
Note 6: The controlled activities specified in Note 1 carried on in relation to: | |
(1) | life policies (paragraph 13); or |
(2) | qualifying credit (paragraph 26); or |
(3) | shares (paragraph 14); or |
(4) | debentures (paragraph 15); or |
(5) | government and public securities (paragraph 16); or |
(6) | units (paragraph 19) in a collective investment scheme; or |
(7) | any combination of (1) to (6). |
In the case of (3), (4), (5) and (6), only where held under a Child Trust Fund (CTF). |
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 or civil partner'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. |
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. |
Note 5. The controlled activities specified in Note 1 carried out in relation to either: |
|
(1) | life policies (paragraph 13); or |
(2) | stakeholder pension schemes (paragraph 20). |
In both cases, only where relating to a group personal pension scheme or stakeholder pension scheme that the employer is promoting to his employees. | |
Note 6. The controlled activities specified in Note 1 carried out in relation to either: |
|
(1) | life policies (paragraph 13); or |
(2) | qualifying credit (paragraph 26); or |
(3) | shares (paragraph 14); or |
(4) | debentures (paragraph 15); or |
(5) | government and public securities (paragraph 16; or) |
(6) | units (paragraph 19) in a collective investment scheme; or |
(7) | any combination of (1) to (6). |
In the case of (3), (4), (5) and (6), only where held under a Child Trust Fund (CTF). |
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
- Past version of COB 4.1.1 before 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
- Past version of COB 4.1.3 before 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) [deleted]
- (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.
- 01/03/2006
- Past version of COB 4.1.6 before 01/03/2006
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 or SSAS, or a trustee or operator of a personal pension scheme or stakeholder pension scheme where the scheme 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):
- 06/04/2007
- Past version of COB 4.1.12 before 06/04/2007
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) [deleted]
- (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).
- 01/01/2006
- Past version of COB 4.2.11 before 01/01/2006
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, personal pension scheme 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.
- 06/04/2007
- Past version of COB 4.2.14 before 06/04/2007
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
- Past version of COB 4.2.17 before 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
- Past version of COB 4.3.1 before 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 other than lifetime mortgages;
- (aA) home purchase plans;
- (b) equity release transactions ;
- (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.
- (8) A firm must take reasonable steps to ensure that its representatives on first making contact with a private customer with a view to advising on investments in SIPPs, personal pension deposits, or personal pension products, inform the customer of the amount and nature (i.e. fees and/or commission (or equivalent) and/or a combination of fees and commission (or equivalent)) of any payments that the customer will have to pay, directly or indirectly, for the advice on investments.
- 06/04/2007
- Past version of COB 4.3.3 before 06/04/2007
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 or the original payment information 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 or further payment information 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 Notes 14 or 18A 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 those Notes, it must issue a new and appropriate statement or payment information to that customer.
- (4)
- (a) Notwithstanding (1)(b) a firm is not required to provide a further fees and commission statement or further payment information for the purposes of (1) if:
- (i) the maximum amounts or rates already disclosed to the customer only apply to products of the example term or age of customer given, or to products with shorter terms; and
- (ii) the firm arranges a product for a term longer than the example term (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 already disclosed is not more than an amount that is directly proportional to the increase in the duration of the term of the product(or to the term deemed from the age of customer ).
- (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).
- 06/04/2007
- Past version of COB 4.3.7 before 06/04/2007
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
- 06/11/2006
- Past version of COB 4.3.10 before 06/11/2006
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 certain 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.
- 06/04/2007
- Past version of COB 4.3.13 before 06/04/2007
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 private customer to be taken as compliance also with analogous information provision requirements contained in COB 4.2 (Terms of business and client agreements with customers).
- (2) In cases where firms make initial contact with a customer on the telephone a firm may, in addition, have to take into account and comply with the additional requirements applicable to the conclusion of distance contracts. COB 4.3.18 R expands on the items of information which a firm is required to give in accordance with COB 4 Annex 1 so that where the firm expects to conduct business relating to packaged products adequate information is given during the telephone call about the nature and scope of the services which the firm will or may provide.
- 01/12/2004
COB 4.3.17
See Notes
- (1) A firm which complies with COB 4.3.3 R will, in respect of any requirement imposed by COB 4.2 as to the delivery or content of information to be included in its terms of business, be regarded as complying with any such analogous requirement.
- (2) Any information required by COB 4.2 which is not covered by (1) may be satisfied by it being included at the end of an initial disclosure document which is given to a private customer in accordance with COB 4.3.3 R or, if provided at the same time, by way of separate items of information.
- 01/12/2004
COB 4.3.18
See Notes
- (1) Where a firm's initial contact with a private customer (for a purpose set out in COB 4.3.3R (1)) is by telephone then the following information must be provided and requirements satisfied before proceeding further:
- (a) the name of the firm and, if the call is initiated by or on behalf of a firm, the commercial purpose of the call;
- (b) whether the firm offers packaged product from the whole market or from a limited number of companies or from a single company or single group of companies;
- (c) whether the firm will provide the customer with advice on investments on packaged products;
- (d) if the firm does not offer products from the whole market, that the customer can request a copy of the appropriate range of packaged products;
- (e) whether the firm offers a fee based service, a commission based service, a service based on a combination of fee and commission, or a combination of these three types of services, and the consequences for the customer of proceeding with each type of service;
- (f) that the information given under (a) to (e) will subsequently be confirmed in writing.
- (2) A firm which complies with (1) will, subject to (3), satisfy the condition set out in item (1) of COB 4 Annex 1.
- (3) If during the course of a telephone call a firm is to conclude a contract (whether for the provision of a mediation services and/or for the purchase or sale of a packaged product), it must as well as complying with (1) and (2) above satisfy the requirement in COB 4.2.5 R and COB 4 Annex 1.
- (4) If a firm's initial contact with a private customer by telephone is such that COB 4.3.3 R (other than COB 4.3.3R (3)(a)(ii)) applies then, subject to any relevant exclusions, it must send the customer an initial disclosure document and a fees and commission statement as soon as is reasonably practicable following the conclusion of the call.
Intermediate customers and market counterparties (and private customers who are introduced): disclosure before conclusion of the contract or immediately after conclusion of the contract
- 01/12/2004
COB 4.3.19
See Notes
- (1) COB 4.3.20 R to COB 4.3.25 R apply to a firm, other than an insurer, when it conducts any of the following in relation to life policies with or for an intermediate customer or a market counterparty:
- (a) advising on investments; or
- (b) dealing; or
- (c) arranging.
- (2) COB 4.3.26 R (disclosure by introducers) applies to a firm:
- (a) when it introduces a private customer to another firm;
- (b) other than an insurer when it introduces an intermediate customer or market counterparty to another firm.
- 14/01/2005
COB 4.3.20
See Notes
- (1) The information in COB 4.3.21 R must be provided to the client in a durable medium at any time before conclusion of the contract, and if necessary upon amendment or renewal thereof, unless (2) or (4) applies.
- (2) The information in COB 4.3.21 R:
- (a) may be provided orally if:
- (b) need not be provided before conclusion of the contract if the contract is concluded by telephone, but if the client is a retail customer the requirements in COB 4.2.5 R and COB 4 Annex 1 must be satisfied.
- (3) If (2) applies, the client must be provided with the information in COB 4.3.21 R in a durable medium immediately after the conclusion of the contract.
- (4) The requirements in (1) do not apply to the extent that the information has already been given to the client on a previous occasion and that information is still likely to be accurate and up to date.
- 14/01/2005
COB 4.3.21
See Notes
Information to be provided before conclusion of the contract or immediately after conclusion of the contract.
This table belongs to COB 4.3.20 R
1. | The name and address of the firm and, where relevant, the name and address of the appointed representative. | |
2. | The firm's statutory status (in accordance with GEN 4 Annex 1 (Statutory status disclosure)). | |
3. | That items 1 and 2 can be checked on the FSA Register by visiting the FSA's website www.fsa.gov.uk/register or by contacting the FSA on 0845 606 1234. | |
4. | Whether the firm or any appointed representative of the firm has any holding, direct or indirect, representing more than 10 per cent of the voting rights or of the capital in an insurance undertaking. | |
5. | Whether an insurance undertaking or parent of an insurance undertaking has a holding, direct or indirect, representing more than 10 per cent of the voting rights or of the capital in the firm or in any appointed representative of the firm. | |
6. | In relation to the life policy provided, whether the firm offers the product: | |
(a) | on the basis of a fair analysis of the market; or | |
(b) | from a limited number of insurance undertakings; or | |
(c) | from a single insurance undertaking. | |
If (b) or (c) apply, the firm must also disclose whether it is contractually obliged to conduct insurance mediation activity in this way. | ||
7. | If the contract has not been offered on the basis of a fair analysis of the market, that the client can request a copy of the list of the insurance undertakings from which the firm has offered the product. | |
8. | How to complain to the firm and, where relevant, that complaints may subsequently be referred to a named complaints scheme. | |
9. | Where relevant, that compensation may be available from a named compensation scheme should the firm be unable to meet its liabilities; the firm must describe the extent and level of cover and how further information can be obtained. |
- 14/01/2005
COB 4.3.22
See Notes
- (1) A firm must provide the information specified in COB 4.3.21 R:
- (a) (if it relates to the activities of an establishment in the United Kingdom) in English; or
- (b) (if it relates to the activities of a branch in another EEA State) in an official language of that EEA State.
- (2) The information provided by a firm pursuant to COB 4.3.20 R and which relates to the firm's insurance mediation activities, must be in English, unless the customer requests it to be, and the firm agrees to it being, in another language.
- 14/01/2005
COB 4.3.23
See Notes
- 14/01/2005
COB 4.3.24
See Notes
A firm that provides the information required by COB 4.3.20 R in an initial disclosure document or combined initial disclosure document may amend or delete sections of the document subject to the following:
- (a) the firm must not include the keyfacts logo and the heading and text in Section 1 unless it uses the document in full and without altering the text other than that in sections 5, 7 and 8, which may be amended or deleted; and
- (b) the firm must still provide the information covered by the amended or deleted sections if required to do so by COB 4.3.20 R
- 14/01/2005
Information to be provided to clients on request
COB 4.3.25
See Notes
- (1) A firm that provides a service of a type described in COB 4.3.21 R must maintain, and keep up to date, for each type of life policy it deals with, a list of insurance undertakings it deals with.
- (2) The information in (1) must be maintained in a form which allows a copy to be provided to a client on request, in accordance with COB 4.3.21 R, in a durable medium.
- 14/01/2005
Disclosure by introducers
COB 4.3.26
See Notes
- (1) A firm that only introduces a client to another firm with a view to a transaction in a life policy, must provide the information in COB 4.3.21 R (1) and (2) at the time it makes initial contact with the client. The information may be provided orally.
- (2) If the information required in (1) is provided orally, the information in COB 4.3.21 R (1) and (2) must be provided in a durable medium immediately after the initial contact between the firm and the client.
- 14/01/2005
Group Personal Pensions
COB 4.3.27
See Notes
A firm must take reasonable steps to ensure that its representatives on first making contact with an employee with a view to advising on his employer's group personal pension scheme or stakeholder pension scheme, inform the employee:
- (1) that the firm will be providing advice on investments on group personal pension schemes and/or stakeholder pension schemes provided by the employer;
- (2) whether the employee will be provided with advice on investments:
- (a) that is restricted to the group personal pension scheme or stakeholder pension scheme provided the employer; or
- (b) the matters in (a) and other products;
- (3) the amount and nature (ie fees and/or commission (or equivalent) and/or a combination of fees and commission (or equivalent)) of any payments that the employee will have to pay, directly or indirectly, for the advice on investments.
- 06/04/2007
- Past version of COB 4.3.27 before 06/04/2007
COB 4 Annex 1
Exemptions from terms of business requirement
- 01/12/2004
COB 4 Annex 1.1
See Notes
Circumstances in which the terms of business requirement in COB 4.2.5 R does not apply and conditions for using the exemption (R)
This table belongs to COB 4.2.5 R
Exempted type of firm or transaction or event: | Conditions for using the exemption: | |||
(1) | Voice telephony communications | (a) | At the beginning of the telephone conversation, the firm must provide the customer with the name of the firm and (if the call is initiated by or on behalf of the firm) the commercial purpose of the call; | |
(b) | if the customer gives his explicit consent to receiving only limited information about the terms of business, the firm must in good time before the retail customer is bound by a contract or offer on the telephone, provide the customer with at least the following information: | |||
(i) | the name of the person in contact with the customer and his link with the firm; | |||
(ii) | a description of the main characteristics of the service; | |||
(iii) | the total price to be paid by the customer to the firm for the services, including all related fees, charges and expenses, and all taxes paid through the firm or, where an exact price cannot be indicated, the basis for the calculation of the price enabling the customer to verify it; and notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it; | |||
(iv) | the existence or absence of a right to cancel under COB 6.7 and, where there is such a right, its duration and the conditions for exercising it, including information on the amount which the customer may be required to pay in accordance with COB 6.7.52 R (1)(b), as well as the consequences of not exercising it; and | |||
(v) | that other information is available on request and the nature of that information; | |||
(c) | if the customer does not give his explicit consent to receiving limited information, and the parties wish to proceed by telephone, the firm must in good time before the retail customer is bound by a contract or offer on the telephone, provide all of the information required by COB App 1 orally to the customer; and | |||
(d) | in the case of either (b) or (c), the firm must immediately after conclusion of the contract, send the customer a full terms of business | |||
(See also COB 3.8.21 G (Real time financial promotions) and COB 3.10 (Unsolicited real time financial promotions)). | ||||
(2) | The service is being provided exclusively by means of distance communication (other than telephone) which does not enable a terms of business to be provided before a contract is concluded | (a) | The service is provided in this way at the customer's request; and | |
(b) | the firm must send the terms of business to the customer immediately after conclusion of the contract |
|||
(3) | The firm has an initial service agreement with the customer | The designated investment business to be conducted is a successive operation or separate operation of the same nature to be performed for the customer under that initial agreement (see COB 1.11.3 R) | ||
(4) | The firm has no initial service agreement with the customer but the designated investment business to be conducted is a successive operation or separate operation of the same nature for the customer (see COB 1.11.3 R) | The firm has performed an operation of the same nature for the customer within the last year | ||
(5) | Life insurer | The firm is effecting a life policy issued or to be issued by it as principal | ||
(6) | Operator of a collective investment scheme | The firm is: | ||
(a) | conducting any designated business as part of scheme management activity; or | |||
(b) | providing any service to the trustee or depositary of the scheme which is not part of the operator's scheme management activity; or | |||
(c) | selling or purchasing as principal units in a scheme except a sale or purchase of units in an unregulated collective investment scheme under a distance contract with a retail customer | |||
(7) | Trustee or depositary | The firm is acting as a trustee of a unit trust or depositary of an ICVC | ||
(8) | Operator of investment trust savings scheme | The firm is: | ||
(a) | bringing about a transaction in the shares of any investment trust that is the subject of the scheme; or | |||
(b) | conducting any designated investment business as part of its activities as such (except a distance contract not within (a) with a retail customer) | |||
(8A) | Operating a personal pension scheme or stakeholder pension scheme | The customer is a scheme member | ||
(9) | Supplier of a published recommendation | The firm is supplying a published recommendation | ||
(10) | OPS firms who are trustees of an OPS | The firm is carrying on any designated investment business as part of its OPS activity in relation to an occupational pension scheme of which it is trustee | ||
(11) | Advising during preparation of terms of business | The advice on investments or information is provided solely for the purpose of preparing terms of business or entering into a client agreement | ||
(12) | Designated investment business performed after termination of terms of business | The firm is acting for the purposes only of fulfilling any obligations still outstanding under the terms of business | ||
(13) | Execution-only transactions | The firm is entering into or bringing about any execution-only transaction except: | ||
(a) | a transaction in a contingent liability investment with or for a private customer; or | |||
(b) | where the firm is entering into a distance contract with a retail customer, unless the contract: | |||
(i) | relates solely to dealing as agent, advising or arranging by the firm; and | |||
(ii) | is concluded merely as a stage in the provision of another service by the firm or another person (see COB 1.11.3 R) | |||
(14) | Direct offer financial promotion | The firm is concluding a contract with a customer as a result of a direct offer financial promotion to which COB 3.9 (Direct offer financial promotions) applies. (COB 4.2.5 R (Requirement to provide terms of business to a customer) may therefore apply for a contract concluded as a result of a direct offer financial promotion communicated to a person outside the United Kingdom.) | ||
(15) | The customer is an intermediate customer and not a retail customer | The firm must provide terms of business within a reasonable period of the firm beginning to conduct business with or for the customer |
COB 4 Annex 2
Terms of business content - general
- 01/12/2004
COB 4 Annex 2.1
See Notes
Content of terms of business provided to a customer: general requirements
This table belongs to COB 4.2.11 E
A firm's terms of business (including a client agreement) provided to a customer should, where relevant, include some provision about: | |||
(1) | Commencement of the terms of business When and how the terms of business are to come into force. |
||
(2) | Regulator The firm's statutory status (in accordance with GEN 4 Annex 1 (Statutory Status Disclosure)). |
||
(3) | Investment objectives The customer's investment objectives. |
||
(4) | Restrictions | ||
(a) | Any restrictions on: | ||
(i) | the types of designated investment in which the customer wishes to invest; and | ||
(ii) | the markets on which the customer wishes transactions to be executed; or | ||
(b) | that there are no such restrictions. | ||
(5) | Services The services the firm will provide. |
||
(6) | Payments for services Details of any payment for services payable by the customer to the firm, including where appropriate: |
||
(a) | the basis of calculation; | ||
(b) | how it is to be paid and collected; and | ||
(c) | how frequently it is to be paid; | ||
whether or not any other payment is receivable by the firm (or to its knowledge by any of its associates) in connection with any transaction executed by the firm, with or for the customer, in addition to or in lieu of any fees. | |||
(7) | Investment manager If the firm is to act as an investment manager: |
||
(a) | the arrangements for giving instructions to the firm and acknowledging those instructions; | ||
(b) | the initial value of the managed portfolio; | ||
(c) | the initial composition of the managed portfolio; and | ||
(d) | the period of account for which statements of the portfolio are to be provided in accordance with COB 8.2.4 (Requirement for a periodic statement) (where periodic statements are required). | ||
(8) | Accounting The arrangements for accounting to the customer for any transaction executed on his behalf. |
||
(9) | Cancellation and withdrawal | ||
(a) | In the case of a non-packaged product ISA, PEP or CTF, an explanation of any right to withdraw (see COB 6.7 (Cancellation and withdrawal)) or, if it is the case, a statement that such rights will not apply. | ||
(b) | (In the case of ISAs), information about: | ||
(i) | the options available on cancellation; | ||
(ii) | how cancellation will operate in circumstances where the account forms part of, for example, a maxi-ISA which contains other components; and | ||
(iii) | a statement that the effect of cancelling the last component has the effect of cancelling the entire ISA agreement and may also (where it is the case) delay the customer from entering into another ISA agreement until the next tax year. | ||
(10) | Unsolicited real time financial promotion In the case of a private customer, the circumstances, if any, in which the firm or its representative or employees may communicate an unsolicited real time financial promotion to the private customer. |
||
(11) | Acting as principal That the firm may act as principal in a transaction with the customer, if this is the case. |
||
(12) | Conflict of interest and material interest When a material interest or conflict of interest may or does arise, the manner in which the firm will ensure fair treatment of the customer as required by COB 7.1.3 R (Fair treatment). |
||
(13) | Broker fund adviser If the firm acts as a broker fund adviser for a private customer, a statement explaining the nature of the firm's dual role as adviser to the customer and adviser to the life office or operator in question. |
||
(14) | Use of dealing commission If the firm receives goods or services in addition to the execution of its customer orders in accordance with COB 7.18 (Use of dealing commission), the prior disclosure required by COB 7.18.12 R (Prior and periodic disclosure). |
||
(15) | Customer's understanding of risk When a firm chooses to fulfil its obligations under COB 5.4.3 R (Requirement for risk warnings) in the terms of business in relation to any of the following: |
||
(a) | warrants or derivatives; | ||
(b) | non-readily realisable investment; | ||
(c) | penny shares; | ||
(d) | securities which may be subject to stabilisation; | ||
(e) | stock lending activity; | ||
(f) | a security or an investment trust savings scheme which satisfies the conditions specified in COB 3.8.9 G (6); | ||
the relevant risk warning. | |||
(16) | Unregulated collective investment scheme That the services to be provided by the firm will or may include advice on investments relating to, or executing transactions in units in unregulated collective investment schemes, if this is the case. |
||
(17) | Underwriting That the firm may enter into transactions for the customer, either generally or subject to specified limitations, when the customer will incur obligations as an underwriter or sub-underwriter, if this is the case. |
||
(18) | Stock lending In the case of a private customer, that the firm may undertake stock lending activity with or for the private customer (if this is the case), specifying the assets to be lent, the type and value of relevant collateral from the borrower and the method and amount of payment due to the private customer in respect of the lending. |
||
(19) | Right to realise a private customer's assets The information required by COB 7.8.3 R (Contractual rights to realise a private customer's assets), if applicable. |
||
(20) | Complaints procedure How to complain to the firm, and a statement, if relevant, that the customer may subsequently complain directly to the Financial Ombudsman Service. |
||
(21) | Compensation Whether or not compensation may be available from the compensation scheme, should the firm be unable to meet its liabilities, and information about any other applicable named compensation scheme; and, for each applicable scheme, the extent and level of cover and how further information can be obtained. (See the example in COB 5.5.11 G (Investment firms: compensation information)). |
||
(22) | Termination method How the terms of business may be terminated, including a statement: |
||
(a) | That termination will be without prejudice to the completion of transactions already initiated, if this is the case; | ||
(b) | That the customer may terminate the terms of business by written notice to the firm and when this may take effect; | ||
(c) | That if the firm has the right to terminate the terms of business, it may do so by notice given to the customer, and specifying the minimum notice period, if any; and | ||
(d) | of any agreed time after which, or any agreed event on which, the terms of business will terminate. | ||
(23) | Termination consequences The way in which transactions in progress are to be dealt with upon termination. |
||
(24) | Contracting out of best execution When the obligation to provide best execution can be and is to be waived, a statement: |
||
(a) | that the firm does not owe a duty of best execution; or | ||
(b) | the circumstances in which it does not owe such a duty. | ||
(25) | Authorised professional firms If the firm is an authorised professional firm and may conduct a non-mainstream regulated activity with or for the customer (whether with or without any other regulated activity for the same customer), an explanation, with respect to that activity, of: |
||
(a) | how to complain to the firm, where the customer may subsequently complain and the mechanisms that operate in respect of such a subsequent complaint; and | ||
(b) | what, if any, compensation arrangements are available to the customer if the firm is unable to meet any of its liabilities, or the availability of an explanation describing those arrangements. |
COB 4 Annex 3
Terms of business content - managing investments
- 01/12/2004
COB 4 Annex 3.1
See Notes
Content of terms of business provided to a customer: managing investments on a discretionary basis
This table belongs to COB 4.2.11 E.
Managing investments on a discretionary basis | |||
Additional contents in respect of discretionary management In respect of discretionary management, terms of business (including a client agreement) provided to a customer should, in addition, include some provision about each of: |
|||
(1) | Extent of discretion | ||
(a) | the extent of the discretion to be exercised by the firm, including any restrictions on: | ||
(i) | the value of any one investment; and | ||
(ii) | the proportion of the portfolio which any one investment or any particular kind of investment may constitute; or | ||
(b) | that there are no such restrictions. | ||
(2) | Periodic statements | ||
(a) | The frequency of any periodic statements, except when a periodic statement is not required by COB 8.2.7 (Promptness, suitable intervals and adequate information); and | ||
(b) | whether those statements will include some measure of performance, and if so, what the basis of that measurement will be. | ||
(3) | Valuation | ||
The basis on which assets comprised in the portfolio are to be valued. |
|||
(4) | Borrowings | ||
That the firm may commit the customer to supplement the funds in the portfolio, including borrowing on his behalf, if this is the case, and, if it may: |
|||
(a) | the circumstances in which the firm may do so; | ||
(b) | whether there are any limits on the extent to which the firm may do so and, if so, what those limits are; and | ||
(c) | any circumstances in which such limits may be exceeded. | ||
(5) | Underwriting commitments | ||
If it is the case, that the firm may commit the customer to any obligation to underwrite or sub-underwrite any issue or offer for sale of securities, and: |
|||
(a) | whether there are any restrictions on the categories of securities which may be underwritten and, if so, what these restrictions are; and | ||
(b) | whether there are any financial limits on the extent of the underwriting and, if so, what these limits are. |
COB 4 Annex 4
Initial disclosure document required by COB 4.3.9R(1) ("IDD")
- 01/12/2004
COB 4 Annex 4.1
See Notes
COB 4 Annex 5
Combined initial disclosure document required by COB 4.3.9R(2) ("CIDD")Combined initial disclosure document ("CIDD")
- 01/12/2004
See Notes
This Annex belongs to COB
4.3.9 R (2), ICOB 4.2.7 R, MCOB
4.4.1 R (1) and MCOB 4.10.2 R (1).. This annex consists only of one or more forms or templates. Forms and templates are to be found through the 'Forms' link under Useful Links section at www.fsahandbook.info or on the Handbook CD-ROM. |
COB 4 Annex 6
Fees and Commission Statement template and completion notes
- 01/12/2004
COB 4 Annex 6.1
See Notes
COB 4 Annex 7R
Identifying the maximum rate of commission (or equivalent), the market average and the example
- 01/12/2004
COB 4 Annex 7.1
See Notes
Identifying and describing the maximum rate of commission (or equivalent), the market average and the Example | ||
1. | A firm must state in each fees and commission statement it issues: | |
(a) | its maximum rate of commission (or equivalent) for each product group in the statement in accordance with Note 18 of COB 4 Annex 6 R; | |
(b) | the market average rate for each product group in accordance with Note 19 of COB 4 Annex 6 R; | |
(c) | an illustration in the example column of an amount of commission (or equivalent) calculated by reference to its maximum rate for each product group in the statement and the example contribution levels stated in the tables (ie eg £100 per month or £10,000 lump sum) in accordance with Note 20 of COB 4 Annex 6 R. | |
Maximum rate of commission (or equivalent) |
||
2. | The maximum rate of commission (or equivalent) specified by a firm must be the maximum amount that the firm decides to retain. | |
3. | If the maximum commission (or equivalent) is not apparent from the rates supplied by a product provider then a firm must adopt the net present value comparison method set out below. | |
4. | For any product group, the maximum rate of commission (or equivalent) must not be more than a firm could reasonably expect to receive from any product provider. | |
Identifying a maximum rate of commission - comparison of net present value |
||
5. | A firm must use the assumptions set out in paragraphs 8-12 below when calculating the maximum commission figures to be inserted into its fees and commission statement. Where a firm uses a tool provided by the FSA for this express purpose (for example a calculator provided by the FSA on a cd-rom for the purpose of calculating the maximum commission figures), the calculations can be presumed to have used these assumptions. | |
6. | The net present value for each commission (or equivalent) rate must be calculated as the sum of the discounted values of each commission (or equivalent) payment that the firm may retain for that commission (or equivalent) rate, using the assumptions set out in paragraphs 8-12 below. | |
7. | For any product group, the firm's maximum rate of commission (or equivalent) is the commission (or equivalent) rate in that product group with the highest net present value. | |
8. | A firm must use the assumptions outlined in Table 1 when calculating net present values. |
Table of assumptions to be used in calculating net present values. |
a) | b) | c) | d) | e) | |
Product | Discount Rate | Net growth rate | Lapse rate (per annum) | Assumed Term | Withdrawal rate (per annum) |
Regular premiums/contributions | |||||
Collective investment scheme | Net growth rate + 3% | 6% | 6% | 10 years | |
Endowment | Net growth rate + 3% | 6% | 6% | Maturity | |
Personal Pensions / SHP | Net growth rate + 3% | 6% | 12% for 5 years then 5% | Maturity | |
Whole of Life | Net growth rate + 3% | 6% | 6% | 37 years | |
Single premiums/contributions | |||||
Annuities | Net growth rate + 3% | 6% | 0% | 16 years | |
Bonds | Net growth rate + 3% | 6% | 2.5% | 7 years | 5% |
Collective investment scheme | Net growth rate + 3% | 6% | 6% | 7 years | |
Personal Pensions / SHP | Net growth rate + 3% | 6% | 2.5% | 10 years | |
Income withdrawals | Net growth rate + 3% | 6% | 0% | 10 years | 6% |
9. | Commission (or equivalent) payments must be assumed to be payable as outlined in |
The timing of commission (or equivalent) payments |
Type of commission (or equivalent payment) | When payable |
Initial / indemnified commission | immediately at outset of the contract |
Commission as a % of premiums | at the time of payment of the relevant monthly premium |
Commission as a % of fund value | at the end of each policy month, immediately after any withdrawals and lapses, at a monthly rate of 1/12th of the annual % of the fund value |
10. | Withdrawals must be assumed to occur monthly at a rate that is 1/12th of the assumed annual withdrawal rate. | |
11. | Lapses must be assumed to occur monthly, at a rate that is 1/12th of the assumed annual lapse rate. In calculating the net present value, no commission should be assumed to be payable on the proportion of policies that are assumed to have lapsed. | |
12. | Mortality rates must be ignored. | |
Describing the maximum rate of commission (or equivalent) | ||
13. | Subject to paragraph 14, a firm must use each appropriate description in (ie one or more) to describe the maximum rates of commission (or equivalent) in its fees and commission statement. |
COB 4 Annex 7R Table 3 |
Type of commission (or equivalent) | Descriptions |
Regular premium or contributions | i. "X% of the first 12 month's payments" |
ii. "X % of each of the first n month's payments" | |
iii. "Y% of all payments" | |
iv. "Y% of all payments from month p" | |
v. "Z% of your fund value each year from year q". | |
Lump sums | i. "X% of the amount you invest" |
ii. "Z% of your fund value each year from year q" |
14. | A firm must adapt any of the descriptions prescribed by Tables 3 so that its fees and commission statements adequately describe the particular characteristics of a firm's commission (or equivalent) arrangements. For example, a firm can and should re-express the percentage figure, in the description taken from Table 3, in a "shape" (that is a description of the pattern of payments) that it considers to be typical of the way in which it retains commission (or equivalent). This may differ from the shape in which the particular maximum rate of commission (or equivalent) is actually payable. Another example of the way in which a firm should adapt the descriptions in Table 3 is if the commission received by a firm is payable as a fixed cash amount per policy then alternative wording should be used by the firm to adequately describe the fixed nature of the payment in its description of the rate of commission. | |
15. | A firm that uses more than one of the descriptions in must make it clear that it has used more than one description (eg by inserting the word "plus" in between each description). | |
16. | The maximum rate of commission (or equivalent) must be rounded to the nearest 0.1% unless the commission (or equivalent) is a multiple of 0.25% of a fund value in which case it should be shown rounded to the nearest 0.25%. | |
Identifying and describing the market average | ||
17. | The FSA will publish the net present value of market average rates on its website from time to time. | |
18. | A firm must express the market average rate in the shape or pattern of payments which most closely corresponds to the number, frequency and nature of payments in the shape or pattern of payments used to describe the firm's maximum commission (or equivalent). | |
19. | A firm can use any suitable tool or method to re-express the market average in its fees and commission statements, as long as that method uses the assumptions set out in 8-12 above (for example a calculator contained on a cd-rom of the type referred to in paragraph 5). | |
20. | The market average rate shown in the fees and commission statement must be a re-expression of the published net present value of the market average using the assumptions set out in 8-12 above. Subject to any rounding in the final description, this re-expression should have the same net present value as the published market average. | |
21. | A firm must describe the market average rate using the most appropriate description in the Descriptions column in Table 3. The market average may be equivalently expressed by adopting the method set out in the worked example in COB 4 Annex 9G below, used in conjunction with tables of net present value factors that will be made available by the FSA. These factors will be calculated using the assumptions set out above. Alternatively, the market average expression may be expressed using such other tools, systems or methods as the FSA may make available from time to time. |
|
Changes in the market average | ||
22. | A firm must ensure that its fees and commission statement are revised to take account of changes in the market average rates published by the FSA by not later than: | |
(a) | 2 months from the date on which the FSA prescribes amended market average rates if the effect of the amendment is to reduce any of the averages for a relevant product group by 4% or more of the previous average; and | |
(b) | in all other cases at such time as the firm has occasion to revise its statements. | |
The example | ||
23. | Subject to paragraph 25, a firm must use, in the example in its fees and commission statement, the description in Table 4 that corresponds to description(s) of the maximum rate of the commission (or equivalent) that appears in its fees and commission statement. |
COB 4 Annex 7 R Table 4 |
Type of commission (or equivalent ) | Description of the maximum rate of commission (or equivalent ) | Corresponding description to be used in the example |
Regular premium or contributions | i. "X% of the first 12 month's payments" | i. "£X initially" |
ii. "X % of each of the first n month's payments" | ii. "£X spread evenly over the first n months" | |
iii. "Y% of all payments" | iii. "£Y each year" | |
iv. "Y% of all payments from month p" | iv."£Y each year from month p" | |
v. "Z% of your fund value each year from year q". | v. "£Z in year p, £Z + A in year p + 1, and so on (the actual amounts will vary in line with your fund value)" | |
Lump sums | i. "X% of the amount you invest" | "£X initially" |
ii. "Z% of your fund value each year from year q" | "£Z each year from year p (The actual amounts will vary in line with your fund value)" |
24. | A firm that uses more than one of the descriptions in Table 4 must make it clear that it has used more than one description (eg by inserting the word "plus" in between each description). | |
25. | A firm must adapt any of the descriptions prescribed by Tables 3 and 4 as are necessary to ensure that a fees and commission statement adequately describes the particular characteristics of a firm's commission (or equivalent) arrangement. Examples of the way in which the descriptions could be adapted are provided in paragraph 14 above. |
COB 4 Annex 8
Worked example of commission disclosure in a fees and commission statement
- 01/12/2004
COB 4 Annex 8.1
See Notes
- 01/12/2004
COB 4 Annex 9
Example of a completed fees and commission statement
- 01/12/2004
COB 4 Annex 9.1
See Notes
- 01/12/2004
COB 5
Advising
and selling
COB 5.1
Advising on packaged products
- 01/12/2004
Application
COB 5.1.1
See Notes
- 06/04/2005
- Past version of COB 5.1.1 before 06/04/2005
Purpose
COB 5.1.2
See Notes
- 01/12/2004
Scope and range of advice on packaged products: general
COB 5.1.6A
See Notes
- (1) A firm which gives advice on investments to private customers about packaged products must, subject to (2), take reasonable steps to ensure that the scope of the advice on investments given to a private customer is based upon a selection from one of the following:
- (a) the whole market (or the whole of a named sector of the market); or
- (b) a limited number of product providers; or
- (c) a single company or single group of companies.
- (2) A firm may change the scope of the advice on investments it gives to a particular private customer by widening the scope from that in (1)(c) through to that in (b) or (a) or from (b) to (a), but it must take reasonable steps to ensure that before doing so the customer is made aware of the proposed change by a communication in a durable medium.
- (3) If a firm:
- (a) extends the scope of the advice on investments it will give a private customer; or
- (b) extends the range of packaged products on which its advice on investments will be based;
- 01/12/2004
COB 5.1.6B
See Notes
- (1) COB 5.1.6A R requires a firm when giving advice on investments to a private customer to do so on the basis that the scope of its advice on investments will involve a selection from the whole market (or from the whole of a sector of the market), or from a limited number of product provider or from a single provider and to adhere to such a scope during the advisory process unless the firm decides, and if necessary secures the customer's agreement, to widen the scope for the customer and, if necessary, any changes in the arrangements by which the firm will be remunerated (see COB 4.3.7 R). A firm can choose to offer both whole of market and more limited advice on investments. The scope of the advice which the customer subsequently receives should always however be made clear and explained in a way which is likely to be understood.
- (2) The scope of advice on investments prescribed in each of COB 5.1.6AR (1)(a) will require different competencies on the part of a firm's representatives to enable the firm to discharge its advisory functions.
- (3) A firm selecting packaged products from a limited number of product providers or from a single provider may do so on the basis of a range of packaged products which comprises a selection of products available from those providers and accordingly a firm may have one or more such ranges. COB 4.3.3 R requires a firm to give each customer some initial disclosure information - an initial disclosure document - which must indicate the scope of the advice on investments which the customer can expect to receive. This initial information must also invite the customer to ask for a copy of the range of packaged products from which the firm will make a selection. A firm which has several ranges of packaged products will need to ensure that each customer who asks for it is given information about the range which is appropriate for that customer.
- (4) If a firm holds itself out as giving advice on investments to private customers on packaged products from the whole market (or the whole of any sector of that market; see (5)), the firm's selection for this purpose will need to be sufficiently large to enable the firm to satisfy the suitability requirement in COB 5.3.9 R (Requirement for suitability: whole-of-market advisers). One way in which such firm may wish to satisfy this requirement is by using "panels" of product providers which are sufficient for the purpose of giving advice from the whole market and which are reviewed on a regular basis. A firm which provides advice on investments from the whole market (or from the whole of a sector of the market) should ensure that its analysis of the market and the available packaged products is kept adequately up to date.
- (5) References to a firm advising on packaged products from the whole of a sector of the market are to a firm which, though holding itself out as giving advice on investments from the whole market, advise on investments in practice only on a relatively limited selection of packaged products which are available to meet the needs of a specialist sector or niche market (for example pension annuities). In such circumstances the quality of the firm's analysis of the sector or niche market should be commensurate with that which a firm would apply for the purposes of selecting products from the market as a whole.
- (6) IPRU(INS) 1.3 (Restriction of business to insurance) in practice restricts the range of packaged products that a long-term insurer may have and CIS 16.5.1 R (Managers of UCITS schemes) restricts the range of packaged products that a manager of a UCITS scheme may have.
- (7) If a firm gives advice on investments to a private customer on a packaged product produced by another person, the key features must be "appropriate" (see COB 6.2.7 (Provision of key features: life policies) COB 6.2.22R (1) (Provision of key features: schemes) and COB 6.4.15 (Stakeholder pension schemes)). Therefore, if the terms of the packaged product are different from the terms of the product for which the key features was originally prepared by the product provider, for example there are additional charges, then the key features will need to be amended.
- (8) There are restrictions on communicating and approving a financial promotion relating to a life policy produced by an unauthorised person (see COB 3.13.1 R (Additional requirements for financial promotions for an overseas long-term insurer)).
- (9) When a firm gives advice on investments relating to a packaged product which is not produced by the firm, it is responsible for the advice on investments given. The product provider is responsible for the relevant terms and conditions of the packaged product.
- (10) The rules in COB 5.1 are mainly concerned to ensure that firms can offer a wide range of advisory services in relation to packaged products. In the course of giving such advice a firm's representative may also need to consider the merits of whether a customer should give up, surrender or cease contributing to an existing packaged product and the rules in this section do not place a restriction on this (subject always to such advice on investments being suitable having regard to the customer's circumstances).
- (11) Advice on pensions as a sector or category of the market includes advice on all personal pension schemes including SIPPs.
- 06/04/2007
- Past version of COB 5.1.6B before 06/04/2007
Range of packaged products: appointed representatives
COB 5.1.6C
See Notes
- (1) A firm must maintain in writing and keep up to date a statement of:
- (a) the scope of advice on investments (within the meaning of COB 5.1.6AR (1)) which each of its appointed representatives is, through its contract with the firm, permitted to give; and including
- (b) the range (or ranges) of packaged products on which each appointed representative advises.
- (2) In applying the rules in COB to a firm in respect of its appointed representatives, references to a firm's scope or range of packaged products are to be taken as references to the scope (or scopes) and to the range (or ranges) of its appointed representatives.
- 01/12/2004
COB 5.1.6D
See Notes
- 01/12/2004
Range of packaged products: records
COB 5.1.6E
See Notes
- (1) A firm must make, and keep up to date, a record of the scope (or scopes) of the advice (within the meaning of COB 5.1.6AR (1)) which it provides, its range (or ranges) of packaged products and the associate or ranges of each of its appointed representatives (if different from the firm's).
- (2) The record in (1) must be retained for six years from the date on which it was superseded by a more up-to-date record.
- (3) The record for distribution to a customer must be the particular range of packaged products which is appropriate for the services provided to that customer and include details of:
- (a) the identity of the product providers within the range whose packaged products the firm may sell; and
- (b) a list of the categories of their products the firm may sell.
- (4) In the case of a firm whose scope of advice on investments is the selection of packaged products from the whole of the market (or from the whole of a sector of the market) and which provides no other scope of advice on investments, it will be sufficient if the firm's record is restricted to confirming that the advice on investments it provides is given on this basis (and in the case of a firm which provides advice on investments on the whole of a sector of the market, confirms the nature and parameters of that sector).
- (5) For the purposes of the record in (1), (3) and (6), in relation to the packaged products within a particular category available from a product provider:
- (a) where a firm provides services to a particular customer in relation to all of the products within that category the record may refer simply to that category and the product provider and not each particular product within the category; and
- (b) notwithstanding (3)(b), where a firm does not provide services to a particular customer in relation to all of the products within that category the record must give details of each of the products in the category on which it does provide services.
- (6) A firm must maintain a record of the particular range of packaged products on which its advice on investments to each private customer is based and such a record must be kept for six years from the date on which the advice on investments is given.
- 01/12/2004
Branding packaged products
COB 5.1.6F
See Notes
If a firm gives advice on investments to a private customer on a packaged product produced by another person, it must not:
- (1) hold itself out as the packaged product's producer; or
- (2) do or say anything which might reasonably lead a private customer to be mistaken as to the identity of the product's producer.
- 01/12/2004
COB 5.1.6G
See Notes
- 01/12/2004
Staying within the range of advice of packaged products
COB 5.1.7
See Notes
- (1) A firm must, subject to (2), take reasonable steps to ensure that neither it nor any of its representatives gives advice on investments to a private customer about the purchase of a packaged product unless the product is:
- (a) within the firm's range (or ranges) of packaged products; and
- (b) is within the particular range of packaged products on which advice on investments is given to that customer.
- (2) The restriction in (1) does not apply where COB 5.3.8A R (Suitability of packaged products: out-of-range recommendations) applies.
- 01/12/2004
COB 5.1.9
See Notes
COB 5.1.7 R (1) does not inhibit the sale by a firm:
- (1) where the sale does not involve the provision of advice on investments to a private customer; a firm may act as an intermediary for a transaction in a packaged product where that transaction is an execution-only transaction (long-term insurers are reminded of IPRU(INS) 1.3 (Restriction of business to insurance) and managers of UCITS schemes are reminded of CIS 16.5.1 R (Managers of UCITS schemes); or
- (2) when the firm acts a discretionary investment manager.
- 01/12/2004
COB 5.1.10
See Notes
- 01/12/2001
Restriction on holding out
COB 5.1.11A
See Notes
- (1) A firm that, in relation to packaged products, provides advice on investments to a private customer, must not hold itself out as acting independently unless it intends to:
- (a) provide advice on investments to that customer that is on packaged products from the whole market (or the whole of a sector of the market); and
- (b) offers the customer the opportunity of paying fee for the provision of such advice.
- (2) A firm which in accordance with (1) holds itself out as independent must ensure that the advice on investments subsequently given to the private customer concerned is on packaged products from the whole market (or the whole of a sector of the market).
- (3) A firm will not contravene (2) and does not need to offer the option of fee based advice on investments in accordance with (1), if it acts in accordance with COB 4.3.27 R.
- 01/12/2004
COB 5.1.11B
See Notes
- (1) COB 5.1.11A R stipulates what a firm must do if it is to hold itself out to any particular client that it will act independently. Firms which wish to hold themselves out generally as acting independently should ensure that doing so (for example through a trading name or advertising) is consistent with the kind of service which private customers receive in relation to packaged products.
- (2) A firm that carries on business in relation to packaged products, regulated mortgage contracts and home reversion plans can do so in relation to the whole market and therefore be "independent" for one but offer only a limited service for the others. If this is the case the firm should explain the different nature of the services in a way which meets the requirement for clear, fair and not misleading communications in COB 2.1.3 R (Clear, fair and not misleading communications).
- (3) COB 5.1.11AR (1)(b) means that a firm wishing to hold itself out as independent will need to give customers a purely fee based option for paying for its services. Such a fee may be offered on a contingent basis so that it does not become payable if the customer does not acquire a product. A firm offering a fee-based service may, in addition, provide the customer with other payment options, such as by commission.
Representatives to have access to whole range
COB 5.1.12
See Notes
- (1) A firm must, subject to (2), take reasonable steps to ensure that those of its representatives who give advice on investments on packaged products are able to sell with advice on investments each packaged product within the particular range of packaged products from which products are selected for a customer.
- (2) A firm may restrict the packaged products it authorises a particular representative to sell, if:
- (a) that representative is not sufficiently competent to sell certain types of product; and
- (b) it requires that representative to identify instances when another packaged product within the relevant range packaged products ought to be recommended; the representative must then be required to refer the private customer to another representative of the firm who is authorised and competent to sell that product.
- 01/12/2004
Remuneration structure and referrals
COB 5.1.13
See Notes
A firm must take reasonable steps to ensure that none of its representatives:
- (1) is likely to be influenced by the structure of his or her remuneration to give unsuitable advice on investments to a private customer; and
- (2) refers private customers to another firm in circumstances which would amount to the provision of an inducement under COB 2.2.3 R (Prohibition of inducements).
- 01/12/2004
Excess charges on price-capped products
COB 5.1.14
See Notes
- 01/12/2004
COB 5.1.14A
See Notes
- 01/12/2004
COB 5.2
Know your customer
- 01/12/2004
Application
COB 5.2.1
See Notes
This section applies to a firm that:
- (1) gives a personal recommendation concerning a designated investment to a private customer; or
- (2) acts as an investment manager for a private customer; or
- (3) arranges a pension opt-out or pension transfer from an occupational pension scheme for a private customer; or
- (4) is not an insurer and makes a personal recommendation to take out a life policy to an intermediate customer or a market counterparty; or
- (5) is not an insurer and is arranging (but not merely by introducing) a life policy;
- (6) is not an insurer and arranges (but not merely by introducing) a life policy for an intermediate customer or a market counterparty;
But this section does not apply to a firm when providing basic advice on a stakeholder product.
- 06/04/2005
- Past version of COB 5.2.1 before 06/04/2005
COB 5.2.2
See Notes
- 01/03/2006
- Past version of COB 5.2.2 before 01/03/2006
COB 5.2.3
See Notes
- 01/12/2001
Purpose
COB 5.2.4
See Notes
- 01/12/2001
Requirement to know your customer
COB 5.2.5
See Notes
- 01/12/2001
COB 5.2.6
See Notes
- 01/12/2001
COB 5.2.7
See Notes
- 01/12/2001
COB 5.2.8
See Notes
- 01/12/2001
Record keeping: personal and financial circumstances
COB 5.2.9
See Notes
- (1) Unless (2) applies, a firm must make and retain a record of a private customer's personal and financial circumstances that it has obtained in satisfying COB 5.2.5 R. The firm must retain the record for a minimum period after the information is obtained, as follows:
- (a) indefinitely for a record relating to a pension transfer, pension opt-out or free-standing additional voluntary contribution (FSAVC);
- (b) six years for a record relating to a life policy, personal pension scheme or stakeholder pension scheme; or
- (c) three years in any other case.
- (2) A firm need not retain the record where following a personal recommendation to a private customer in connection with a designated investment, the private customer does not proceed with the recommendation or any part of it.
- (3)
- 06/04/2007
- Past version of COB 5.2.9 before 06/04/2007
Record keeping: execution-only pension opt-outs and pension transfers
COB 5.2.10
See Notes
- 01/01/2003
COB 5.2.11
See Notes
Guidance on the collection of information about a private customer.
This table belongs to COB 5.2.8 G.
Guidance on the collection of personal and financial information about a private customer | ||
1 | COB 5.2.5 R does not prescribe the method of obtaining sufficient personal and financial information about a private customer. A firm may design and use a process suitable for the market in which it transacts business. This process is often described as "fact-finding" and the document which records the information is often known as the "fact-find". | |
(a) | Information collected from a private customer should, at a minimum provide an analysis of a customer's personal and financial circumstances leading to a clear identification of his needs and priorities so that, combined with attitude to risk, a suitable investment can be recommended. | |
(b) | A customer information record can be electronic or paper based and it should be readily available and accessible at all times. | |
(c) | There is no requirement under the regulatory system to obtain the private customer's consent in writing to a customer information record. When a customer is to give consent in writing to an information record, the request for consent should include a prominent warning advising the customer to read the information record in full before giving consent. | |
(d) | Firms may send a customer a copy of the information record as proof of compliance with COB 5.3.14 R (Suitability letter). Further guidance on the contents of suitability letters is contained in COB 5.3.29 G. | |
Affordability | ||
2 | In assessing whether a private customer can afford an investment, due regard should be given to that customer's current level of income and expenditure, and any likely future changes to his income and expenditure. | |
Friendly society life policies | ||
3 | When recommending a friendly society life policy, the premium of which does not exceed £50 a year or, if the premiums are payable weekly, £1 a week, the firm should: | |
(a) | obtain details of the private customer's (and his dependants') net income and expenditure; and | |
(b) | keep a record of the reasons why the recommended transaction is considered to be suitable for that individual customer. |
- 01/12/2004
- Past version of COB 5.2.11 before 01/12/2004
Statement of demands and needs
COB 5.2.12
See Notes
- (1) Unless either COB 5.2.13 R or COB 5.2.14 R applies, a firm must provide the client with a statement of his demands and needs if:
- (a) it makes a personal recommendation of a life policy to a client; or
- (b) it arranges (whether through issuing a direct offer financial promotion or otherwise) for the client to enter into a life policy.
- (2) Unless (3) applies, the statement in (1) must be provided:
- (a) as soon as practicable, and in any event before the conclusion of the contract for the life policy; and
- (b) in a durable medium.
- (3) A firm may provide the statement in (1) orally if:
- (a) the client requests it; or
- (b) immediate cover is necessary;
- but in both cases the firm must provide the information in (1) immediately after the conclusion of the contract, in a durable medium.
- 14/01/2005
COB 5.2.13
See Notes
- 14/01/2005
COB 5.2.14
See Notes
- 14/01/2005
COB 5.2.15
See Notes
- (1) A firm may provide the demands and needs statement as part of an application form so that the demands and needs statement is made dependent upon the customer providing personal information on the application form (including an application forming part of a direct offer financial promotion).
- (2) For quotations (see COB 4.3.3AG), there is no requirement for the firm to provide a demands and needs statement, but one must be provided before the conclusion of the contract, unless the only contact between the firm and the client is by telephone, in which case COB 5.2.13 R applies.
- (3) A key features document that complies with COB 6.1.4 (Requirement to produce key features) may be used as the statement of demands and needs required by COB 5.1.12R (1)(b).
- 14/01/2005
COB 5.2.16
See Notes
- 14/01/2005
COB 5.2.17
See Notes
Guidance on the contents of the statement required by COB 5.2.12R (1).
This table belongs to COB 5.2.16 G.
Introduction | ||
(1) | Where relevant, the statement should explain simply and clearly why the personal recommendation is viewed as suitable, having regard to the client's personal demands and needs. | |
Style and Presentation | ||
(2) | The style and presentation of the statement is left for the firm to decide, so that a statement can be designed which works best for the market in which the firm transacts business. A statement is more likely to be effective if it demonstrates these features: | |
(a) | simplicity and plain language: when technical terms need to be incorporated, they should be explained if the client is unlikely to understand their meaning; and | |
(b) | concise and clear messages: lengthy explanations and extensive statements are likely to reduce the effectiveness of the statement, and make the client less likely to read the statement properly. |
- 14/01/2005
COB 5.2.18
See Notes
- 01/12/2004
COB 5.3
Suitability
- 01/12/2004
Application
COB 5.3.1
See Notes
This section applies to a firm when it:
- (1) makes a personal recommendation concerning a designated investment to a private customer; or
- (2) acts as an investment manager for a private customer; or
- (3) manages the assets of an occupational pension scheme (OPS), personal pension scheme or stakeholder pension scheme; or
- (4) promotes a personal pension scheme by means of a direct offer financial promotion to a group of employees; or
- (5) if the firm is not an insurer, makes a personal recommendation to an intermediate customer or a market counterparty to take out a life policy;
but this section does not apply to a firm when providing basic advice on a stakeholder product.
- 06/04/2007
- Past version of COB 5.3.1 before 06/04/2007
COB 5.3.2
See Notes
- 01/12/2001
COB 5.3.3
See Notes
- 09/10/2004
Purpose
COB 5.3.4
See Notes
- 01/12/2001
Requirement for suitability generally
COB 5.3.5
See Notes
- (1) A firm must take reasonable steps to ensure that, if in the course of designated investment business:
- (a) it makes any personal recommendation to a private customer to:
- (i) buy, sell, subscribe for or underwrite a designated investment (or to exercise any right conferred by such an investment to do so); or
- (ii) elect to make income withdrawals, or purchase a short-term annuity or not; or
- (iii) enter into a pension transfer or pension opt-out from an occupational pension scheme; or
- (b) it effects a discretionary transaction for a private customer (except as in (5)); or
- (c) it makes a personal recommendation to an intermediate customer or a market counterparty to take out a life policy;
- the advice on investments or transaction is suitable for the client.
- (2) If the recommendation or transaction in (1) relates to a packaged product:
- (a) it must, subject to COB 5.3.8 G - COB 5.3.10 R, be the most suitable from the range of packaged products, on which advice on investments is given to the client as determined by COB 5.1.7 R; and
- (b) if there is no packaged product in the firm's relevant range of packaged products which is suitable for the client, no recommendation must be made.
- (3) In making the recommendation or effecting the transaction in (1), the firm must have regard to:
- (a) the facts disclosed by the client; and
- (b) other relevant facts about the client of which the firm is, or reasonably should be, aware.
- (4) A firm which acts as an investment manager for a private customer must take reasonable steps to ensure that the private customer's portfolio or account remains suitable, having regard to the facts disclosed by the private customer and other relevant facts about the private customer of which the firm is or reasonably should be aware.
- (5) Where, with the agreement of the private customer, a firm has pooled his funds with those of others with a view to taking common discretionary management decisions, the firm must take reasonable steps to ensure that a discretionary transaction is suitable for the fund, having regard to the stated investment objectives of the fund.
- 06/04/2006
- Past version of COB 5.3.5 before 06/04/2006
COB 5.3.5A
See Notes
- (1) If circumstances arise in which a firm reasonably concludes that there are several packaged products in the relevant range which would satisfy the test in COB 5.3.5 R (2), it will act in conformity with that rule if it recommends only one of those products.
- (2) If a client does not wish to proceed in accordance with a recommendation, a firm may nonetheless make further recommendations providing any such recommendation is suitable for the client in accordance with the obligation in COB 5.3.5 R.
- 01/12/2004
Suitability of packaged products: out-of-range recommendations
COB 5.3.8A
See Notes
- (1) A firm when not selecting packaged products from the whole market (and notwithstanding COB 5.3.5 R (2)) may recommend a packaged product outside the range of packaged products on which it provides advice to a particular client if the recommended packaged product is suitable for the client and had it been included would have been at least as suitable as the most suitable packaged product in that range.
- (2) A firm must take reasonable steps to ensure that an appointed representative of a firm only acts as in (1) with its explicit written permission, either generally or in relation to the specific recommendation.
- 01/12/2004
COB 5.3.8B
See Notes
- 01/12/2004
Requirement for suitability: whole-of-market advisers
COB 5.3.10A
See Notes
- (1) A firm which holds itself out as giving personal recommendations to private customers on packaged products from the whole market (or the whole of a sector of that market) must not give any such personal recommendation unless it:
- (a) has carried out a reasonable analysis of a sufficiently large number of packaged products which are generally available from the market (or sector of the market); and
- (b) conducts the analysis in (a) on the basis of criteria which reflect adequate knowledge of the packaged products generally available from the market as a whole (or from a relevant sector).
- (2) A firm in (1) must satisfy the obligation in COB 5.3.5 R (2) by taking reasonable steps to ensure that a personal recommendation given to a private customer is:
- (a) in accordance with its analysis carried out under (1); and
- (b) is the packaged product which on the basis of that analysis is the most suitable to meet the customer's needs.
- 01/12/2004
COB 5.3.10B
See Notes
- (1) A firm which holds itself out as giving personal recommendations to intermediate customers or market counterparties on life policies from the whole market (or from a relevant sector) must not give any such personal recommendation unless it:
- (a) has carried out an analysis of a sufficiently large number of life policies which are generally available from the market (or sector of the market); and
- (b) conducts the analysis in (a) on the basis of criteria which reflect adequate knowledge of the life policies generally available from the market as a whole (or from a relevant sector).
- (2) A firm in (1) must satisfy the obligation in COB 5.3.5 R (2) by taking reasonable steps to ensure that a personal recommendation given to a client is:
- (a) in accordance with its analysis carried out under (1); and
- (b) for a life policy which on the basis of that analysis is suitable to meet the client's needs.
- 01/12/2004
Requirement for suitability: manager of OPS, personal pension scheme and stakeholder pension scheme
COB 5.3.12
See Notes
- 06/04/2007
- Past version of COB 5.3.12 before 06/04/2007
Requirements for suitability: other specific requirements
COB 5.3.13
See Notes
- (1) COB 5.3.20 R contains specific rules applicable to the suitability of broker funds.
- (2) COB 5.3.21 R - COB 5.3.27 R contain specific rules applicable to the suitability of pension transfers and pension opt-outs.
- (3) COB 5.3.28 R contains specific rules applicable to the promotion of personal pension schemes, including group personal pension schemes by means of direct offer financial promotions.
- (4) COB 5.3.29 G contains guidance which is relevant for assessing the suitability of:
- (a) pension transfers and pension opt-outs;
- (b) personal pension schemes and free-standing additional voluntary contributions (FSAVCs) compared to stakeholder pension schemes;
- (c) hybrid products;
- (d) industrial assurance policies;
- (e) income withdrawals and short-term annuities;
- (f) ISA, PEP or CTF transfers; and
- (g) contracting out of SERPS; and
- (h) borrowing to invest.
- 06/04/2006
- Past version of COB 5.3.13 before 06/04/2006
Requirement for a suitability letter: other specific requirements
COB 5.3.14
See Notes
- (1) A firm that gives a personal recommendation, in relation to a life policy, to a person who is a policyholder or a prospective policyholder of a life policy, must provide the person with a suitability letter prior to the conclusion of the contract, unless one of the exceptions in COB 5.3.19 R applies.
- (2) If, following a personal recommendation by a firm that does not fall within (1), a private customer:
- (a) buys, sells, surrenders, converts, cancels, or suspends premiums for or contributions to, a personal pension scheme or a stakeholder pension scheme; or
- (b) elects to make income withdrawals or purchase a short-term annuity; or
- (c) acquires a holding in, or sells all or part of a holding in, a scheme; or
- (d) enters into a pension transfer or pension opt-out from an OPS;
- the firm must provide the customer with a suitability letter, within the time period stipulated by COB 5.3.18 R, unless one of the exceptions in COB 5.3.19 R applies.
- 06/04/2007
- Past version of COB 5.3.14 before 06/04/2007
COB 5.3.15
See Notes
- 01/12/2001
COB 5.3.16
See Notes
The suitability letter in COB 5.3.14 R must:
- (1) explain why the firm has concluded that the transaction is suitable for the customer, having regard to his personal and financial circumstances;
- (2) contain a summary of the main consequences and any possible disadvantages of the transaction;
- (3)
- (a) in the case of a personal pension scheme which is not a stakeholder pension scheme, explain the reasons why the firm considers the personal pension scheme to be at least as suitable as a stakeholder pension scheme;
- (b) in the case of an FSAVC:
- (i) if the customer has the alternative of a stakeholder pension scheme, explain the reasons why the firm considers the recommended contract to be at least as suitable as a stakeholder pension scheme or as any additional voluntary contribution (AVC) or the facility to make additional contributions to the occupational pension scheme which may be available; or
- (ii) if the customer does not have the alternative of a stakeholder pension scheme, explain the reasons why the firm considers the recommended contract to be at least as suitable as any AVC or the facility to make additional contributions to the occupational pension scheme which may be available;
- (4) identify the individual who is authorised by the firm to advise on the type of product that has been recommended;
- (5) if the recommended product is from a product provider (or if relevant, an undertaking in the immediate group of that provider) which is identified in section 6 of the firm's initial disclosure document given in accordance with COB 4.3.3R (1), include the information given in section 6 or in section 6 of the firm's combined initial disclosure document; and
- (6) in the case of a recommendation by a firm under COB 5.3.8A R (Suitability of packaged products: out-of-range recommendations) explain why it has recommended a packaged product outside the firm's range of packaged products, including why it is suitable for the customer.
- 01/12/2004
COB 5.3.17
See Notes
- 01/12/2001
COB 5.3.18
See Notes
The firm must provide the letter required by COB 5.3.14 R (2) to the customer:
- (1) in the case of a pension contract or stakeholder pension scheme, where the cancellation rules require notification of the right to cancel, no later than the fourteenth day after the contract is concluded; or
- (2) in any other case, when or as soon as possible after the transaction is effected.
- 09/10/2004
COB 5.3.18A
See Notes
A firm may provide a statement of demands and needs to the client orally, instead of the suitability letter in COB 5.3.14 R, if:
- (1) the client requests it; or
- (2) immediate cover is necessary;
but in both cases the firm must provide the suitability letter immediately after the conclusion of the contract, on a durable medium.
- 14/01/2005
COB 5.3.18B
See Notes
- 14/01/2005
Suitability: intermediate customers and market counterparties
COB 5.3.18C
See Notes
- (1) If a firm makes a personal recommendation to an intermediate customer or a market counterparty to take out a life policy, it must explain to the client the reasons for personally recommending that life policy.
- (2) The explanation required under (1) must:
- (a) take account of the complexity of the life policy proposed; and
- (b) be provided to the client before the contract is concluded.
- 14/01/2005
COB 5.3.18D
See Notes
A firm should take the following into account when explaining the reasons for a personal recommendation to an intermediate customer or a market counterparty in accordance with COB 5.3.18A R:
- (1) the firm should explain why the client's demands and needs combine to make the recommended contract suitable for the client;
- (2) the firm should not merely state what contract is being recommended with no link to the client's demands and needs;
- (3) a firm that offers contracts from more than one insurance undertaking should include a statement of why a particular insurance undertaking has been recommended; reasons may include contract features not available anywhere else, price, or service levels.
- 14/01/2005
Exceptions from requirement to provide a suitability letter
COB 5.3.19
See Notes
COB 5.3.14 R does not apply:
- (1) if the firm is acting as an investment manager for a private customer and makes a personal recommendation relating to a regulated collective investment scheme;
- (2) if the firm is not acting as an outgoing ECA provider, and the customer is habitually resident in another EEA State at the time of acknowledging consent to the proposal form to which the personal recommendation relates;
- (3) if the customer is habitually resident outside the EEA and the customer is not present in the United Kingdom (or EEA in the case of a firm acting as an outgoing ECA provider) at the time of acknowledging consent to the proposal form to which the personal recommendation relates;
- (4) to any personal recommendation by a friendly society for a life policy sold by it with a premium not exceeding £50 a year or, if payable weekly, £1 a week;
- (5) to any personal recommendation to increase a regular premium to an existing contract; and
- (6) to any personal recommendation to invest additional single premiums or single contributions to an existing packaged product to which a single premium or single contribution has previously been paid.
- 01/12/2004
Record keeping requirements
COB 5.3.19A
See Notes
A firm must make and retain a record of a private customer's suitability letter that it has provided in satisfying COB 5.3.14 R. The record must be retained for a minimum period after the letter is provided, as follows:
- (1) for a record relating to a pension transfer, pension opt-out or free-standing additional voluntary contribution (FSAVC), indefinitely;
- (2) for a record relating to a life policy, personal pension scheme or stakeholder pension scheme, six years;
- (3) in any other case, three years.
Suitability of broker funds
COB 5.3.20
See Notes
A firm acting as a broker fund adviser for a private customer must:
- (1) take account of the characteristics of the broker fund, including the charging arrangements, in total, when assessing the suitability of the arrangements;
- (2) review on a regular basis the customer's current investment objectives and strategies relative to those at the time of any previous periodic report to the customer in accordance with COB 8.2.4 R (Requirement for a periodic statement);
- (3) follow up the review with a recommendation in writing to the customer, to be provided at least annually, either to continue with the investment or to withdraw, and in either case to supply reasons for the recommendation;
- (4) provide the customer with an alternative recommendation if the broker fund arrangement is no longer suitable; and
- (5) ensure that any significant change in the investment strategy of the fund, where known to the firm, is notified to the customer in advance together with confirmation why the fund continues to be suitable for the customer's circumstances or an alternative recommendation.
- 01/12/2001
Suitability of pension transfers and opt-outs
COB 5.3.21
See Notes
If a personal recommendation about a pension transfer or pension opt-out is to be made on a firm's behalf by an individual who is not one of its pension transfer specialists, the firm must have established procedures for checking:
- (1) the individual's compliance with the firm's procedures;
- (2) the correctness of the application of the transfer value analysis system, where applicable; and
- (3) the merits of the proposed transaction and the suitability of the recommendation;
and any such recommendation must be assessed by one of the firm's designated pension transfer specialists to ensure the procedures have been followed.
- 01/12/2001
COB 5.3.22
See Notes
- (1) A firm must ensure that a transfer value analysis is carried out in accordance with COB 6.6.87 R - COB 6.6.93 R (Projections) before it makes any recommendation to a customer to transfer out of a defined benefits pension scheme.
- (2) A copy of the analysis must be delivered with the key features document or otherwise provided to the customer before he gives consent to the application to transfer.
- (3) The firm must take reasonable steps to ensure the customer understands the analysis, drawing attention to factors which do and do not support the recommendation to transfer.
- 01/12/2001
COB 5.3.23
See Notes
A firm must provide a projection of the possible future benefits of the proposed individual pension contract before it makes any personal recommendation to a customer to opt out of, or transfer from, an occupational pension scheme.
- (1) The format and nature of the benefits given in the projection must, so far as possible, be the same as those which apply under the occupational pension scheme of which the customer is, or is eligible to become, a member.
- (2) If it is not possible for the benefits shown in the projection to replicate those of the occupational pension scheme, an explanation must be given.
- (3) If the customer has expressed an interest in changing the structure of his eventual benefits, an additional projection may also be prepared on that basis.
- 01/12/2001
COB 5.3.24
See Notes
A suitability letter relating to a personal recommendation to opt out of or transfer from an occupational pension scheme must include:
- (1) a summary of the disadvantages as well as the advantages of opting out or transferring; and
- (2) in the case of a pension opt out, a financial analysis explaining the decision to opt-out.
- 01/12/2001
COB 5.3.25
See Notes
If, contrary to the advice of the firm, a private customer instructs the firm to arrange a pension opt-out or pension transfer, the firm must:
- (1) make and retain a clear record of the firm's advice that the private customer should not proceed with the pension opt-out or pension transfer and the private customer's instructions to proceed with the transaction; and
- (2) provide a further confirmation and explanation, in writing, to the private customer that the firm's advice is that the private customer should not proceed with the pension opt-out or pension transfer.
- 01/12/2001
COB 5.3.27
See Notes
- 01/12/2001
Suitability of personal pension schemes: promotions to employees
COB 5.3.28
See Notes
When a firm promotes a personal pension scheme including a group personal pension scheme, by means of a direct offer financial promotion to a group of employees, the firm must;
- (1) be satisfied on reasonable grounds that the pension scheme is likely to be at least as suitable for the majority of the employees as a stakeholder pension scheme;
- (2) record why it thinks the promotion is justified; and
- (3) retain the record for a minimum period of six years after the financial promotion is last communicated.
- 01/01/2003
COB 5.3.29
See Notes
Guidance on matters which should be taken into account when assessing the suitability of various personal recommendations. This table belongs to COB 5.3.13 G (4).
Suitability of guidance | ||||
A | Pension Transfers and Pension Opt-outs | |||
1 | When advising a customer who is, or is eligible to be, an active member of a defined benefits occupational pension scheme whether he should opt out or transfer, a firm should: | |||
(a) | start by assuming it will not be suitable; and | |||
(b) | only then consider it to be suitable if it can clearly demonstrate on the evidence available at the time that it is in the customer's best interests. | |||
2 | When the firm is recommending a customer to transfer or opt out of any other type of occupational pension scheme, the suitability letter should include: | |||
(a) | a clear explanation why transferring or opting out is more suitable than remaining in the occupational pension scheme; | |||
(b) | a request for the customer to contact the firm immediately should clarification or further information be needed or if the letter does not match the customer's understanding of why the transfer or opt-out has been recommended; | |||
(c) | a statement to the effect that the firm has relied on information supplied by the customer and the occupational pension scheme; | |||
(d) | particularly with pension opt-outs, an arithmetical analysis setting out the financial implications of leaving the scheme; | |||
Pension Opt-outs only | ||||
3. | When advising on a pension opt-out from an occupational pension scheme, a firm should: | |||
(a) | identify all the rights and benefits available to the customer under the occupational pension scheme and carefully consider the effect of replacing them with the very different benefits of a personal pension; the following factors should be taken into account relating to the occupational pension scheme: | |||
(i) | spouse's, civil partner's, dependants' and children's pensions; | |||
(ii) | early retirement provision, including retirement in ill-health; | |||
(iii) | revaluation rates both in deferment and payment, and whether they are guaranteed or discretionary (and if discretionary, whether likely to continue); | |||
(iv) | ancillary benefits (for example, tax-free cash or lump-sum death benefits); | |||
(v) | transfer club arrangements, where applicable; | |||
(vi) | the customer's contribution and the employer's contribution; | |||
(vii) | benefits on leaving service; | |||
(viii) | whether or not eligibility for other benefits, such as permanent health insurance, is dependent on being a member of the occupational pension scheme; | |||
(ix) | the financial security of the occupational pension scheme, by reference (for example) to the last actuarial statement or the most recent trustee's report and accounts; and | |||
(b) | take into account the following additional factors: | |||
(i) | whether or not the employer would contribute to the personal pension scheme; | |||
(ii) | the charging structure of the personal pension and its impact on transfer values in the early years; | |||
(iii) | subjective factors relating to the customer's personal circumstances such as; | |||
- | future career plans and earning prospects (including any reasonable likelihood of career progression making better occupational terms available) and intended retirement date; | |||
- | attitude towards earnings-related compared with money-purchase benefits; | |||
- | attitude to financial risk and security; | |||
- | a possible wish to make pension arrangements separate from employment (for example, because the customer is on a short-term non-renewable employment contract or does not expect to stay in his current employment for more than a short period); | |||
- | any value the customer attaches to personal control; | |||
- | the customer's cash needs; | |||
(c) | if the customer is about to change, or has just changed, employment, consider the issues in (ii) and (iii) in relation to any scheme of the new employer for which the customer is eligible now, or will become eligible in the near future; | |||
(d) | if the customer is an active or prospective member of a money-purchase occupational scheme, follow 1- 3 to the extent that the factors listed are relevant to such schemes taking particular account of differences in costs and charges. | |||
Pension Transfers only | ||||
4. | (a) | Advising a customer on the suitability of transferring deferred benefits from a defined benefits occupational pension scheme requires detailed consideration of the ceding scheme compared to the individual pension contract to which the transfer would take place. A process will be needed which should include procedures: | ||
(i) | for gathering ceding scheme information as detailed in (b); | |||
(ii) | to assess the customer's attitude to risk and security; this is relevant not merely to the choice of contract or fund, but also (and more fundamentally) to the initial choice between an occupational pension scheme and an individual pension contract; | |||
(iii) | to ascertain the customer's career aspirations and desired retirement age and to consider what a realistic retirement age would be, having regard to the size of the transfer value and the extent to which it can be converted into a stream of income before State pension age; | |||
(iv) | to ascertain whether the customer's new employer (if any) has arrangements to accept transferred benefits, as if so a further analysis may be necessary; | |||
(v) | enabling the representative to look at other pension options, if available; | |||
(vi) | for carrying out a transfer value analysis; | |||
(vii) | for enabling the customer to receive sufficient, clear information to make an informed investment decision (see (iii)). | |||
(b) | The following information as a minimum will be needed from the ceding scheme in respect of the customer: | |||
(i) | spouse's, civil partner's, dependants' and children's pensions; | |||
(ii) | early retirement provision, including retirement in ill-health; | |||
(iii) | transfer value quotation detailing: | |||
- | guarantee period; | |||
- | pre- and post- April 1988 Guaranteed Minimum Pension and Excesses; | |||
- | revaluation rates in deferment and payment and whether they are guaranteed or discretionary and if discretionary whether they are likely to continue and how far they are reflected in the transfer value; | |||
- | tax-free cash arrangements; | |||
(iv) | lump-sum death benefits; | |||
(v) | transfer club arrangements, if applicable; | |||
(vi) | relevant earnings; | |||
(vii) | period of service; | |||
(viii) | scheme details (for example benefits, bridging pensions, guarantee periods, position pre- and post normal retirement date, history of discretionary increases); | |||
(ix) | whether members' benefits have been equalised for service from 17 May 1990; | |||
(x) | ill-health benefits; | |||
(xi) | a consideration of the scheme's financial position and whether the transfer value has been reduced because the scheme is underfunded. | |||
(c) | Relevant items of information about the customer include: | |||
(i) | the different risks of personal pension schemes and defined benefit pension schemes; | |||
(ii) | the impact of fluctuations in annuity rates on the size of the eventual pension; | |||
(iii) | the impact of protected rights on the planned retirement date; | |||
(iv) | any changes to the tax-free lump-sum; | |||
(v) | any reduction in immediate death benefits; | |||
(vi) | the transfer value analysis including an indication of the rate of growth needed to ensure the investor is no worse off as a result of any transfer; | |||
(vii) | the position and interests of the customer's spouse , civil partner and dependants. | |||
(d) | (a) - (c) also apply to prospective money-purchase benefits transfers where appropriate; and additional information concerning the customer should be considered, including: | |||
(i) | the possibility of incurring early transfer penalties and new front-end charges; | |||
(ii) | how the transfer affects the investment risk; | |||
(iii) | how the effects of charges and expenses differ between the schemes; | |||
(iv) | changes to the tax-free cash; | |||
(v) | any reduction in immediate death benefits. | |||
B. | Personal Pension Schemes and FSAVCs compared to Stakeholder Pension Schemes | |||
1. | A particular feature of the personal pension scheme market is that a potential investor in a personal pension scheme will always have the option of a stakeholder pension scheme and may find that equally suitable for his or her needs. | |||
2. | Representatives will need to undertake the comparison between personal pension schemes and stakeholder pension schemes and, as required by COB 5.3.16 R (3), explain in the suitability letter why, if they have recommended a personal pension scheme, it is considered to be at least as suitable. | |||
3. | There are some circumstances where a potential investor in an FSAVC will have the option of a stakeholder pension scheme, in addition to the option of an in-house AVC. | |||
4. | Representatives will need to undertake a comparison between the three options and explain in the suitability letter why, if they have recommended an FSAVC, it is considered to be at least as suitable as a stakeholder pension scheme or the in-house AVC. | |||
5. | If a representative without access to a stakeholder pension scheme makes a comparison with a stakeholder pension scheme, the comparison may be with a stakeholder pension scheme on the minimum product standards unless the representative is or ought to be aware that the customer has access to a stakeholder pension scheme on more advantageous terms. | |||
6. | The guidance in this section of the table applies equally to recommendations for individual and group personal pensions, even though the latter may, in accordance with Regulation 22 of the Stakeholder Pension Scheme Regulations 2000 (SI 2000/1403), exempt an employer from having to designate a stakeholder pension scheme for his employees. | |||
7. | Firms are reminded that key features documents for personal pension schemes should signpost the availability of , as set out in COB 6.5.21 (5). | |||
8. | Firms promoting a personal pension scheme (including a group personal pension scheme) to the employees of a particular employer through direct offer financial promotion are reminded of the provisions of COB 5.3.28 R. Accordingly, firms should take reasonable care to ensure that the personal pension scheme is likely to be at least as suitable as a stakeholder pension scheme for the majority of employees to whom the personal pension scheme is being promoted, and that this is adequately evidenced. | |||
C. | Hybrid Products | |||
1. | A 'hybrid product' is a product which results from combining a package of products to create one recommended solution. An example is a 'back to back' contract which takes a lump sum investment and splits it into two amounts; one part is used to provide income through the purchase of a temporary annuity and the other part is invested in a unit trust or life insurance bond so that by the end of the annuity term the growth may produce the return of the original lump sum invested. | |||
2. | The requirements for suitability and best investment advice apply to all elements of a hybrid product: | |||
(a) | if appropriate, representatives need to scrutinise ready-made packages from a single product provider to make sure that each element is competitive and that a better solution is not available by combining elements from different providers; | |||
(b) | simplicity or administrative convenience is not sufficient reason for using one provider for all elements. | |||
D. | Industrial Assurance Policies | |||
If an industrial assurance policy is recommended to a customer and a comparable policy (which is not an industrial assurance policy) is available which is at least as suitable, the suitability letter should explain clearly the reasons why the industrial assurance policy is being recommended. | ||||
E. | Income withdrawals and short-term annuities | |||
When a firm is advising a customer about personal pension fund withdrawals or purchase of short-term annuities: | ||||
(a) | the customer's personal and financial circumstances should be considered carefully, in particular: | |||
(i) | the customer's investment objectives, need for tax-free cash and state of health; | |||
(ii) | current and future income requirements, existing pension assets and the relative importance of the plan, given the customer's financial circumstances; | |||
(iii) | the customer's attitude to risk, ensuring that any discrepancy between his attitude to risk relating to pension fund withdrawals or purchase of a short-term annuity and that in relation to other investments is clearly explained; | |||
(b) | the suitability letter should explain: | |||
(i) | the purpose of the contract for the customer; | |||
(ii) | the relative importance of the contract, given the customer's financial circumstances; | |||
(iii) | the customer's attitude to risk; and | |||
(iv) | the risk factors involved in entering into a pension fund withdrawal or purchase of a short-term annuity, which include: | |||
- | the capital value of the fund may be eroded, especially if investment returns are poor and a high level of income is taken; this could result in a lower income in the future; | |||
- | the investment returns may be less than those shown in the illustrations; | |||
- | annuity or scheme pension rates may be at a worse level in the future; | |||
- | when maximum withdrawals are taken or the maximum short-term annuity is purchased, high levels of income may not be sustainable; | |||
- | the maximum income that can be withdrawn under an alternatively secured pension after age 75 is significantly less than the maximum that applies before age 75. | |||
F. | ISA, PEP or CTF transfers | |||
When a firm is advising a customer on whether to transfer existing ISA, PEP or CTF holdings, COB 5.2 (Know your customer) and COB 5.3 (Suitability) apply. All the advantages and disadvantages of transferring should be considered. In particular the following information (which is not exhaustive) should be considered and provided to the customer, usually as part of the suitability letter, before the transfer takes place: | ||||
(a) | exit charges and any other costs associated with the transfer; | |||
(b) | initial start-up charges; | |||
(c) | transaction details (that is, whether holdings are liquidated or transferred intact, as permitted by the terms and conditions); | |||
(d) | possibility (and likely effects) of shortfall, following cancellation; | |||
(e) | potential for loss of income or growth, following a rise in markets, while the ISA transfer, PEP transfer or CTF transfer remains pending. | |||
G. | Contracting out of SERPS | |||
When a firm is advising a customer on whether to contract out of SERPS in favour of an appropriate personal pension or contracted-out money-purchase scheme ('COMP'): | ||||
(a) | representative should give careful consideration to: | |||
(i) | the range of pivotal ages outside which it will generally be in the best interests of customers to remain in SERPS; | |||
(ii) | the level of earnings below which it may not be in a new customer's interests to contract out; | |||
(iii) | the minimum length of time for which a customer may benefit from being contracted out; | |||
(b) | factors to be taken into account when making this assessment include: | |||
(i) | customer's age and sex; | |||
(ii) | State pension age for females (where different from males); | |||
(iii) | customer's level and stability of earnings and tax position; | |||
(iv) | customer's career prospects (including the likely period for remaining contracted-out); | |||
(v) | customer's existing pension provision or opportunity to participate in an occupational pension scheme; | |||
(vi) | potential loss of rights compared to SERPS benefits; | |||
(vii) | terms of the personal pension scheme or contracted-out money-purchase scheme with particular reference to the level of charges; | |||
(viii) | customer's attitude to risk. | |||
(c) | The suitability letter should clearly explain any risks in contracting out. | |||
H. | Borrowing to invest | |||
When considering the suitability of a particular investment product which is linked directly or indirectly to any form of loan, mortgage or home reversion plan, a firm: | ||||
(a) | should take account of the source of the funds being invested and the suitability of the overall transaction; and | |||
(b) | must follow any relevant suitability and other rules in COB and MCOB. | |||
For example, the circumstances in which a recommendation to enter into an equity release transaction and invest the funds into a long-term care insurance contract might be appropriate are limited, and both COB 5.3 and MCOB 8.5 apply. |
- 06/04/2007
- Past version of COB 5.3.29 before 06/04/2007
COB 5.3.30
See Notes
Guidance on the contents of suitability letters.
This table belongs to COB 5.3.17 G.
Guidance on the contents of suitability letters | ||
Introduction | ||
1. | COB 5.3.14 R requires a written explanation of a recommendation relating to a product to be provided to a private customer. This is commonly referred to as 'the suitability letter' although it does not need to take the form of a letter, for example it might form part of: | |
(a) | a financial report to the customer (provided that it is prominent); or | |
(b) | a fact find document (a copy of the whole fact find or just the recommendation section could be given to the customer); if a copy of the fact find or the recommendation section is sent, the copy should be of sufficient quality to be clearly legible. | |
2. | A suitability letter, to be successful, should explain simply and clearly why the recommendation is viewed as suitable having regard to the customer's: | |
(a) | personal and financial circumstances; | |
(b) | needs and priorities identified through the fact finding process; | |
(c) | attitude to risk in the area of need to which the recommendation relates. | |
When a suitability letter is needed | ||
3. | COB 5.3.14 R sets out the occasions when a suitability letter is required. COB 5.3.19 R sets out the exceptions to this rule. A letter is required in all cases where pension transfers or pension opt-outs are recommended. | |
Style and presentation | ||
4. | The style and presentation of a suitability letter is left for firms to decide so that they can design a document which works best for the market in which they transact business. A suitability letter is more likely to be effective if it demonstrates these features: | |
(a) | personalisation - the more personalised the suitability letter, the more effective it is likely to be; | |
(b) | simplicity and plain English - when technical terms need to be incorporated, they should be explained if the customer is unlikely to understand their meaning; | |
(c) | concise and clear messages - lengthy explanations in extensive letters are likely to reduce the effectiveness of the letter with the customer disinclined to read it properly. | |
5. | Ideally each suitability letter will be different, reflecting the approach of the representative, the customer's profile, subjects discussed and the considerations on which the advice was based. Some firm may wish to introduce a degree of standardisation to suitability letter production to aid quality control. When using a standardised approach the firms should take the following into account: | |
(a) | standard paragraphs are best limited to the description of the most common needs and the products which will satisfy those needs; | |
(b) | the firm should clearly link the customer's own needs, priorities and attitude to risk to the product recommended rather than just setting out stock motives that may apply to all customers; | |
(c) | tick box, pre-printed forms should rarely be used, and when they are it should only be in the simplest and most straightforward advice situations. | |
Content | ||
6. | A firm should take the following into account when constructing a suitability letter: | |
(a) | the letter should explain why the customer's needs, priorities, attitude to risk and financial situation all combine to make the recommended product suitable for the customer. It should not merely state what product is being recommended with no link to the customer's personal circumstances; | |
(b) | other needs discussed during the factfind process which the customer does not wish to consider do not need to be included in the suitability letter (although they should be recorded in the factfind); they should be included if they assist in demonstrating why the product recommended is considered suitable; | |
(c) | alternative products which were recommended but rejected by the customer should be mentioned; | |
(d) | only the available options under a contract which have been recommended, whether accepted or rejected, need be mentioned in the letter; | |
(e) | where the range of packaged products from which advice on investments has been given contains the products of more than one product provider in respect of the same type of packaged product, the letter should include (the list is not exhaustive) why a particular product provider has been recommended; reasons may include product features not available elsewhere, price, service levels, performance track record, investment prospects, medical evidence terms, reputation and financial strength. | |
Signing | ||
7. | Each suitability letter should be signed by a person authorised by the firm to advise on the type of product which is being recommended. Ideally this will be the representative who gave the particular advice but, if not, both the signatory and the representative should accept responsibility for the letter and the recommendation. | |
Timing of suitability letters | ||
8. | Suitability letters should be issued to customers at the time that the recommendation is made or as soon as possible afterwards, to allow as much time as possible for the customer to consider the recommendation before any cancellation period ends. In any event the letter should be issued no later than the issue of the cancellation notice or, in situations where no cancellation notice will be issued, for example in the case of personal pension income withdrawals, before the transaction is put into effect. |
- 01/12/2004
COB 5.4
Customers' understanding of risk
- 01/12/2004
Application
COB 5.4.1
See Notes
- 06/04/2005
- Past version of COB 5.4.1 before 06/04/2005
Purpose
COB 5.4.2
See Notes
- 01/12/2001
Requirement for risk warnings
COB 5.4.3
See Notes
A firm must not:
- (1) make a personal recommendation of a transaction; or
- (2) act as a discretionary investment manager; or
- (3) arrange (bring about) or execute a deal in a warrant or derivative; or
- (4) engage in stock lending activity;
with, to or for a private customer unless it has taken reasonable steps to ensure that the private customer understands the nature of the risks involved.
- 15/11/2001
COB 5.4.3A
See Notes
- 01/07/2005
- Past version of COB 5.4.3A before 01/07/2005
COB 5.4.4
See Notes
- (1) warrants and derivatives (see COB 5.4.6 E, COB 5.4.6A E or COB 5.4.6C E as appropriate);
- (2) non-readily realisable investments (see COB 5.4.7 E);
- (3) penny shares (see COB 5.4.8 E);
- (4) securities subject to stabilisation (see COB 5.4.9 E);
- (5) stock lending activity (see COB 5.4.10 E);
- (6) a security or an investment trust savings scheme which satisfies the conditions specified in COB 3.8.9 G (6) (see COB 5.4.11 E);
- (7) structured capital-at-risk products (see COB 5.4.12 E).
- 01/01/2004
COB 5.4.5
See Notes
- 01/09/2005
- Past version of COB 5.4.5 before 01/09/2005
Risk warnings in respect of warrants and derivatives (other than retail securitised derivatives and certain EEA listed derivatives)
COB 5.4.6
See Notes
- (1) In relation to a transaction in a warrant or derivative (other than a retail securitised derivative or an option or contract for differences to which COB 5.4.6C E applies), the firm should:
- (a) provide the private customer with the notice in COB 5 Annex 1 E (Warrants and derivatives risk warning notice); and
- (b) require the private customer to acknowledge receipt of the notice and confirm acceptance of its contents, in writing.
- (2) A firm need not undertake steps COB 5.4.6 E (1) (a) and (b) in respect of a private customer who is ordinarily resident outside the United Kingdom, if it has taken reasonable steps to determine that the private customer does not wish to receive the notice.
- (3) The notice in COB 5 Annex 1 E (Warrants and derivatives risk warning notice) need not be sent in relation to the realisation of a warrant that is already held by the private customer, or of a warrant attached to another designated investment.
- (4) For a firm acting as an outgoing ECA provider, the exemption contained in COB 5.4.6 E (2) applies only if the private customer is ordinarily resident outside the EEA and if the outgoing ECA provider has taken reasonable steps to ensure that the private customer does not want to receive the notice.
- 01/08/2002
Risk warnings in respect of retail securitised derivatives
COB 5.4.6A
See Notes
- (1) In relation to a transaction in a retail securitised derivative, the firm should provide the private customer with:
- (a) the notice in COB 5 Annex 1 E (Warrants and derivatives risk warning notice); or
- (b) [deleted]
- (c) a clear, fair and adequate description of the securitised derivative which is to be the subject of the transaction, in a manner calculated to bring to the attention of the private customer the risks involved, and in particular (and if applicable):
- (i) that the securitised derivative gives rise to risks similar to those arising when an investor buys or sells an option;
- (ii) that the securitised derivative is 'geared' or 'leveraged', which means that a relatively small movement in the price of the underlying instrument, whether favourable or adverse, could result in a larger movement in the price of the securitised derivative;
- (iii) that the price of the securitised derivative may therefore be volatile;
- (iv) that the securitised derivative has a limited life, and may expire worthless if the underlying instrument (such as a share or index) does not perform as expected;
- (v) that, consequently, the private customer should not enter into the transaction unless he is prepared to lose all of the money he has invested, plus any commission or other charges;
- (vi) that the private customer should satisfy himself that the securitised derivative is suitable for him, in the light of his circumstances and financial position, and if the private customer is in any doubt he should seek professional advice; and
- (vii) a clear, fair and adequate description of any other relevant risks affecting the value, trading price, and realisation of the value of the securitised derivative.
- (2) A firm should either:
- (a) require the private customer to acknowledge receipt of the notice or description provided in accordance with (1)(a) or (c) and confirm acceptance of its contents, in writing; or
- (b) be otherwise able to demonstrate that the private customer has received the notice or description and had a proper opportunity to consider its terms.
- (3) A firm need not undertake steps (1) and (2) in respect of a private customer who is ordinarily resident outside the United Kingdom, if it has taken reasonable steps to determine that the private customer does not wish to receive the notice or description.
- 01/07/2005
- Past version of COB 5.4.6A before 01/07/2005
COB 5.4.6B
See Notes
- (1) A description provided under COB 5.4.6A E (1)(b):
- (a) may be included in the prospectus or the listing particulars for the securitised derivative;
- (b) may explain, where applicable, the existence and extent of any factors that reduce the risks to which the private customer is exposed (for example, the fact that the securitised derivative is listed, or subject to some form of guarantee), but the firm should ensure that any such statement does not disguise, obscure or diminish the significance of the notice taken as a whole; and
- (c) may use another term (such as "covered warrant") to describe a securitised derivative, if it is generally accepted market practice to do so.
- (2) In relation to (1) (b) and (c) firms are also reminded of the requirements of COB 2.1 (Clear, fair and not misleading communication).
- 01/07/2005
- Past version of COB 5.4.6B before 01/07/2005
Risk warnings in respect of certain derivatives listed in other EEA States
COB 5.4.6C
See Notes
- (1) the investment is not a contingent liability investment; and
- (2) (if it provides a right of exercise) the investment would comply with LR 19.2.6 R of the listing rules (Method of exercising retail securitised derivatives) if it were listed on the UK official list.
- 01/07/2005
- Past version of COB 5.4.6C before 01/07/2005
Risk warnings in respect of non readily realisable investments
COB 5.4.7
See Notes
- (1) warn the private customer that there is a restricted market for such designated investments, and that it may therefore be difficult to deal in the designated investment or to obtain reliable information about its value; and
- (2) disclose any position knowingly held by the firm or any of its associates in the designated investment or in a related designated investment.
- 01/12/2001
Risk warnings in respect of penny shares
COB 5.4.8
See Notes
- 01/12/2001
Risk warnings in respect of securities that may be subject to stabilisation
COB 5.4.9
See Notes
- 01/12/2004
Stock lending activity
COB 5.4.10
See Notes
- (1) that this may affect his tax position and that he should consult a tax adviser before proceeding; and
- (2) of the consequences of the stock lending activity, including what impact it may have on the rights of the holder of the designated investments concerned.
- 01/12/2001
Risk warnings in respect of listed securities where gearing is involved
COB 5.4.11
See Notes
- (1) movements in the price of the securities being more volatile than the movements in the price of underlying investments;
- (2) the investment being subject to sudden and large falls in value; and
- (3) the private customer getting back nothing at all if there is a sufficiently large fall in value in the investment.
- 01/01/2004
COB 5.4.12
See Notes
- (1) Unless (2) applies, in relation to a transaction in a structured capital-at-risk product, the firm should provide the private customer with a notice containing a clear, fair and adequate description of the structured capital-at-risk product which is to be the subject of the transaction, in a manner calculated to bring to the attention of the private customer the risks involved, in particular (and if applicable):
- (a) that the return of initial capital invested at the end of the investment period is not guaranteed and therefore the private customer may get back less then what was originally invested;
- (b) that the amount of initial capital repaid may be geared, which means that a small percentage fall in the related index may result in a larger reduction in the amount paid out to the private customer;
- (c) that any maximum benefit advertised to the private customer is only available after a set period, indicating how long that period is;
- (d) that redeeming a product early may result in redemption penalties and a poor return;
- (e) that the initial capital invested may be placed into high risk investments, such as non-investment grade bonds;
- (f) that the rate of income or growth advertised to private customers may depend on specified conditions being met, indicating what these conditions are;
- (g) that the private customer should not enter into the transaction unless he is prepared to lose some or all of the money he has invested;
- (h) that the private customer should satisfy himself that the structured capital-at-risk product is suitable for him, in the light of his circumstances and financial position, and if the private customer is in any doubt he should seek professional advice; and
- (i) a clear, fair and adequate description of any other relevant risks affecting the value, trading price, and realisation of the value of the structured capital-at-risk product.
- (2) If the firm is acting as an investment manager, it should provide the notice referred to in (1) as part of its terms of business, but need not provide a notice before each transaction in a structured capital-at-risk product, provided that the structured capital-at-risk product is within the range of structured capital-at-risk products described in the terms of business.
- 15/07/2004
COB 5.4.13
See Notes
- 15/07/2004
COB 5.5
Information about the firm
- 01/12/2004
Application
COB 5.5.1
See Notes
- (1) This section applies to a firm that conducts designated investment business with or for a private customer.
- (2) This section does not apply when a firm communicates or approves a financial promotion.
- 01/12/2001
Purpose
COB 5.5.2
See Notes
- 01/12/2001
Information required to be disclosed
COB 5.5.3
See Notes
When it conducts designated investment business, a firm must take reasonable steps to ensure that a private customer is given adequate information about:
- (1) the identity and business address of the firm and any relevant agent of the firm;
- (2) the identity and status, or relationship with the firm, of employees and other agents with whom the customer may have contact; and
- (3) the firm's statutory status (in accordance with GEN 4 Annex 1 (Statutory status disclosure));
unless the private customer has been given the information on a previous occasion and that information is still up to date.
- 01/12/2004
COB 5.5.4
See Notes
- (1) For the purposes of COB 5.5.3 R, the reasonable steps should include the relevant measures detailed in COB 5.5.5 E.
- (2) Compliance with (1) may be relied as tending to establish compliance with COB 5.5.3 R.
- (3) Contravention of (1) may be relied as tending to establish contravention of COB 5.5.3 R.
- 01/12/2001
COB 5.5.5
See Notes
Table of information to be disclosed in written communications.
This table belongs to COB 5.5.4 E
Written communications | |||
1. | Any written communication, including stationery, business cards or other business documentation published by the firm, or used by its employees, agents, representatives or introducers, should include: | ||
(a) | the name, business address and telephone number of the firm or of the branch or office of the firm from which the communication originates; | ||
(b) | [deleted] | ||
(c) | the name and status or relationship with the firm, of the individual from whom the communication originates; | ||
(d) | a statement of the firm's statutory status (in accordance with GEN 4 Annex 1 (Statutory status disclosure)); | ||
(e) | [deleted] | ||
(f) | if the communication is by or relates to an introducer, a statement of the introducer's capacity | ||
2. | [deleted] |
- 01/12/2004
COB 5.5.5A
See Notes
- 01/03/2003
Overseas business for UK private customers
COB 5.5.7
See Notes
- (1) A firm must not conduct designated investment business:
- (a) from an office of its own (or of any appointed representative) outside the United Kingdom;
- (b) with or for a private customer who is in the United Kingdom;
- unless it has, where relevant, made a disclosure in accordance with (2) to the private customer.
- (2) The required disclosure in (1) means a written statement making it clear that in some or all respects the regulatory system applying, including any compensation arrangements, will be different from that of the United Kingdom. The statement may also indicate the protections or compensation available under another system of regulation.
- (3) A firm must not make an introduction or make arrangements or give advice on investments with a view to another person conducting designated investment business;
- (a) from an office outside the United Kingdom;
- (b) with or for a private customer (or a person who, if a client, would be a private customer), who is in the United Kingdom;
- unless the firm has, where relevant, made a disclosure in accordance with (2) and there are no reasonable grounds for the firm to doubt that the private customer will be dealt with in an honest and reliable way.
- 01/12/2001
Business conducted from non-UK offices
COB 5.5.8
See Notes
- 01/03/2003
ISD investment firms: compensation information
COB 5.5.9
See Notes
- 09/10/2004
COB 5.5.10
See Notes
- 01/03/2003
Example of compensation information for a UK domestic investment firm operating from the United Kingdom
COB 5.5.11
See Notes
- 01/03/2003
ISD investment firms: language of compensation information
COB 5.5.12
See Notes
Information about compensation arrangements made available by an ISD investment firm under COB 5.5.9 R must:
- (1) (if it relates to the activities of an establishment in the United Kingdom) be in English; or
- (2) (if it relates to the activities of a branch in another EEA State) be in an official language of that EEA State.
- 01/03/2003
COB 5.6
Excessive charges
- 01/12/2004
Application
COB 5.6.1
See Notes
- 01/12/2001
Purpose
COB 5.6.2
See Notes
- 01/12/2004
Charges to a private customer
COB 5.6.3
See Notes
- 01/12/2001
COB 5.6.4
See Notes
When determining whether a charge is excessive, a firm should consider:
- (1) the amount of its charges for the services or product in question compared with charges for similar services or products in the market;
- (2) the degree to which the charges are an abuse of the trust that the customer has placed in the firm; and
- (3) the nature and extent of the disclosure of the charges to the private customer.
- 01/12/2001
Charges in respect of designated investments that are not readily realisable
COB 5.6.5
See Notes
- 01/12/2001
COB 5.6.6
See Notes
- 01/12/2001
COB 5.7
Disclosure of charges, remuneration and commission
- 01/12/2004
Application
COB 5.7.1
See Notes
- 01/12/2001
Purpose
COB 5.7.2
See Notes
- 01/12/2001
Disclosure of charges
COB 5.7.3
See Notes
- (1) Before a firm conducts designated investment business with or for a private customer, the firm must disclose in writing to that private customer the basis or amount of its charges for conducting that business and the nature or amount of any other income receivable by it or, to its knowledge, by its associate and attributable to that business.
- (2) If the designated investment business in (1) is in respect of an execution-only transaction:
- (a) which does not relate to a packaged product; and
- (b) where prior written disclosure would delay the transaction;
- the firm may instead:
- (c) make the disclosure required by (1) orally before the transaction is executed; and
- (d) provide written confirmation of the matters disclosed to the private customer within five business days of the execution.
- 01/09/2002
COB 5.7.4
See Notes
- (1) A firm may make the disclosures required by COB 5.7.3 R in its terms of business, in a client agreement, or in a separate written statement. Disclosure should indicate any product-related charges that are deducted from the private customer's investment. If the product is a packaged product, product-related charges and expenses will be disclosed in the key features document, simplified prospectus or in the minimum information that the firm is required to provide to the private customer in accordance with COB 6.2 (Provision of key features or simplified prospectus) and COB 6.4 (Product disclosure: special situations). When a firm is a broker fund adviser, disclosure should include any fees payable to the firm or its associate in connection with that activity by a provider firm. In the case of advice provided in connection with packaged products a firm should, in accordance with COB 4.3.3 R, have provided its customer with a fees and commission statement setting out the maximum rates of any fees which the customer will pay and/or with an indication of the maximum rates of commission (or equivalent) which it, or its representatives, may retain in connection with the sale of packaged products. COB 5.7.3 R does not require any further disclosure of a firm's fees if, in accordance with COB 4.3.5 R it has confirmed the exact amount or rate that it will charge.
- (2) In addition it is necessary that a private customer should, as soon as is practicable, be informed of the exact rate or the exact amount in cash terms of any commission (or equivalent) which the firm or its representatives will receive in respect of a specific transaction.
- (3) In the case of a packaged product, product related charges and expenses will be disclosed in the key features document, simplified prospectus or in the minimum information that the firm is required to provide to private customers in accordance with COB 6.2 (Provision of key features or simplified prospectus) and COB 6.4 (Product disclosure: special situations). When a firm is a broker fund adviser, disclosure should include any fees payable to the firm or its associate in connection with that activity by a product provider.
- 01/05/2005
- Past version of COB 5.7.4 before 01/05/2005
Disclosure of commission (or equivalent) for packaged products
COB 5.7.5
See Notes
- (1) When a firm sells, personally recommends or arranges the sale of a packaged product to a private customer, and subsequently on the request of a private customer, the firm must disclose to the private customer, in cash terms:
- (a) any commission equivalent payable by it to a representative or appointed representative; and
- (b) any commission or commission equivalent receivable by it, or by any of its associates in connection with the transaction
- unless COB 5.7.9 R or COB 5.7.10 R applies.
- (2) In (1)(b) a firm is, in respect of any transaction, to be regarded as receiving commission equivalent if:
- (a) it is received from a product provider ("P"), or an associate of P; and
- (b) either P or its associate is in the same immediate group as the firm; and
- (c) the value of the commission equivalent (as assessed in accordance with these rules) is greater than the amount of commission in cash terms.
- (3) In (1) and (2) "cash terms" in relation to commission does not include the value of any indirect benefits which the firm may receive in accordance with COB 2.2.
- 01/12/2004
COB 5.7.6
See Notes
- 01/12/2004
COB 5.7.8
See Notes
- (1) When determining the value of cash payments, benefits and services under COB 5.7.6 R, a firm should follow the provisions of COB 5.7.16 E.
- (2) Compliance with COB 5.7.8 E (1) may be relied on as tending to establish compliance with COB 5.7.6 R.
- (3) Contravention of COB 5.7.8 E (1) may be relied on as tending to establish contravention of COB 5.7.6 R.
- 01/12/2004
Exceptions to the disclosure for packaged products
COB 5.7.9
See Notes
COB 5.7.5 R does not apply if:
- (1) the firm is acting as an investment manager; or
- (2) the firm is not acting as an outgoing ECA provider and the transaction is effected for a private customer who is habitually resident overseas; or
- (3) the firm is not acting as an outgoing ECA provider and the packaged product is a life policy and the private customer is not present in the United Kingdom at the time the application is made; or
- (4) the firm is acting as an outgoing ECA provider and the transaction is effected for a private customer who is habitually resident outside the EEA; or
- (5) the firm is acting as an outgoing ECA provider, the packaged product is a life policy and the private customer is not present in the EEA at the time the application is made.
- 21/08/2002
COB 5.7.10
See Notes
- 01/10/2005
- Past version of COB 5.7.10 before 01/10/2005
Guidance on disclosure requirements for packaged products
COB 5.7.11
See Notes
- 01/12/2001
COB 5.7.12
See Notes
- 01/12/2004
COB 5.7.13
See Notes
- 01/05/2005
- Past version of COB 5.7.13 before 01/05/2005
COB 5.7.14
See Notes
- 01/12/2001
COB 5.7.15
See Notes
- 01/12/2004
COB 5.7.16
See Notes
Calculating commission equivalent
This table forms part of COB 5.7.8 E.
Calculating commission equivalent | |||
This table sets out the basis on which the firm should determine the value of cash payments, benefits and services to be disclosed as commission equivalent under COB 5.7.5 R. Benefits and services, as set out in parts B and C below, need be included only where their value is such that they could not be provided to a firm as an indirect benefit under COB 2.2.6 G (Packaged products - guidance on indirect benefits) and COB 2.2.7 G (Reasonable indirect benefits).The result of the calculation should be that the amounts disclosed as commission equivalent are, as far as possible, the same as the amounts and value of commission which would be paid in a corresponding sale. | |||
Part A: Cash payments | |||
1. | These cover all payments by a firm to a representative, appointed representative or a firm in the same immediate group in relation to a transaction in a packaged product, including: | ||
(a) | payments to any representative of the firm in respect of the transaction (for example, a manager's override), including any payments from the firm to introducers; | ||
(b) | bonus payments made for the achievement of certain sales targets; | ||
(c) | that element of any payment made in relation to other business which may be considered to result directly or indirectly from the transaction; for example, any extra element of commission equivalent payable on the sale of a mortgage which is to be repaid through an investment in a packaged product; | ||
(d) | payments resulting directly from business written in previous years (for example, renewal commission equivalent), which are conditional on the completion of minimum amounts of new business; | ||
(e) | payments made by an associate of the firm to an associate of the representative; | ||
(f) | salaries and other payments which do not relate directly to any one transaction, provided they are treated similarly to 'benefits' and 'services' (see paragraph 14). | ||
2. | In determining the amounts to be included in the calculation, a firm should have regard to the following: | ||
(a) | When the precise rate of commission equivalent is not known in advance (for example, if retrospective volume overrides apply), the firm should estimate the rate likely to apply to the representative in question. This could, for example, be based on an average rate applicable to particular groupings of representatives or on a best estimate for each representative. It should never be below any minimum rate applicable to that representative or sale. | ||
(b) | When payments are credited to an 'account' from which periodic withdrawals may be made, the amount included should be that credited to the account whether or not the recipient intends to withdraw it immediately. If a representative is able to 'overdraw' an account, all amounts to be credited in respect of a transaction, up to any 'borrowing limit', should be included as if they were credited at the time the transaction was effected. | ||
(c) | When a payment is made before the firm receives the premium or the investment monies to which it relates (for example, indemnity commission equivalent), it should be included as being received at the time of payment. If the representative or the provider firm wishes to explain this arrangement to the customer, he is free to do so, provided this does not detract from the required disclosure. | ||
(d) | When the firm arranges for a lump sum to be paid to a representative through a third party, in exchange for the income stream to which the representative is entitled (for example, a factoring arrangement), the lump sum should be included as if it were a payment from the firm. | ||
(e) | When a firm provides, or arranges for a third party to provide, a loan to a representative, on the security of, or in the expectation of, future payments from the firm, the amounts to be included are the payments to the representative on which the provision of the loan is based, as if they were received at the time the transaction was effected, irrespective of their actual timing. | ||
(f) | When an agent is employed and remunerated by the firm's appointed representative , the payments to be included should be those made by the firm to the appointed representative , not those made by the appointed representative to its own employee. | ||
Part B: Benefits | |||
3. | These include the cost to the firm of all non-monetary benefits provided by it to a representative. These benefits include any item that could be considered as a benefit or expense under the Income and Corporation Taxes Act 1988 (ICTA). A benefit should be included whether or not the representative is liable to income tax on it and whether it is chargeable to tax. | ||
4. | The type of benefits covered by paragraph 3 include the use of a car, attendance at conferences, subsidised loans, contributions to pension schemes, national insurance contributions, the value of any voucher outside the ICTA definition of benefit or expense, and the value of share option (taking into account any discount on issue and assuming that the shares in question grow at a reasonable rate in line with other investments). | ||
Part C: Services | |||
5. | These include benefits which could not be provided to a firm, A, as an indirect benefit (under COB 2.2.3 R (Prohibition of inducements) and COB 2.2.6 G (Packaged products - guidance on indirect benefits)), and which A would therefore have to fund out of its disclosable commission. For those services which can be provided as an indirect benefit, it is not necessary for the firm providing the benefit, B, actually to provide services to another firm, A, for B to be able to apply this criterion in relation to its employees, representatives or agents. | ||
6. | The following services should be included: | ||
(a) | office accommodation and equipment, including telephone, photocopying and fax; | ||
(b) | loans where a commercial rate of interest is not charged, including commission equivalent advances overdue for repayment; | ||
(c) | general stationery and mailing or distribution costs; | ||
(d) | computer hardware and software (except software which specifically relates to the firm's packaged product, such as software used in supporting the pensions review process or for producing illustrations, projection and product information); | ||
(e) | clerical and administrative support (except support given in relation to the pensions review process); | ||
(f) | business insurance cover, including professional indemnity and fidelity guarantee; | ||
(g) | recruitment; | ||
(h) | compliance monitoring; | ||
(i) | customer services; | ||
(j) | business planning services; | ||
(k) | line management. | ||
7. | To put a value on these services, the following costs should be included: | ||
(a) | all overheads attributable to a particular cost item (for example, the cost of a compliance official); | ||
(b) | salary costs pro rata where individuals are only engaged part-time on relevant business; | ||
(c) | rent and associated premises costs at an appropriately reduced rate where the premises are also used for other business activities; | ||
(d) | only that proportion of the cost of lead generation promotions attributable to the generation of relevant business (but including the placing of any financial promotion, and its mailing or provision of access to third party customers); | ||
(e) | only the marginal additional compliance costs of ensuring that representatives and their support and training material comply with relevant rules; | ||
(f) | the commercial value of a service which is the use of an asset owned by the firm (for example in the case of a property, its full market rent); | ||
(g) | in respect of appointed representative, the costs of any promotion in a newspaper or elsewhere and the provision of representative-specific literature in connection with a direct offer financial promotion; | ||
(h) | in respect of a firm in the same immediate group and connected appointed representatives, where the name of the company is included in the direct offer financial promotion, the costs of any promotion in a newspaper or elsewhere and the provision of literature specific to the representative in connection with a direct offer financial promotion. | ||
8. | The following costs should be excluded: | ||
(a) | any contributions made by a representative out of his own resources; | ||
(b) | the cost of corporate awareness advertising; | ||
(c) | training costs; | ||
(d) | underwriting, policy administration and claims handling costs; | ||
(e) | costs of developing and maintaining computer systems for the provision of projections of benefits, customer-specific key features documents, simplified prospectuses or other product information; | ||
(f) | costs of compensating customers; | ||
(g) | the costs of head office and branch level management and support, other than payments to managers falling under Part 1, for representatives, where these services could also be provided to a firm not in the same immediate group, for example, broker consultants and 'inspectors'; | ||
(h) | 'collecting remuneration' payable in respect of industrial assurance policies or by friendly societies, provided that the amounts excluded do not exceed the genuine costs of premium collection; comparison with the remuneration payable to collectors who are not representatives or with the renewal remuneration payable on ordinary branch business may provide a guide. | ||
Part D: Calculation methodology | |||
9. | Estimating commission equivalent | ||
The cost of benefits and services should normally be based on the most recent relevant experience of the firm, except where one of the following applies: | |||
(a) | the firm has reasonable grounds to believe that the commission equivalent for the period concerned will be higher than that implied by the experience; or | ||
(b) | the firm has strong grounds to believe that the commission equivalent for the period concerned will be lower than that implied by the experience; or | ||
(c) | no such experience is available. | ||
If any of (a) to (c) applies, the estimate should be based on and evidenced by business plans which the firm is satisfied on reasonable grounds are achievable. | |||
10. | Firms that receive or expect to receive: | ||
(a) | commission in respect of packaged products which are not its own products or the products of a product provider who is in the same immediate group; and | ||
(b) | commission equivalent in respect of its own products | ||
must ensure that the costs and benefits attributed to these products do not exceed the amounts that can be financed from that commission. | |||
Construction of commission equivalent scales | |||
11. | The total costs of cash payments, benefits and services should be assessed and the normal approach is to split them into new business costs and after sale servicing costs. The costs of each of these functions should be assessed directly in relation to the work carried out by the representatives. | ||
12. | (a) | The commission equivalent costs identified in 11 should be spread across the business using a new business commission equivalent scale and a servicing commission equivalent scale respectively. The new business commission equivalent scales when applied to the total value/volumes of business should reproduce the total new business commission equivalent costs, and similarly for the servicing scales. | |
(b) | The commission equivalent scales should distinguish between products for which the commission equivalent to representatives is likely to be different. | ||
13. | Where the representative's commission equivalent includes a cash payment related to volume and/or value of the transactions sold, the following method would be appropriate: | ||
(a) | The basic payment scale should comprise a new business payment scale and a servicing payment scale. The cost of benefits and services should be expressed in the form of a new business uplift factor and a servicing uplift factor. So the "new business uplift factor" would be the cost of new benefits and services divided by the new business payments. The "servicing uplift factor" would be the cost of servicing benefits and services divided by servicing payments. | ||
(b) | The payment scales should be grossed up by new business uplift factors or servicing uplift factors as appropriate to reflect the cost of benefits and services. The grossed up scales represent the new business and servicing commission equivalent scales, and are applied to each contract to derive the commission equivalent to be disclosed. | ||
(c) | Where the level of payment in the first year of a policy equals the level of payment in subsequent years then "new business payments" refers to payments in the first year of a contract and "servicing payment" refers to the level of payment in subsequent years. | ||
(d) | If servicing costs are expected to be incurred in any year in which no servicing payments are to be made on a contract, disclosure should still be made, for example by using a technique similar to that described in 14. | ||
14. | (a) | When a representative receives a salary, or other payment unrelated to volume or sales: | |
(i) | this should be amalgamated with the cost of benefits and services; and | ||
(ii) | the total costs should be apportioned over individual transactions in a way that reflects the value of a contract to a firm or the firm's immediate group. | ||
(b) | Where a firm is a distributor for a product provider within the same immediate group, the firm must apportion total costs over individual transactions in a way that reflects the value of the contract to the firm's immediate group. | ||
15. | Where other methods of commission equivalent are employed, for example, part salary and part related to the volume/value of the sale, the salary element should be added to the cost of benefits and services and the method in 13 should be used. | ||
16. | Where a representative agrees to forgo part of his or her normal payment to improve the terms of the contract, the same uplift factor (in line with 13(a)) may be applied to the reduced payment, or the same monetary cost of benefits and services may be used, subject to the following constraints: | ||
(a) | the same uplift factor approach should only be adopted if the customer will also receive the full benefit of the lower of: | ||
(i) | the reduction in the amount of disclosed commission equivalent for non-financial benefits and services; and | ||
(ii) | an equivalent proportion of the policy loadings intended to cover non-financial benefits and services. | ||
(b) | Where the 'same uplift factor' approach is adopted, the proportion of payments forgone must be allowed for in calculating the uplift factor. | ||
(c) | Where an average scale of commission equivalent is used, the percentage reduction in payment in respect of the individual representative may be applied to the average payment in order to calculate the reduced payment. | ||
17. | The firm should review the commission equivalent scales if at any time it becomes aware that the commission equivalent figures have become misleading. A review should take place at least annually. | ||
18. | When an identical commission equivalent scale applies to all representatives (although they might earn differing percentages of it), the same average amount of commission equivalent (and the value of other benefits and services) in respect of identical transactions may be disclosed, regardless of the percentage of the scale paid to each individual representative. Averaging may be used for representatives on the same scale and employees of firms in the same immediate group, but not appointed representatives. | ||
Payments to associates | |||
19. | Where a firm pays commission equivalent to a another firm in the same immediate group, or an appointed representative which is an associate of the firm, it should ensure that the calculation of the sum to be disclosed is the higher of: | ||
(a) | all payments, benefits and services provided to the firm or appointed representative, from whatever source, plus an additional allowance for profit of 15% - unless the firm can demonstrate that another figure (higher or lower) is more appropriate; and | ||
(b) | the cash payments actually paid by the firm, plus the value of services provided. |
- 01/05/2005
- Past version of COB 5.7.16 before 01/05/2005
COB 5.7.17
See Notes
Remuneration and commission disclosure statements: content and wording.
This table forms part of COB 5.7.13 G.
Remuneration and commission disclosure statements: content and wording | |||
A firm may wish to follow the guidance on content and wording in this table when drawing up its written statement of remuneration or commission under COB 5.7.5 R. | |||
Degree of accuracy | |||
1. | To help the customer understand, the firm may round large amounts of commission or remuneration to three significant figures (that is, where the leading three figures are sufficient to convey the magnitude of the result, for example £122 instead of £122.35). | ||
Sample wordings | |||
2. | Examples of appropriate remuneration or commission disclosure wordings, for: | ||
(a) | independent intermediaries and other intermediaries (in a direct offer financial promotion or post-sale information): "For arranging this policy/contract XYZ Ltd will pay commission to IFA Ltd £…" | ||
(b) | representatives employed by an appointed representative: "For arranging this policy/contract XYZ Ltd will pay remuneration and provide services to AR Ltd worth £…" | ||
(c) | representatives employed by an appointed representative (at the point of sale or in a direct offer financial promotion): "For arranging this policy/contract AR Ltd expects to receive remuneration and services from XYZ Ltd worth £…" | ||
(d) | representatives employed directly by the firm (including self-employed sole trader appointed representatives): | ||
(i) | "for arranging this policy/contract I expect to receive remuneration and services from XYZ Ltd worth £…"; or | ||
(ii) | "for arranging this policy XYZ Ltd expect to incur sales costs of £…"; or | ||
(iii) | an acceptable post sale alternative might be: "for arranging this policy XYZ Ltd has provided remuneration and services to your adviser worth £…"; | ||
this type of approach would be suitable either to a salaried or commissioned representative. | |||
3. | The description of the monetary amount (just shown as '£…') in the examples in paragraph 2 will vary according to the incidence and basis of remuneration or commission. Examples of some common cases are: | ||
(a) | indemnified payments (on a monthly payment contract): "£X immediately and £Y each month from the Nth month to the end of the term" | ||
(b) | level basis (on an annual payment whole life contract): "£X each year"; but in the case of a sale by any representative, the provision of benefits and services would probably require instead a statement in the form: "£X immediately and £Y each year thereafter". | ||
(c) | fund related basis: | ||
(i) | using the same rate of growth and the same periods as those in the key features document or the simplified prospectus, the example will normally show the commission or remuneration in the first year in which it is paid and the tenth year; or | ||
(ii) | for an investment of £P, "For arranging this policy, XYZ Ltd will pay commission to IFA Ltd of £X, and half a percent of the fund value each year. For example, if your fund was worth £P, we would pay £X per year: if it was worth £2xP, we would pay £Z per year. Commission is paid every six months". | ||
(d) | increasing payment basis: "£X immediately and a variable amount in each year thereafter, being, for example, £Y in the second year and increasing to £Z by the final year". |
- 01/05/2005
- Past version of COB 5.7.17 before 01/05/2005
COB 5.8
Customers introduced to clearing firms by introducing brokers and overseas introducing brokers
- 01/12/2004
Application
COB 5.8.1
See Notes
- 01/12/2001
Purpose
COB 5.8.2
See Notes
- 01/12/2001
Clearing firms and introducing brokers and overseas introducing brokers
COB 5.8.3
See Notes
- 01/12/2001
COB 5.8.4
See Notes
- 01/12/2001
COB 5.8.5
See Notes
- 01/12/2001
COB 5.8.6
See Notes
- 01/12/2001
COB 5.8.7
See Notes
When a clearing firm operates an omnibus account for an overseas introducing broker (that is, an account operated in the name of the overseas introducing broker for more than one underlying client) a clearing firm should:
- (1) establish that the overseas introducing broker is authorised in his own country;
- (2) where there is no formal regulatory regime in the overseas introducing broker's own country, take reasonable steps to establish that the overseas introducing broker is legally empowered to undertake the proposed business to be transacted; and
- (3) have regard to the requirements of UK law on money laundering and financial crime.
- 01/12/2001
COB 5.10
Corporate finance business issues
- 01/12/2004
Application
COB 5.10.1
See Notes
- 01/05/2004
COB 5.10.1A
See Notes
- 01/01/2007
Purpose
COB 5.10.2
See Notes
- 01/07/2006
- Past version of COB 5.10.2 before 01/07/2006
Securities offerings
COB 5.10.3
See Notes
- 01/05/2004
COB 5.10.4
See Notes
The overriding responsibility of the firm is to have in place systems, controls and procedures to ensure that the duties which the firm owes to its clients are identified effectively and discharged appropriately. In particular, the firm's processes and procedures will need to take account of the following:
- (1) when carrying out a mandate to manage an offering of securities, the firm's duty for that business is to its corporate finance client (in many cases, the corporate issuer or seller of the relevant securities);
- (2) a firm's responsibilities to provide services to the firm's investment clients (that is, those on the investment client side of the Chinese wall (see COB 5.10.5 G)) are unchanged, even if they have an interest in acquiring securities in the offering. The firm will need to ensure that it complies with the relevant regulatory obligations to its investment clients, such as COB 5.3 (Suitability).
- 01/05/2004
COB 5.10.5
See Notes
Firms will need to have in place systems, controls and procedures, appropriate to its structure and business, and to the sorts of offerings in which they are involved, for identifying and managing conflicts of interest (and see SYSC 3 (Systems and controls)). Examples which the FSA considers that a firm should consider (not every example will be relevant or appropriate to every situation or firm) include:
- (1) at an early stage, for example before it accepts a mandate to manage the offering, discussing or agreeing with its corporate finance client relevant aspects of the offering process, such as:
- (a) the process the firm proposes to follow in order to determine what recommendations it will make about allocations for the offering;
- (b) details of how the target investor group, to whom it is planned to offer the securities, will be identified;
- (c) the process through which recommendations on allocation and pricing are prepared, and by whom; and
- (d) (if relevant) that it may recommend placing securities with an investment client of the firm for whom the firm provides other services, with the firm's own proprietary book, or with an associate, and that this represents a potential conflict of interest;
- (2) having internal arrangements designed to ensure that the firm will give unbiased and full advice to the corporate finance client about the valuation and pricing for an offering (the FSA accepts that valuation is a complex process and great precision may not always be possible in a security offering);
- (3) having internal arrangements under which individuals or business units in the firm, whose responsibilities are ordinarily to provide services to the firm's investment clients (that is, those on the investment client side of the Chinese wall), are not involved directly in decisions about recommendations to a corporate finance client on pricing (although they might, for example, be permitted to provide information about likely investor interest to those advising the corporate finance client);
- (4) ensuring that its systems, controls and procedures to identify and manage conflicts of interest also cover the allocation process for an offering of securities; for example:
- (a) having internal arrangements under which the allocation process and the development of recommendations on allocation (names and amounts proposed to be allocated) are made to the corporate finance client only by staff who do not have any responsibilities for servicing investment clients;
- (b) inviting the corporate finance client to participate actively in the allocation process so that its proper interests can be taken into account effectively, including making available to the corporate finance client appropriate information to support the proposed recommendations on allocation;
- (c) basing recommendations about allocation and pricing on objectives agreed with the corporate finance client;
- (d) making the initial recommendation for allocation to private customers of the firm as a single block and not on a named basis;
- (e) having internal arrangements under which senior personnel in the department (or equivalent business unit), who are responsible for providing services to private customers, make the individual allocation recommendations for allocation to private customers of the firm; and
- (f) disclosing to the issuer, after completion of the transaction, details of the allocations which were actually made; and
- (5) having internal arrangements under which allocation recommendations are not determined by the level of business which a firm does or hopes to do with any other client (see also COB 2.2 (Inducements)); for example:
- (a) any allocation to a private customer of the firm should be justifiable in terms of the process for developing allocation recommendations which was disclosed to the corporate finance client at the outset (as well as in terms of any other obligations which the firm may have - for example under COB 5.3 (Suitability) or COB 7.7 (Aggregation and allocation)); and
- (b) any recommendation for allocation to the proprietary trading desk of the firm or to an associate or affiliate of the firm should be justifiable in terms of the objectives of the allocation policy and should be consistent with the process for developing allocation recommendations disclosed by the firm at the outset.
- 01/07/2006
- Past version of COB 5.10.5 before 01/07/2006
COB 5.10.6
See Notes
- 01/05/2004
Securities offerings: behaviour in breach of the Principles
COB 5.10.7
See Notes
- (1) For the avoidance of doubt, the FSA considers that the following would each be a breach of the Principles referred to in COB 5.10.2 G, and a breach of COB 2.2.3 R:
- (a) an allocation made as an inducement for the payment of excessive compensation in respect of unrelated services provided by the firm; for example, very high rates of commissions paid to the firm by an investment client, or an investment client providing very high volumes of business at normal levels of commission (which may also be a breach of COB 7.2 (Churning and switching));
- (b) an allocation made to a senior executive or a corporate officer of an existing or potential corporate finance client, or of a listed company, in consideration for the future or past award of corporate finance business; and
- (c) an allocation which is expressly or implicitly conditional upon the receipt of orders or the purchase of any other service from the firm by the investor, or any body corporate of which the investor is a corporate officer.
- (2) A firm's systems, controls and procedures should, therefore, be designed to prevent these sorts of behaviour.
- 01/05/2004
COB 5 Annex 1
Warrants and derivatives risk warning notice (E)
- 01/12/2004
See Notes
This notice is provided to you, as a private customer, in compliance with the rules of the Financial Services Authority (FSA). Private customers are afforded greater protections under these rules than other customers are and you should ensure that your firm tells you what this will mean to you. This notice cannot disclose all the risks and other significant aspects of warrants* and/or derivative* products such as futures*, options*, and contracts for differences* (* delete as appropriate). You should not deal in these products unless you understand their nature and the extent of your exposure to risk. You should also be satisfied that the product is suitable for you in the light of your circumstances and financial position. Certain strategies, such as a 'spread' position or a 'straddle', may be as risky as a simple 'long' or 'short' position. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. Different instruments involve different levels of exposure to risk and in deciding whether to trade in such instruments you should be aware of the following points. (Include or delete as appropriate). |
1. Warrants A warrant is a time-limited right to subscribe for shares, debentures, loan stock or government securities and is exercisable against the original issuer of the underlying securities. A relatively small movement in the price of the underlying security results in a disproportionately large movement, unfavourable or favourable, in the price of the warrant. The prices of warrants can therefore be volatile. It is essential for anyone who is considering purchasing warrants to understand that the right to subscribe which a warrant confers is invariably limited in time with the consequence that if the investor fails to exercise this right within the predetermined time-scale then the investment becomes worthless. You should not buy a warrant unless you are prepared to sustain a total loss of the money you have invested plus any commission or other transaction charges. |
2. Off-exchange warrant transactions Transactions in off-exchange warrants may involve greater risk than dealing in exchange traded warrants because there is no exchange market through which to liquidate your position, or to assess the value of the warrant or the exposure to risk. Bid and offer prices need not be quoted, and even where they are, they will be established by dealers in these instruments and consequently it may be difficult to establish what is a fair price. Your firm must make it clear to you if you are entering into an off-exchange transaction and advise you of any risks involved. |
3. Securitised derivatives These instruments may give you [a time-limited right (Note 1)] [an absolute right (Note 2)] to acquire or sell one or more types of investment which is normally exercisable against someone other than the issuer of that investment. Or they may give you rights under a contract for differences which allow for speculation on fluctuations in the value of the property of any description or an index, such as the FTSE 100 index. In both cases, the investment or property may be referred to as the "underlying instrument". These instruments often involve a high degree of gearing or leverage, so that a relatively small movement in the price of the underlying investment results in a much larger movement, unfavourable or favourable, in the price of the instrument. The price of these instruments can therefore be volatile. These instruments have a limited life, and may (unless there is some form of guaranteed return to the amount you are investing in the product) expire worthless if the underlying instrument does not perform as expected. You should only buy this product if you are prepared to sustain a [total loss (Note 3)] [substantial loss (Note 4)] [loss (Note 5)] of the money you have invested plus any commission or other transaction charges. You should consider carefully whether or not this product is suitable for you in light of your circumstances and financial position, and if in any doubt please seek professional advice. Notes (these notes are not part of the notice): 1 Use for instruments such as covered warrants where there is some form of exercise required by the investor. 2 Use for instruments such as linked notes, or some certificates where there is no form of exercise required by the investor. 3 Use for instruments such as covered warrants where the return payable to the investor is totally dependant upon the performance of the underlying instrument/s to which the product is linked and there is not another form of payment due to the investor (for example the repayment of capital). 4 Use for instruments such as linked notes where there is a form of return paid to the investor irrespective of the performance of the underlying instrument/s to which the product is linked, but the return is low. 5 Use for instruments such as linked notes where there is a form of return paid to the investor irrespective of the performance of the underlying instrument/s to which the product is linked, but the return is high but less than 100% of the amount paid for the product. |
4. Futures Transactions in futures involve the obligation to make, or to take, delivery of the underlying asset of the contract at a future date, or in some cases to settle the position with cash. They carry a high degree of risk. The 'gearing' or 'leverage' often obtainable in futures trading means that a small deposit or down payment can lead to large losses as well as gains. It also means that a relatively small movement can lead to a proportionately much larger movement in the value of your investment, and this can work against you as well as for you. Futures transactions have a contingent liability, and you should be aware of the implications of this, in particular the margining requirements, which are set out in paragraph 9. |
5. Options There are many different types of options with different characteristics subject to the following conditions. Buying options: Buying options involves less risk than selling options because, if the price of the underlying asset moves against you, you can simply allow the option to lapse. The maximum loss is limited to the premium, plus any commission or other transaction charges. However, if you buy a call option on a futures contract and you later exercise the option, you will acquire the future. This will expose you to the risks described under 'futures' and 'contingent liability investment transactions'. |
Writing options: If you write an option, the risk involved is considerably greater than buying options. You may be liable for margin to maintain your position and a loss may be sustained well in excess of the premium received. By writing an option, you accept a legal obligation to purchase or sell the underlying asset if the option is exercised against you, however far the market price has moved away from the exercise price. If you already own the underlying asset which you have contracted to sell (when the options will be known as 'covered call options') the risk is reduced. If you do not own the underlying asset ('uncovered call options') the risk can be unlimited. Only experienced persons should contemplate writing uncovered options, and then only after securing full details of the applicable conditions and potential risk exposure. |
Traditional options: Certain London Stock Exchange member firms under special exchange rules write a particular type of option called a 'traditional option'. These may involve greater risk than other options. Two-way prices are not usually quoted and there is no exchange market on which to close out an open position or to effect an equal and opposite transaction to reverse an open position. It may be difficult to assess its value or for the seller of such an option to manage his exposure to risk. Certain options markets operate on a margined basis, under which buyers do not pay the full premium on their option at the time they purchase it. In this situation you may subsequently be called upon to pay margin on the option up to the level of your premium. If you fail to do so as required, your position may be closed or liquidated in the same way as a futures position. |
6. Contracts for differences Futures and options contracts can also be referred to as contracts for differences. These can be options and futures on the FTSE 100 index or any other index, as well as currency and interest rate swaps. However, unlike other futures and options, these contracts can only be settled in cash. Investing in a contract for differences carries the same risks as investing in a future or an option and you should be aware of these as set out in paragraphs 4 and 5 respectively. Transactions in contracts for differences may also have a contingent liability and you should be aware of the implications of this as set out in paragraph 9. |
7. Off-exchange transactions in derivatives It may not always be apparent whether or not a particular derivative is arranged on exchange or in an off-exchange derivative transaction. Your firm must make it clear to you if you are entering into an off-exchange derivative transaction. While some off-exchange markets are highly liquid, transactions in off-exchange or 'non transferable' derivatives may involve greater risk than investing in on-exchange derivatives because there is no exchange market on which to close out an open position. It may be impossible to liquidate an existing position, to assess the value of the position arising from an off-exchange transaction or to assess the exposure to risk. Bid prices and offer prices need not be quoted, and, even where they are, they will be established by dealers in these instruments and consequently it may be difficult to establish what is a fair price. |
8. Foreign markets Foreign markets will involve different risks from the UK markets. In some cases the risks will be greater. On request, your firm must provide an explanation of the relevant risks and protections (if any) which will operate in any foreign markets, including the extent to which it will accept liability for any default of a foreign firm through whom it deals. The potential for profit or loss from transactions on foreign markets or in foreign denominated contracts will be affected by fluctuations in foreign exchange rates. |
9. Contingent liability investment transactions Contingent liability investment transactions, which are margined, require you to make a series of payments against the purchase price, instead of paying the whole purchase price immediately. If you trade in futures contracts for differences or sell options, you may sustain a total loss of the margin you deposit with your firm to establish or maintain a position. If the market moves against you, you may be called upon to pay substantial additional margin at short notice to maintain the position. If you fail to do so within the time required, your position may be liquidated at a loss and you will be responsible for the resulting deficit. Even if a transaction is not margined, it may still carry an obligation to make further payments in certain circumstances over and above any amount paid when you entered the contract. Save as specifically provided by the FSA, your firm may only carry out margined or contingent liability transactions with or for you if they are traded on or under the rules of a recognised or designated investment exchange. Contingent liability investment transactions which are not so traded may expose you to substantially greater risks. |
10. Limited liability transactions Before entering into a limited liability transaction, you should obtain from your firm or the firm with whom you are dealing a formal written statement confirming that the extent of your loss liability on each transaction will be limited to an amount agreed by you before you enter into the transaction. The amount you can lose in limited liability transactions will be less than in other margined transactions, which have no predetermined loss limit. Nevertheless, even though the extent of loss will be subject to the agreed limit, you may sustain the loss in a relatively short time. Your loss may be limited, but the risk of sustaining a total loss to the amount agreed is substantial. |
11. Collateral If you deposit collateral as security with your firm, the way in which it will be treated will vary according to the type of transaction and where it is traded. There could be significant differences in the treatment of your collateral depending on whether you are trading on a recognised or designated investment exchange, with the rules of that exchange (and the associated clearing house) applying, or trading off-exchange. Deposited collateral may lose its identity as your property once dealings on your behalf are undertaken. Even if your dealings should ultimately prove profitable, you may not get back the same assets which you deposited, and may have to accept payment in cash. You should ascertain from your firm how your collateral will be dealt with. |
12. Commissions Before you begin to trade, you should obtain details of all commissions and other charges for which you will be liable. If any charges are not expressed in money terms (but, for example, as a percentage of contract value), you should obtain a clear and written explanation, including appropriate examples, to establish what such charges are likely to mean in specific money terms. In the case of futures, when commission is charged as a percentage, it will normally be as a percentage of the total contract value, and not simply as a percentage of your initial payment. |
13. Suspensions of trading Under certain trading conditions it may be difficult or impossible to liquidate a position. This may occur, for example, at times of rapid price movement if the price rises or falls in one trading session to such an extent that under the rules of the relevant exchange trading is suspended or restricted. Placing a stop-loss order will not necessarily limit your losses to the intended amounts, because market conditions may make it impossible to execute such an order at the stipulated price. |
14. Clearing house protections On many exchanges, the performance of a transaction by your firm (or third party with whom he is dealing on your behalf) is 'guaranteed' by the exchange or clearing house. However, this guarantee is unlikely in most circumstances to cover you, the customer, and may not protect you if your firm or another party defaults on its obligations to you. On request, your firm must explain any protection provided to you under the clearing guarantee applicable to any on-exchange derivatives in which you are dealing. There is no clearing house for traditional options, nor normally for off-exchange instruments which are not traded under the rules of a recognised or designated investment exchange. |
15. Insolvency Your firm's insolvency or default, or that of any other brokers involved with your transaction, may lead to positions being liquidated or closed out without your consent. In certain circumstances, you may not get back the actual assets which you lodged as collateral and you may have to accept any available payments in cash. On request, your firm must provide an explanation of the extent to which it will accept liability for any insolvency of, or default by, other firms involved with your transactions. |
[name of firm] [on duplicate for signature by private customer] I/We have read and understood the risk warning set out above. Date [Signature of the customer] [Signature of joint account holder] |
Note to firms Paragraphs 1-15 may be deleted when they relate to particular kinds of business which will not be carried out with or for the customer. This notice may be incorporated as part of a two-way customer agreement, but the customer must sign separately that he has read and understood the risk warnings. |
- 01/08/2002
COB 5 Annex 2
Dealing in securities which may be subject to stabilisation (E)
- 01/12/2004
See Notes
This statement complies with the rules of the Financial Services Authority (FSA) |
[Name of Firm] or its representatives may, from time to time, recommend transactions in securities to you, or carry out such transactions on your behalf, where the price may have been influenced by measures taken to stabilise it. |
You should read the explanation below carefully. This is designed to help you judge whether you wish your funds to be invested at all in such securities and, if you do, whether you wish: |
(1) to be consulted before [Name of Firm] carries out any such transaction on your behalf; or |
(2) to authorise [Name of Firm] to carry out any such transaction on your behalf without first having to consult you. |
What is stabilisation? |
Stabilisation enables the market price of a security to be maintained artificially during the period when a new issue of securities is sold to the public. Stabilisation may affect not only the price of the new issue but also the price of other securities relating to it. |
The FSA allows stabilisation in order to help counter the fact that, when a new issue comes onto the market for the first time, the price can sometimes drop for a time before buyers are found. |
Stabilisation is being carried out by a 'stabilisation manager' (normally the firm chiefly responsible for bringing a new issue to market). As long as the stabilising manager follows a strict set of rules, he is entitled to buy back securities that were previously sold to investors or allotted to institutions which have decided not to keep them. The effect of this may be to keep the price at a higher level than it would otherwise be during the period of stabilisation. |
The Stabilisation Rules: |
(1) limit the period when a stabilising manager may stabilise a new issue; |
(2) fix the price at which he may stabilise (in the case of shares and warrants but not bonds); and |
(3) require him to disclose that he may be stabilising but not that he is actually doing so. |
The fact that a new issue or a related security is being stabilised should not be taken as any indication of the level of interest from investors, nor of the price at which they are prepared to buy the securities. |
COB 5A
Providing
basic advice on stakeholder products
COB 5A.1
Providing basic advice on stakeholder products
- 06/04/2005
Application and Purpose
COB 5A.1.1
See Notes
- 06/04/2005
COB 5A.2
Disclosure on making first contact: information about services
- 06/04/2005
COB 5A.2.1
See Notes
- (1) A firm must take reasonable steps to ensure that its representatives, on first making contact with a customer with a view to providing basic advice on a stakeholder product, provide, in a durable medium, an initial disclosure document that complies with COB 4.3.9R (1).
- (2) A firm must take reasonable steps to ensure that its representatives explain the contents of the initial disclosure document at the time it is provided to the customer.
- (3) The requirements in (1) and (2) do not apply:
- (a) to the extent that the information has already been given to the customer on a previous occasion and it is still likely to be accurate and appropriate for the customer; or
- (b) if COB 5A.2.6 R (initial contact by telephone) applies.
- (4) A firm which is required by this rule to provide an initial disclosure document to a private customer may instead provide the customer with a combined initial disclosure document, that complies with COB 4.3.9R (2), if it has reasonable grounds to be satisfied that the services which it is likely to provide to the customer will, in addition to stakeholder products, relate to one or more of the following:
- (a) regulated mortgage contracts other than lifetime mortgages;
- (aA) home purchase plans;
- (b) equity release transactions ;
- (c) non-investment insurance contracts.
- (5) A firm must, if requested to do by a customer, provide an explanation of the basis on which it has chosen to market the particular stakeholder products within the range on which basic advice will be given to a customer, including an explanation of why the firm has selected particular product providers.
- 06/04/2007
- Past version of COB 5A.2.1 before 06/04/2007
Smoothed Products
COB 5A.2.2
See Notes
- 06/04/2005
COB 5A.2.3
See Notes
- 06/04/2005
Providing a copy of the range of stakeholder products
COB 5A.2.4
See Notes
- 06/04/2005
Terms of business and telephone sales
COB 5A.2.5
See Notes
- (1) A firm that, pursuant to COB 5A.2.1 R, provides a customer with an initial disclosure document containing information that a corresponding rule in COB 4.2 says must be included in terms of business, will satisfy the corresponding rule by providing that information in the initial disclosure document.
- (2) Any information required by COB 4.2 which is not included in an initial disclosure document provided to a customer in compliance with COB 5A.2.1 R can be included at the end of the initial disclosure document provided to the customer or, if provided at the same time, by way of separate items of information.
- 06/04/2005
COB 5A.2.6
See Notes
- (1) Where a firm's initial contact with a customer (for a purpose set out in COB 5A.2.1 R) is by telephone, then the firm must provide the following information and satisfy the following requirements before proceeding further:
- (a) the name of the firm and, if the call is initiated by or on behalf of a firm, the commercial purpose of the call;
- (b) whether the firm will select from or deal with stakeholder products from a limited number of companies or from a single company;
- (c) that the firm will provide the customer with only basic advice on stakeholder products and without full assessment of his needs and circumstances;
- (d) that the information given under (a) to (c) will subsequently be confirmed in writing.
- (2) A firm which complies with (1) will, subject to (3), satisfy the condition set out in item (1) of COB 4 Annex 1 R.
- (3) If during the course of a telephone call a firm is to conclude a contract (for example for the provision of a mediation services or for the purchase or sale of a stakeholder product), it must satisfy the requirements in COB 4.2.5 R and COB 4 Annex 1 as well as comply with (1) and (2) above.
- 06/04/2005
COB 5A.2.7
See Notes
- 06/04/2005
COB 5A.3
Scope and range of advice on stakeholder products: general
- 06/04/2005
COB 5A.3.1
See Notes
- (1) A firm which provides a private customer with basic advice on a stakeholder product must take reasonable steps to ensure that the scope of the basic advice given to a private customer is based upon a selection of one of the following:
- (a) a limited number of providers of stakeholder products; or
- (b) a single provider of a stakeholder product.
- (2) A firm which provides a customer with basic advice on a stakeholder product must do so only on the basis of a range of stakeholder products which includes no more than one of each of:
- (a) a CIS stakeholder product or a linked-life stakeholder product; or
- (b) a stakeholder pension; or
- (c) a stakeholder CTF.
- (3) A firm must take reasonable steps to ensure that any of its representatives which give basic advice on stakeholder products that offer a choice of funds, do not give advice on, or recommend, a particular fund for the customer.
- (4) A firm must take reasonable steps to ensure that its representatives do not, while they are engaged in providing basic advice on stakeholder products, provide advice on products other than those within the range offered by the firm.
- (5) A firm which has commenced the sales process for stakeholder products in respect of a particular customer may only depart from that process if:
- (a) it has taken reasonable steps to ensure its representatives advise the customer that basic advice on stakeholder products within the range offered by the firm will not be provided during the period of departure; and
- (b) it has taken reasonable steps to ensure its representatives do not provide basic advice during the period of departure.
- (6) A firm must take reasonable steps to ensure that if its representatives return to the sales process for stakeholder products after the period of departure referred to in COB 5A.3.1R (5), they first advise the customer that the period of departure has ended and the sales process for stakeholder products has recommenced.
- 06/04/2005
COB 5A.3.2
See Notes
- (1) A firm can provide a customer with basic advice on a stakeholder product on the basis of a range of stakeholder products which includes more than one deposit-based stakeholder product.
- (2) A firm can provide advice on a deposit-based stakeholder product during the period of departure referred to in COB 5A.3.1R (5).
- 06/04/2005
COB 5A.3.3
See Notes
- (1) A firm which provides basic advice on stakeholder products is required by COB 5A.3.1R (2) to do so, in relation to any particular customer, by reference to a range of stakeholder products which should include no more than one of each type of stakeholder product specified in COB 5A.3.1R (2). A firm may however operate with more than one such range.
- (2) When a firm provides basic advice on a stakeholder product which is not produced by the firm, it is responsible for the advice given. By contrast, the producer is responsible for the relevant terms and conditions of the stakeholder product.
- 06/04/2005
Range of stakeholder products: appointed representatives
COB 5A.3.4
See Notes
- (1) A firm must maintain in writing and keep up to date a statement of:
- (a) the scope of basic advice (within the meaning of COB 5A.3.1R (1)) which each of its appointed representatives is, through its contract with the firm, permitted to give; and including
- (b) the range (or ranges) of stakeholder products on which each appointed representative advises.
- (2) In applying the rules in COB to a firm in respect of its appointed representatives, references to a firm's scope or range of stakeholder products are to be taken as references to the scope (or scopes) and to the range (or ranges) of its appointed representatives.
- 06/04/2005
COB 5A.3.5
See Notes
- 06/04/2005
Range of stakeholder products: records
COB 5A.3.6
See Notes
- (1) A firm must make, and keep up to date, a record of its scope and range (or ranges) of stakeholder products.
- (2) The record in (1) must be retained for six years from the date on which it was superseded by a more up-to-date record.
- (3) The record for distribution to a customer must be the particular range of stakeholder products which is appropriate for the services provided to that customer and include details of:
- (a) the identity of the firms within the range whose stakeholder products the firm may sell; and
- (b) a list of the products the firm may sell.
- (4) A firm must maintain a record of the particular range of stakeholder products on which its basic advice to each private customer is based and such a record must be kept for six years from the date on which the basic advice is given.
- 06/04/2005
Branding stakeholder products
COB 5A.3.7
See Notes
- 06/04/2005
Staying within the range of advice of stakeholder products
COB 5A.3.8
See Notes
- (1) A firm must take reasonable steps to ensure that neither it nor any of its representatives provides basic advice on a stakeholder product unless the product is:
- (a) within the firm's range (or ranges) of stakeholder products; and
- (b) is within the particular range of stakeholder products on which the firm has indicated it will give basic advice to that customer.
- 06/04/2005
"Independence" - restriction on holding out
COB 5A.3.9
See Notes
- (1) A firm must not in providing basic advice on stakeholder products hold itself out as giving such basic advice on an independent basis.
- (2) Notwithstanding (1) a firm may use its facilities and stationery which it may use for other business in respect of which it does hold itself out as acting or advising independently.
- 06/04/2005
Remuneration structure and referrals
COB 5A.3.10
See Notes
A firm must take reasonable steps to ensure that none of its representatives:
- (1) is likely to be influenced by the structure of his or her remuneration to give unsuitable basic advice on stakeholder products to a customer; and
- (2) refers customers to another firm in circumstances which would amount to the provision of an inducement under COB 2.2.3 R (Prohibition of inducements).
- 06/04/2005
COB 5A.4
Providing basic advice on stakeholder products through scripted questions
- 06/04/2005
COB 5A.4.1
See Notes
- (1) A firm which provides basic advice on a stakeholder product must do so through a sales process which incorporates pre-scripted questions put to the customer.
- (2) Unless excluded at the preliminary stage, a customer must be sent or given, in a durable medium, a copy of the completed scripted questions and answers.
- 06/04/2005
Suitability of stakeholder products
COB 5A.4.2
See Notes
- (1) A firm must only recommend that a customer acquire a stakeholder product if:
- (a) it has taken reasonable steps to assess:
- (i) the customer's answers to the scripted questions;
- (ii) any other facts, circumstances or information disclosed by the customer during the sales process.
- (b) it has, having due regard to the information in (a), reasonable grounds for believing that the stakeholder product is suitable for the customer:
- (c) the firm reasonably believes that the customer understands the advice he has been given and the basis on which it was provided.
- (2) The requirements in (1)(b) do not apply in the case of a deposit-based stakeholder product.
- 06/04/2005
COB 5A.4.3
See Notes
- 06/04/2005
COB 5A.4.4
See Notes
- 06/04/2005
COB 5A.4.5
See Notes
- 06/04/2005
Procedure on making a recommendation
COB 5A.4.6
See Notes
On making a recommendation to acquire a stakeholder product a firm must, subject to COB 5A.4.7 R, COB 5A.4.8 R and COB 5A.4.9 R, take reasonable steps to ensure that prior to the conclusion of a contract with the customer the representative:
- (1) explains to the customer, if necessary in summary form, the "aims", "risks" and "commitment" sections of the appropriate key features together with such other explanation of the product as will enable the customer to make an informed decision whether to accept the recommendation;
- (2) provides the customer with a summary sheet, in a durable medium, setting out for each product recommended:
- (a) the specific amounts that the customer wishes to pay into each product;
- (b) the reasons for the recommendation, including any information provided by the customer on which the recommendation is based, including the customer's attitude to risk;
- (3) informs the customer that in determining any subsequent complaint the Ombudsman may take into account the limited information on which the recommendation is based and that the recommendation is not tailored to take account of those aspects of a customer's financial needs and circumstances not covered by its sales process.
- 06/04/2005
COB 5A.4.7
See Notes
- 06/04/2005
COB 5A.4.8
See Notes
- 06/04/2005
COB 5A.4.9
See Notes
A firm which concludes the sale of a stakeholder product by telephone must take reasonable steps to ensure that its representatives:
- (1) read through the summary sheet required by COB 5A.4.6R (2);
- (2) inform the customer that in determining any subsequent complaint the Ombudsman may take into account the limited information on which the recommendation is based and that the recommendation is not tailored to take account of those aspects of a customer's financial needs and circumstances not covered by its sales process;
- (3) send the customer as soon as possible after that a copy of the firm's summary sheet, and the completed answers and questions, in a durable medium.
- 06/04/2005
Record of recommendations
COB 5A.4.10
See Notes
- 06/04/2005
COB 5A Annex 1
Sales processes for stakeholder products
- 06/04/2005
See Notes
This Annex forms part of COB 5A.4.3 G and gives guidance on the standards and requirements to which a firm may have regard in designing a sales process for stakeholder products which meets the requirements of COB 5A.4.2 R. |
General Standards - all sales | ||
1. | A sales process for stakeholder products may allow the representative administering it to depart from scripted questions where this is desirable to enable the customer to better understand the points that need to be made provided this is compatible with the representative's competence and the degree of support offered by the firm's software and other systems. A software based system is more likely to provide an adaptable means of providing prompts and support for representatives which may accordingly support a more flexible sales process. | |
2. | Questions, statements and warnings provided to a customer should be short, simple and couched in plain language that customers will understand. Questions should address one issue at a time. | |
3. | The sales process should enable the customer to exit freely and without pressure at any stage and should make provision for the representative to terminate the process if at any stage it appears that there is no likelihood of any product being suitable for the customer (whether by reason of the affordability of products for the customer, the need to address other financial priorities (see below), the mis-match of risk or otherwise). | |
4. | Where necessary the sales process should incorporate procedures to allow uncertainties in the customer's answers to be addressed before proceeding further and should generally reflect caution about proceeding further if clarification or further information cannot be obtained during the process (this would be likely to be the case for example if a customer were unable to confirm whether he or she was eligible for membership of an occupational pension scheme). | |
Preliminary - all sales | ||
5. | The following preliminary information and explanation should be given to the customer: | |
(a) | only basic advice will be given about stakeholder products; | |
(b) | stakeholder products are intended to provide a relatively simple and low-cost way of investing and saving; | |
(c) | the range of products on which the representative will give advice to that customer; | |
(d) | the customer will be asked a series of questions about his or her circumstances and needs and at the end of the procedure he or she may be recommended to acquire a stakeholder product; | |
(e) | that the assessment of whether a stakeholder product is suitable will be made without a detailed assessment of the customer's needs but will be based only upon the information disclosed during the questioning process; and | |
(f) | the customer's answers will be noted and that at the end of the process, if a recommendation to acquire a stakeholder product is made, the customer will be provided with a copy of the completed questionnaire. | |
6. | Following 5, the customer should be asked if he or she wishes to proceed and, if not, the sales process should cease. | |
Affordability - all sales | ||
7. | If it appears that the customer will be likely to be unable to afford a stakeholder product, the sale should be terminated at that stage and the customer given an explanation together with a copy of the questions and answers completed to that point. | |
Financial Priorities and Debt - all sales | ||
8. | A customer should be assessed to ascertain other possible financial priorities such as the need for insurance protection for self or dependents, the need for access to liquid cash to meet an emergency, or, a need to reduce a level of existing debt and, if appropriate, the customer should be given an unambiguous warning about the desirability of meeting those other priorities before making payments to a stakeholder product. | |
9. | A stronger warning about the desirability of addressing debt as a priority should be given if it appears that the customer is significantly indebted, and particularly where there is a strong indication that such debt commitments may render any new commitment unaffordable in the short-term. For this purpose a firm should consider using a threshold or indicator to decide whether a customer should be excluded on the basis of affordability. Examples may include where the customer has (a) annual unsecured debt repayments in excess of 20% of gross annual income or (b) four or more active forms of unsecured credit or (c) has consistently reached his overdraft limit. A firm should review its chosen indicator or threshold regularly to ensure that it reflects prevailing economic conditions and takes account of industry best practice. | |
10. | A firm should clearly explain the information it is seeking in respect of a customer's 'debt' and consider the use of a range of alternative words, such as 'loans', 'repayable student loans' 'borrowing' or 'other forms of credit', to ensure all relevant information is obtained. A firm may use a simple reckoner to assess customer debt but should be conscious of the nature of, and not give impression that they are providing anything more than, basic advice. | |
11. | After a firm has given either or both of the warnings mentioned in 8 and 9 above, the customer should be invited to consider whether the sales process should be terminated at that stage. | |
Saving and investment objectives - all sales (except establishing a stakeholder CTF) | ||
12. | A customer's savings and investment objectives, including the period over which the customer wishes to save or invest, should be ascertained including whether: | |
(a) | early access to some or all of the amount saved or invested could be important; | |
(b) | the customer wishes to save or invest for retirement; or whether | |
(c) | the customer wants to accumulate a specific sum by a specific date. | |
13. | If the information obtained under 12 above indicates that the customer's objective: | |
(a) | is as described in 12 (c) then normally no CIS, linked life stakeholder product or topping up of a stakeholder CTF should be recommended; or | |
(b) | is to save or invest for the short term only or that early access to the whole accumulated sum may be important, then no CIS, linked life stakeholder product, stakeholder pension or topping up of a stakeholder CTF should normally be recommended. | |
Tolerance of risk - all sales | ||
14. | If a customer is not, in any circumstances, willing to accept any risk of the capital value of an investment being reduced then normally no CIS, linked life stakeholder product, or stakeholder CTF should be recommended. However a firm may, if it is appropriate, explain the effect of inflation on long-term savings especially in relation to pensions and invite the customer to consider his attitude to risk in the light of that explanation. | |
15. | If a customer is willing to accept the risk of capital reduction in some circumstances but not others then, before any recommendation to acquire a CIS or linked life stakeholder product is made, the customer should be reminded of the other circumstances in which he or she is unwilling to accept risk to capital. | |
Stakeholder pensions | ||
16. | A stakeholder pension should not be recommended and instead the customer should be advised to seek alternative or further advice if it appears that the customer: | |
(a) | has or will have access to an occupational pension scheme; or | |
(b) | is likely to view income in retirement from state benefits as sufficient; or | |
(c) | already has a pension to which he or she could make further contributions; or | |
(d) | wishes to retire within five years. | |
17. | In addition to providing the advice in 16, a firm may also want to advise the customer that there may be more beneficial courses of action than buying a stakeholder pension (for example joining an occupational pension scheme). | |
18. | A firm designing a sales process for use in the workplace may take account of the benefits offered by the employer. If a firm recommends a stakeholder pension on the basis of benefits provided by an employer then it should explain the basis of the recommendation to the customer and suggest that the customer seek advice if he or she has any concerns. | |
19. | A firm should design its processes with a view to addressing the risk that customers will fail to appreciate the significance of questions about their pension provision and should accordingly incorporate a range of questions and information designed to foster the customer's understanding of the issues and to elicit appropriate information. | |
20. | Customers should be told that a stakeholder pension is life-styled and what this means. | |
21. | A firm may provide a copy of the pension table specified in COB 6 Annex 1 R for the customer's reference but in doing so should also provide and explain the caveats and assumptions behind the table. A firm should make it clear that the decision on how much to invest is the customer's responsibility and that he should get further advice if has any concerns. | |
Child Trust Funds | ||
22. | A firm is reminded of its obligation to provide a customer with the information relating to stakeholder CTFs that is specified in COB 6.5.40 (7)(a), COB 6.5.40 (7)(b), COB 6.5.40 (7)(d) and COB 6.5.40 (7)(e). | |
ISAs | ||
23. | It should be ascertained whether the customer has already opened an ISA (whether a "maxi" or "mini" version) and if so whether it would be appropriate for the customer to open a non-ISA version of the same product. |
- 06/04/2005
COB 6
Product
disclosure and the customer's right to cancel or withdraw
COB 6.1
Product disclosure
- 01/12/2004
Application
COB 6.1.1
See Notes
COB 6.1 to COB 6.5 apply to a firm:
- (1) which sells, personally recommends or arranges (brings about) for the sale of a packaged product (other than units in a simplified prospectus scheme) to a private customer or to the trustees of an occupational pension scheme or to the trustee or operator of a stakeholder pension scheme; or
- (1A) which is an operator of a simplified prospectus scheme or which sells, personally recommends or arranges (brings about) for the sale of units in such a scheme to a client, whether or not held within a PEP or an ISA; or
- (2) which manages, sells or personally recommends a cash deposit ISA or cash deposit CTF for or to a private customer; or
- (3) which effects, personally recommends or arranges for a variation of a life policy for or to a private customer; or
- (4) which effects, personally recommends or arranges income withdrawals or short-term annuities for a private customer; or
- (5) which is a long-term insurer and receives:
- (a) a request from a private customer for a quotation for the surrender value of a life policy; or
- (b) any other indication that a private customer wishes to surrender a life policy: or
- (6) which receives a request from a private customer for a retirement quotation in respect of any of the following contracts provided by it:
- (a) a personal pension scheme;
- (b) a stakeholder pension scheme;
- (c) a free-standing additional voluntary contribution contract;
- (d) (where an open-market option is available under the contract terms) a retirement annuity contract; or
- (e) (where an open-market option is available under the contract terms) a pension buy-out contract; or
- (7) which enters into a distance contract with a retail customer to accept deposits.
- 06/04/2006
- Past version of COB 6.1.1 before 06/04/2006
COB 6.1.1A
See Notes
- 09/10/2004
COB 6.1.2
See Notes
- (1) COB 6.2.21 R (Exceptions from the requirement to provide key features for life policies) and COB 6.2.24 R (Exceptions from the requirement to provide key features for key features schemes) contain exemptions from the requirement to produce key features in relation to life policies and key features schemes For simplified prospectus schemes COB 6.2.35 R (Exceptions from the requirement to provide the simplified prospectus) and COB 6.2.36 R (Exception from the requirement to provide a simplified prospectus: firms offering a funds supermarket service) contain similar exemptions from the requirement to provide a simplified prospectus.
- (2) COB 6.4.3 G to COB 6.4.5 G and COB 6.4.19 R to COB 6.4.20 G set out how the rules apply where packaged products are sold to the trustees of certain occupational pension schemes or to the trustees or operators of stakeholder pension schemes.
- 01/10/2005
- Past version of COB 6.1.2 before 01/10/2005
Application of COB 6.2.46R and COB 6.2.47R
COB 6.1.2A
See Notes
- 01/05/2005
- Past version of COB 6.1.2A before 01/05/2005
Purpose
COB 6.1.3
See Notes
- 09/10/2004
Requirement to produce key features
COB 6.1.4
See Notes
- (1) A product provider or stakeholder pension scheme operator must, for each packaged product which it offers produce key features which, as to design and content, comply with the requirements of COB 6.1, COB 6.2 and COB 6.5.
- (2) A firm to which COB 6.4.13 (1) applies must, for each cash deposit ISA or cash deposit CTF it offers, produce the information document required by COB 6.5.42 R or COB 6.5.42A instead of key features. That information document must comply with COB 6.1, COB 6.2 and COB 6.5 as to design and content.
- (3) (1) does not apply in relation to a simplified prospectus scheme.
- 09/10/2004
Quality and production of key features
COB 6.1.5
See Notes
A firm must ensure that any key features or information document it produces in relation to a packaged product, cash deposit ISA or cash deposit CTF is in writing, whether in printed hard copy or in electronic format, and:
- (1) is produced and presented to at least the same quality and standard as the associated sales or marketing material being used by the firm to promote the packaged product, cash deposit ISA or cash deposit CTF to customers; and
- (2) is separate from any other material given to the customer, unless it is produced for a key features scheme , stakeholder pension scheme, or personal pension scheme other than a personal pension policy; in that case it may be included as part of another item of sales or marketing material, but only if the key features or information document appears with due prominence.
- 06/04/2007
- Past version of COB 6.1.5 before 06/04/2007
COB 6.1.6
See Notes
- 01/12/2001
COB 6.2
Provisions of key features or simplified prospectus
- 01/05/2005
- Past version of COB 6.2 before 01/05/2005
Application
COB 6.2.1
See Notes
- 01/12/2001
Medium for provision of key features
COB 6.2.2
See Notes
- 09/10/2004
COB 6.2.3
See Notes
- 01/12/2001
COB 6.2.4
See Notes
- 01/05/2005
- Past version of COB 6.2.4 before 01/05/2005
COB 6.2.5
See Notes
- 01/12/2001
COB 6.2.5A
See Notes
- 01/05/2005
- Past version of COB 6.2.5A before 01/05/2005
Life policies
COB 6.2.6
See Notes
- 01/12/2001
COB 6.2.7
See Notes
- 01/10/2005
- Past version of COB 6.2.7 before 01/10/2005
COB 6.2.8
See Notes
- 01/12/2001
Exception for life policies: sales through intermediaries
COB 6.2.9
See Notes
COB 6.2.7 R does not apply to a product provider when its life policy is sold on the personal recommendation of, or arranged to be sold by, another person, provided that other person:
- (1) is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
- (2) is operating from an establishment in an EEA State whose law imposes an obligation on the person to provide information about the life policy in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive.
- 09/10/2004
Life policies: pre-completion variations
COB 6.2.12
See Notes
- (1) Where key features have already been provided by a firm to a private customer in accordance with COB 6.2.7 and the terms for the proposed life policy are subsequently altered before the private customer completes an application form, the firm must ensure that the private customer is provided with revised key features, unless the alteration is one or more of the following:
- (a) the amount of the premium is changed;
- (b) the amount of any commission or remuneration payable is reduced;
- (c) a rider benefit is added, removed or amended.
- (2) If (1)(a) to (c) apply, then, subject to COB 6.4.27 to COB 6.4.31 (telephone sales and other exemptions), if the contract is to be a distance contract with a retail customer, the retail customer must be provided with details of such changes in a durable medium in good time before the contract is concluded.
- 09/10/2004
COB 6.2.13
See Notes
- 01/12/2001
COB 6.2.14
See Notes
- 09/10/2004
COB 6.2.15
See Notes
- 09/10/2004
Variations to existing life policies
COB 6.2.16
See Notes
When a policyholder applies to vary a life policy issued on or after 1 January 1995 (or is recommended to do so) and the variation of the policy gives rise to a right to cancel under COB 6.7.7 R, the policy holder must be provided with:
- (1) the information required by COB 6.5.15 R to COB 6.5.19 R, COB 6.5.23 R to COB 6.5.25 R, COB 6.5.27 R to COB 6.5.28 R and COB 6.5.38 R; and
- (2) in the case of a variation which results in a new distance contract, all the contractual terms and conditions and the information in COB App 1;
in a durable medium by the firm personally recommending, arranging or effecting the variation in good time before it is put into effect, unless COB 6.2.19 R (sales through intermediaries) or COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.
- 09/10/2004
COB 6.2.16A
See Notes
- (1) When a long-term care insurance contract which is
- (a) not a pure protection contract and which was issued on or after 1 January 1995; or
- (b) a pure protection contract and which was issued on or after 31 October 2004;
- is varied so as to bring into effect provisions for long-term care benefits, the firm must provide the private customer with appropriate key features in good time sufficient to enable the private customer to consider them before the variation takes effect.
- (2) If the circumstances of the variation, whether by the exercise of an option or otherwise, make it impossible to provide the key features before the variation takes effect, the firm must do so as soon as possible afterwards.
- 31/10/2004
COB 6.2.17
See Notes
- 09/10/2004
COB 6.2.18
See Notes
- (1) When a policyholder applies to vary:
- (a) a life policy issued before 1 January 1995; or
- (b) a pure protection contract issued before 31 October 2004 and which would after 30 October 2004 be a long-term care insurance contract;
- (or is personally recommended to do so) and the variation of the policy gives rise to a right to cancel under COB 6.7.7 R, information must be given to the policyholder by the firm that is personally recommending, arranging or effecting the variation before it is put into effect, unless COB 6.2.19 R or COB 6.4.27 R to COB 6.4.31 R (telephone sales and other exemptions) applies.
- (2) When giving the information in (1), the firm must:
- (a) believe on reasonable grounds that the information given is sufficient to enable the policyholder to understand the consequences of the variation; and
- (b) in the case of a variation which results in a new distance contract, in good time before the variation is put into effect, provide all the contractual terms and conditions and the information in COB App 1.
- 31/10/2004
COB 6.2.19
See Notes
COB 6.2.16 R and COB 6.2.18 R do not apply to a product provider when the variation to its life policy is effected on the personal recommendation of or arranged by another person, provided that other person:
- (1) is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
- (2) is operating from an establishment in an EEA State whose law imposes an obligation on the person to provide information about the variation to the life policy in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive.
- 09/10/2004
Exception for life policies: non-UK customers
COB 6.2.21
See Notes
There is no requirement for key features to be provided for a new life policy or a variation to an existing policy if, at the time that the private customer signs the application, he is habitually resident:
- (1) (except for distance contracts with retail customers) in an EEA State other than the United Kingdom; or
- (2) outside the EEA and he is not present in the United Kingdom.
- 09/10/2004
Exceptions for life policies: variations held within a CTF
COB 6.2.21A
See Notes
COB 6.2.7 does not apply to a CTF provider in relation to a variation to an existing policy held within a CTF, if:
- (1) the terms and conditions, including all charges, are the same as applied at the time of the purchase, or the most recent purchase or payment, of the existing policy; and
- (2) key features outlining those terms and conditions were issued to the customer in respect of that previous purchase.
- 01/12/2001
Provision of key features: key features schemes
COB 6.2.22
See Notes
- (1) When a firm sells, personally recommends or arranges for the sale of a key features scheme to a private customer, unless COB 6.2.24 R (exceptions) or COB 6.4.27 R to COB 6.4.31A R (telephone sales and other exemptions) applies, the private customer must be provided with appropriate key features for the scheme before he completes an application for the scheme holding.
- (2) (1) does not apply where the operator of the scheme has elected that the scheme will comply with COB 6.2.26 R to COB 6.2.45A R instead of the provisions in COB 6 that relate to key features.
- (3) (2) does not apply to an investment trust.
- 01/10/2005
- Past version of COB 6.2.22 before 01/10/2005
COB 6.2.23
See Notes
- (1) COB 6.2.22 R applies not just to new purchases but also to any recommendation or application to transfer the value of a particular fund holding within a key features scheme to a different fund within the same scheme.
- (2) Where a private customer has responded to a direct offer financial promotion, the mailing package or direct offer financial promotion should have included example-based key features - there is no requirement to provide a further set of key features to such a private customer in respect of the same transaction.
- 01/10/2005
- Past version of COB 6.2.23 before 01/10/2005
Exceptions from the requirement to provide key features for key features schemes
COB 6.2.24
See Notes
A firm need not provide key features to a private customer in respect of a key features scheme if:
- (1) the firm is a product provider and the scheme holding is sold on the personal recommendation of, or arranged to be sold by another person, provided that other person:
- (a) is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
- (b) is operating from an establishment in an EEA State whose law imposes obligations on the person to provide information about the scheme holding in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive; or
- (2) at the time he signs the application, the private customer is habitually resident outside the EEA and is not present in the United Kingdom; or
- (3) (except for distance contracts with retail customers) the scheme holding is purchased by a private customer on an execution-only basis; or
- (4) the scheme holding is purchased on behalf of a private customer by an investment manager exercising discretion; or
- (5) the sale of the scheme holding is arranged or recommended by an investment manager who is not exercising discretion and the private customer has agreed, either in relation to that specific holding or generally, that key features need not be provided; or
- (6) a private customer is making a purchase of a scheme holding (whether or not held within a CTF) in a key features scheme in which he already has a scheme holding and has already been provided with appropriate key features covering the purchase; or
- (7) a private customer is transferring from accumulation units to income units of the same scheme (or vice versa) and has already been supplied with key features which cover the transfer.
- 01/10/2005
- Past version of COB 6.2.24 before 01/10/2005
Purpose of the COB 6 provisions on the simplified prospectus
COB 6.2.25A
See Notes
- 01/05/2005
Production and publication of simplified prospectus
COB 6.2.26
See Notes
- (1) An operator of a simplified prospectus scheme must, for each simplified prospectus scheme in respect of which it is the operator, produce and publish a simplified prospectus in accordance with the rules in this section and ensure that it contains in summary form each of the matters referred to in COB 6.2.37 R.
- (2) A simplified prospectus must be incorporated in a written document or in any durable medium.
- (3) An operator of a simplified prospectus scheme must be satisfied on reasonable grounds that each simplified prospectus which it produces:
- (a) includes all such information as is necessary to enable an investor to make an informed decision about whether to acquire units in the scheme;
- (b) does not omit any key item of information;
- (c) wherever possible is written in plain language which avoids technical language and jargon; and
- (d) adopts a format and style of presentation which is clear and attractive to the average reader, so that it can be easily understood by him.
- (4) The simplified prospectus may be attached to the full prospectus as a removable part of it.
- (5) [deleted]
- (6) [deleted]
- 01/10/2005
- Past version of COB 6.2.26 before 01/10/2005
Revision of simplified prospectus
COB 6.2.27
See Notes
- 01/05/2005
COB 6.2.28
See Notes
- 01/05/2005
Filing requirements
COB 6.2.29
See Notes
A UCITS management company must for each UCITS scheme it manages file the scheme's initial simplified prospectus, together with each revision to it, with:
- (1) the FSA; and
- (2) the competent authority of each EEA state in which its units are to be marketed in the exercise of an EEA right.
- 01/05/2005
UK firms exercising passporting rights in respect of UCITS scheme
COB 6.2.30
See Notes
- (1) A UCITS management company must for each UCITS scheme it manages and in respect of which it is marketing units in another EEA State in the exercise of an EEA right, produce a simplified prospectus for the scheme drawn up in accordance with the requirements contained in this section.
- (2) The simplified prospectus must be drawn up in the, or one of the, official languages of the EEA State for which it was prepared or in a language approved by the competent authority of that State.
- (3) The simplified prospectus may, without alteration, be used for marketing purposes in the EEA State for which it was prepared and in which the units of the simplified prospectus scheme are to be sold.
- 01/05/2005
COB 6.2.31
See Notes
- (1) In translating the simplified prospectus from English into the or one or more of the official languages of the EEA State in which the simplified prospectus scheme is to be marketed, or into a language approved by the competent authority of that State, it is permissible under article 28.3 of the UCITS Directive, as amended, in the FSA's view, for figures expressed in pounds sterling to be converted into the appropriate local currency such as euros. It is not necessary, for example, for the simplified prospectus of a scheme that is to be marketed across the EEA in the exercise of an EEA right, to have to refer to each amount in pounds sterling, in euros and additionally in every other local currency of an EEA State in which units of the scheme are to be marketed that has not adopted the euro as its currency.
- (2) Operators considering marketing the units of their simplified prospectus schemes in another EEA State in the exercise of an EEA right should have regard to the local marketing legislation of such country.
- 01/10/2005
- Past version of COB 6.2.31 before 01/10/2005
Offering a simplified prospectus
COB 6.2.32
See Notes
- (1) When a firm sells, personally recommends or arranges (brings about) for the sale of a simplified prospectus scheme, it must offer the scheme's up-to-date simplified prospectus free of charge to any person who may become a subscriber to the scheme before a contract for the sale of units is concluded.
- (2) The requirement in (1) will be met by a firm in relation to a private customer if it or any other firm provides him with a copy of the simplified prospectus in accordance with COB 6.2.33 R (1).
- 01/05/2005
Obligation on a firm to provide a simplified prospectus
COB 6.2.33
See Notes
- (1) When a firm sells, personally recommends or arranges (brings about) for the sale of a simplified prospectus scheme to a private customer in the United Kingdom, the firm must provide him with the up-to-date simplified prospectus for the scheme before he completes an application for the scheme holding unless COB 6.2.35 R or COB 6.2.36 R or COB 6.4.27 R to COB 6.4.31A R (telephone sales and other exemptions) apply.
- (2) (1) does not apply to a UCITS management company when it sells units in a UCITS scheme without personally recommending or arranging for the sale of such units.
- 01/10/2005
- Past version of COB 6.2.33 before 01/10/2005
COB 6.2.34
See Notes
- (1) COB 6.2.33 R applies not just to new purchases but also to any recommendation or application to transfer the value of a particular fund holding within a scheme to a different sub-fund within the same scheme.
- (2) Where a private customer has responded to a direct offer financial promotion, the mailing package or direct offer financial promotion should have included the simplified prospectus for the scheme, in which case there is no requirement to provide a further simplified prospectus to such a private customer in respect of the same transaction.
- (3) COB 6.2.33 R may apply to either the operator or the distributor of a simplified prospectus scheme depending on how units in the scheme are to be sold.
- (4) Where one of the exceptions in COB 6.2.35 R or COB 6.2.36 R applies, firms should bear in mind that they must still comply with COB 6.2.32 R (Offering a simplified prospectus) which represents an absolute requirement of the UCITS Directive and as such, cannot be made subject to any exclusions. For example, a firm offering a funds supermarket service which is entitled to the benefit of the exception in COB 6.2.36 R must ensure that every private customer is offered the simplified prospectus of each relevant simplified prospectus scheme before a contract for the sale of units is concluded.
- 01/05/2005
Exceptions from the requirement to provide the simplified prospectus
COB 6.2.35
See Notes
A firm need not, unless a private customer specifically requests it, provide a simplified prospectus to a private customer for a simplified prospectus scheme if:
- (1) the firm is a product provider and the scheme holding is sold on the personal recommendation of, or arranged to be sold on the personal recommendation of, or arranged to be sold by another person, provided that other person:
- (a) is a firm (or appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
- (b) is operating from an establishment in an EEA State whose law imposes obligations on the person to provide information about the scheme holding in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive; or
- (2) at the time the private customer signs the application, the private customer is habitually resident outside the EEA and is not present in the United Kingdom; or
- (3) (except for distance contracts with retail customers) the scheme holding is purchased by the private customer in the course of an execution-only transaction; or
- (4) the scheme holding is purchased on behalf of the private customer by an investment manager exercising discretion; or
- (5) the sale of the scheme holding is arranged or recommended by an investment manager who is not exercising discretion and the private customer has agreed, either in relation to that specific holding or generally, that the simplified prospectus need not be provided; or
- (6) a private customer is making a purchase of a scheme holding (whether or not held within a CTF) in a scheme in which he already has a scheme holding and has already been provided with the up-to-date simplified prospectus which covers the purchase; or
- (7) a private customer is transferring from accumulation units to income units of the same scheme (or vice versa) and has already been supplied with the up-to-date simplified prospectus of the scheme which covers the transfer.
- 01/05/2005
Exception from the requirement to provide a simplified prospectus: firms offering and intermediaries selling a funds supermarket service
COB 6.2.36
See Notes
- (1) A firm to which COB 6.2.33 R (Obligation on a firm to provide a simplified prospectus) applies when it:
- (a) offers a funds supermarket service; or
- (b) sells, personally recommends or arranges (brings about) the sale of a simplified prospectus scheme through a funds supermarket service;
- need not, unless a private customer requests it, provide a private customer with a simplified prospectus for any simplified prospectus scheme to which the funds supermarket service relates provided it complies with the condition in (2).
- (2) The condition is that the firm must instead provide the private customer with the abbreviated form of composite key features document that is permitted under COB 6.5 (Content of key features) and which covers each of the key features schemes and simplified prospectus schemes to which the funds supermarket service relates.
- 01/10/2005
- Past version of COB 6.2.36 before 01/10/2005
COB 6.2.37
See Notes
Contents of the simplified prospectus
This table belongs to COB 6.2.26 R (1)
Contents of simplified prospectus | ||||
Note: | This table sets out the required contents of the simplified prospectus. It reproduces Schedule C (Contents of the simplified prospectus) of the Management Company Directive (2001/107/EC), as amplified by the Commission Recommendation (2004/384/EC). This Table also includes, and cross-refers to, other material which the FSA considers should be included. |
|||
Brief presentation of the simplified prospectus scheme (in this Table referred to as "the scheme"). | ||||
(1) | when the scheme was created and an indication of the EEA State where the scheme has been registered or incorporated; | |||
(2) | in the case of a scheme having different investment compartments (sub-funds), the indication of this circumstance; | |||
(3) | the name and contact details of the operator (when applicable); | |||
(4) | the expected period of existence of the scheme (when applicable); | |||
(5) | the name and contact details of the depositary; | |||
(6) | the name and contact details of the auditors; | |||
(7) | the name and brief details of the financial group (e.g. a bank) promoting the scheme; | |||
Investment information | ||||
(8) | a short description of the scheme's objectives including: | |||
(a) | a concise and appropriate description of the outcomes sought for any investment in the scheme; | |||
(b) | a clear statement of any guarantees offered by third parties to protect investors and any restrictions on those guarantees; and | |||
(c) | a statement, where relevant, that the scheme is intended to track an index or indices, and sufficient information to enable investors both to identify the relevant index or indices and to understand the extent or degree of tracking pursued; | |||
Notes: | 1. | Information on (8)(a) should include a statement as to whether there is any arrangement intended to result in a particular capital or income return from the units or any investment objective of giving protection to their capital value or income return and, if so, details of that arrangement or protection. | ||
2. | The information disclosed under (8)(b) should include an explanation of what is to happen when an investment is encashed before the expiry of any related guarantee or protection. | |||
(9) | the scheme's investment policy, including: | |||
(a) | the main categories of eligible financial instruments which are the object of investment; | |||
(b) | whether the scheme has a particular strategy in relation to any industrial, geographic or other market sectors or specific classes of assets, e.g. investments in emerging countries' financial instruments; | |||
(c) | where relevant, a warning that, whilst the actual portfolio composition is required to comply with the broad legal and statutory rules and limits, risk-concentration may occur in regard of certain tighter asset classes, economic and geographic sectors; | |||
(d) | if the scheme invests in bonds, an indication of whether they are corporate or government, their duration and the ratings requirements; | |||
(e) | if the scheme uses financial derivative instruments, an indication of whether this is done in pursuit of the scheme's objectives, or for hedging purposes only; | |||
(f) | whether the scheme's management style makes some reference to a benchmark; and in particular whether the scheme has an 'index tracking' objective, with an indication of the strategy to be pursued to achieve this; and | |||
(g) | whether the scheme's management style is based on a tactical asset allocation with high frequency portfolio adjustments; | |||
provided the information is material and relevant; | ||||
Note: | The information referred to in paragraphs (8) and (9) may be set out as a single item in the simplified prospectus (e.g. for the information on index tracking), provided that the information so combined does not lead to confusion of the objectives and policies of the scheme. The order of the information items may be adapted to reflect the scheme's specific investment objectives and policy. | |||
(10) | a brief assessment of the scheme's risk profile by investment compartment or sub-fund, including: | |||
(a) | overall structure of the information provided: | |||
(i) | a statement to the effect that the value of investments may fall as well as rise and that investors may get back less than they put in; | |||
(ii) | a statement that details of all the risks actually mentioned in the simplified prospectus may be found in the full prospectus; | |||
(iii) | a description in words of any risk investors have to face in relation to their investment, but only where such risk is relevant and material, based on risk impact and probability; and | |||
(b) | details regarding the description (in words) of the following risks: | |||
(i) | specific risks: | |||
The description referred to in paragraph (10)(a)(iii) should include a brief and understandable explanation of any specific risk arising from particular investment policies or strategies or associated with specific markets or assets relevant to the scheme such as: | ||||
A | the risk that the entire market of an asset class will decline thus affecting the prices and values of the assets (market risk); | |||
B | the risk that an issuer or a counterparty will default (credit risk); | |||
C | only where strictly relevant, the risk that a settlement in a transfer system does not take place as expected because a counterparty does not pay or deliver on time or as expected (settlement risk); | |||
D | the risk that a position cannot be liquidated in a timely manner at a reasonable price (liquidity risk); | |||
E | the risk that the investment's value will be affected by changes in exchange rates (exchange or currency risk); | |||
F | only where strictly relevant, the risk of loss of assets held in custody that could result from the insolvency, negligence or fraudulent action of the custodian or of a subcustodian (custody risk); and | |||
G | risks related to a concentration of assets or markets; and | |||
(ii) | horizontal risk factors: | |||
The description referred to in paragraph (10)(a)(iii) should also mention, where relevant and material, the following factors that may affect the product: | ||||
A | performance risk, including the variability of risk levels depending on individual fund selections, and the existence, absence of, or restrictions on any guarantees given by third parties; | |||
B | risks to capital, including potential risk of erosion resulting from withdrawals/cancellations of units and distributions in excess of investment returns; | |||
C | exposure to the performance of the provider/third-party guarantor, where investment in the product involves direct investment in the provider, rather than assets held by the provider; | |||
D | inflexibility, both within the product (including early surrender risk) and constraints on switching to other providers; | |||
E | inflation risk; and | |||
F | lack of certainty that environmental factors, such as a tax regime, will persist; | |||
(iii) | possible prioritisation of information disclosure: | |||
In order to avoid conveying a misleading image of the relevant risks, the information items should be presented so as to prioritise, based on scale and materiality, the risks so as to better highlight the individual risk profile of the scheme; | ||||
(11) | the historical performance of the scheme (where applicable) and a warning that this is not an indicator of future performance (which may be either included in or attached to the simplified prospectus), including: | |||
(a) | disclosure of past performance: | |||
(i) | the scheme's past performance, as presented using a bar chart showing annual returns for the last ten full consecutive years. If the scheme has been in existence for fewer than ten years but at least for a period of one year, it is recommended that the annual returns, calculated net of tax and charges, be given for as many years as are available; and | |||
(ii) | if a scheme is managed according to a benchmark or if its cost structure includes a performance fee depending on a benchmark, the information on the past performance of the scheme should include a comparison with the past performance of the benchmark according to which the scheme is managed or the performance fee is calculated; | |||
Note: | Comparison should be achieved by representing the past performance of the benchmark and that of the scheme through the use of appropriate graphs to assist the reader to make the comparison. | |||
(b) | disclosure of cumulative performance: | |||
Disclosure should be made of the cumulative performance of the scheme over the ten year period referred to in paragraph (11)(a)(i). A comparison should also be made with the cumulative performance (where relevant) of a benchmark, when comparison to a benchmark is required in accordance with paragraph (11)(a)(ii); | ||||
Note: | Where the scheme has been in existence for fewer than ten years but at least for a period of one year, disclosure of the past cumulative performance should be made for as many years as are available. | |||
(c) | exclusion of subscription and redemption fees, subject to appropriate disclosure: | |||
A statement should be made that past performance of the scheme does not include the effect of subscription and redemption fees. | ||||
Notes: | 1. | Where a comparison is being made with the cumulative performance of a benchmark as required by paragraph (11)(b), the comparison should be achieved by representing the past performance of the benchmark and that of the scheme through the use of appropriate graphs to assist the reader to make the comparison. | ||
2. | The scheme's historical performance may be produced as a separate attachment to the simplified prospectus. | |||
(12) | a profile of the typical investor the scheme is designed for; | |||
Economic information | ||||
(13) | the scheme's applicable tax regime, including: | |||
(a) | the tax regime applicable to the scheme in the UK; and | |||
(b) | a statement which explains that the regime of taxation of the income or capital gains received by individual investors depends on the tax law applicable to the personal situation of each individual investor and/or to the place where the capital is invested and that if investors are unclear as to their fiscal position, they should seek professional advice or information from local organisations, where available; | |||
Note: | This information should include a statement in relation to SDRT provision, explaining how the scheme may suffer stamp duty reserve tax as a result of transactions in units and whether the operator's policy is such that an SDRT provision may be imposed. | |||
(14) | details of any entry and exit commissions relating to the scheme and details of the scheme's other possible expenses or fees, distinguishing between those to be paid by the unitholder and those to be paid from the scheme's or the sub-fund's assets, including: | |||
(a) | overall contents of the information provided: | |||
(i) | disclosure of a total expense ratio (TER), calculated as indicated in COB 6 Annex 2 R, except for a newly created fund where a TER cannot yet be calculated; | |||
(ii) | on an ex ante basis, disclosure of the expected cost structure, that is an indication of all costs available according to the list set forth in COB 6 Annex 2 R so as to provide investors, in so far as possible, with a reasonable estimate of expected costs; | |||
(iii) | all entry and exit commissions and other expenses directly paid by the investor; | |||
(iv) | an indication of all the other costs not included in the TER, including disclosure of transaction costs; | |||
(v) | as an additional indicator of the importance of transaction costs, the portfolio turnover rate, calculated as shown in COB 6 Annex 3 R; and | |||
(vi) | an indication of the existence of fee-sharing agreements and soft commissions; | |||
Notes: | 1. | In explaining the function of the TER to the reader, appropriate wording should be used in the simplified prospectus. For example, TER might be explained in the following terms: "The TER shows the annual operating expenses of the scheme - it does not include transaction expenses. All European funds highlight the TER to help you compare the annual operating expenses of different schemes." |
||
2. | It is the FSA's understanding that the disclosure of a reasonable estimate of expected costs on an ex ante basis, as required by paragraph (14)(a)(ii), only applies to new schemes where a TER cannot yet be calculated. Where a TER can be calculated for a simplified prospectus scheme, there is no need to have to disclose a reasonable estimate of expected costs on an ex ante basis in accordance with paragraph (14)(a)(ii), in addition to the TER. | |||
3. | In disclosing details of all entry and exit commissions relating to the fund and details of the scheme's other possible expenses or fees, the firm must present the information in the format required by COB 6.2.38 R (1) (Reduction in yield). Compliance with this rule will ensure that the information is presented in the form of an impact of charges table based on reduction in yield figures, so as to assist the comprehension of the reader. | |||
4. | Paragraph (14)(a)(vi)) should not be interpreted as a general validation of the compliance of any individual agreement or commission with the provisions of the Handbook . Taking into account current market practice, consideration should be given as to how far the scheme's existing fee-sharing agreements and comparable fee arrangements are for the exclusive benefit of the scheme. | |||
5. | The simplified prospectus should make a reference to the full prospectus for detailed information on these kinds of arrangements, which should allow any investor to understand to whom expenses are to be paid and how possible conflicts of interest will be resolved in his/her best interest. The information provided in the simplified prospectus should remain concise in this respect. | |||
(b) | information about 'fee sharing agreements' and 'soft commissions': | |||
(i) | identification of 'fee-sharing agreements'; | |||
Note: | For the purposes of paragraph (14)(b)(i), fee-sharing agreements should be taken as those agreements whereby a party remunerated, either directly or indirectly, out of the assets of a scheme agrees to split its remuneration with another party and which result in that other party meeting expenses through this fee-sharing agreement that should normally be met, either directly or indirectly, out of the assets of the scheme. | |||
(ii) | identification of soft commissions; | |||
Note: | For the purposes of paragraph (14) (b) (ii), soft commissions should be regarded as any economic benefit, other than clearing and execution services, that an asset manager receives in connection with the scheme's payment of commissions on transactions that involve the scheme's portfolio securities. Soft commissions are typically obtained from, or through, the executing broker. | |||
(c) | presentation of TER and portfolio turnover rate; | |||
Note: | Both the TER and the portfolio turnover rate may be either included in or attached to the simplified prospectus in the same paper as information on past performance. | |||
Commercial information | ||||
(15) | how to buy the units; | |||
Note: | This should include an explanation of any relevant right to cancel or withdraw from the purchase, or, where it is the case, that such rights do not apply. | |||
(16) | how to sell the units; | |||
(17) | in the case of a scheme having different investment compartments (sub-funds), an explanation of how to switch from one investment compartment into another and any charges applicable in such cases; | |||
(18) | when and how dividends on units or shares of the scheme (if applicable) are distributed; | |||
(19) | when and where prices of units are published or made available; | |||
Additional information | ||||
(20) | a statement that, on request, the full prospectus and the annual and half-yearly reports of the scheme may be obtained free of charge before the conclusion of the contract and afterwards, together with details of how they may be obtained or how a person may gain access to them; | |||
(21) | the name and contact details of the FSA as being the competent authority which has authorised or registered the scheme; | |||
(22) | details of a contact point (person or department, and, if appropriate the times of day etc.) where additional information may be obtained if needed; | |||
(23) | the date of publication of the simplified prospectus. | |||
General Note: | ||||
In making the disclosures required by paragraphs (8) to (19) of this Table, the information must be presented in the form of questions and answers. This format is designed to assist the comprehension of the reader. This requirement will not apply in relation to a simplified prospectus that is to be used to market the units of the scheme in another EEA state or in relation to a simplified prospectus that is to be used to market the units of the scheme exclusively to persons who are not private customers. |
- 01/10/2005
- Past version of COB 6.2.37 before 01/10/2005
Reduction in yield
COB 6.2.38
See Notes
- (1) In disclosing the information required by paragraph (14) of COB 6.2.37 R (Table: Contents of the simplified prospectus), a firm should set out the information in the format required by, and include the contents of, COB 6.5.30 R (Table for key features schemes) to COB 6.5.35 R (Calculation method for "effect of charges to date" for key features schemes) and COB 6.5.38 R (Commission and commission equivalent for life policies, key features schemes and stakeholder pension schemes), as if such provisions applied to simplified prospectus schemes, as modified by COB 6.2.39 R (Table).
- (2) Where the units of a simplified prospectus scheme are to be marketed and sold in another EEA State, or exclusively to persons who are not private customers, the operator of the scheme need not comply with the requirements in (1) for the simplified prospectus that is to be used to market the scheme in that EEA State.
- (3) Note 3 to paragraph (14) of COB 6.2.37 R (Table: Contents of the simplified prospectus) and COB 6.2.38 R to COB 6.2.40 G cease to have effect on 30 June 2009, unless re-made.
- 01/10/2005
- Past version of COB 6.2.38 before 01/10/2005
COB 6.2.39
See Notes
Application of COB 6.5.30R to COB 6.5.35R, and COB 6.5.38R
This table belongs to COB 6.2.38R
Application of COB 6.5.30 R to COB 6.5.35 R, and COB 6.5.38 R | ||
Rule | Description | Modification |
COB 6.5.31 R | Table | Substitute "COB 6.2.43 R (1)" for the reference to COB 6.5.15 R (2). |
COB 6.5.32 R (1), (2) and (3) | Scheme projections | Substitute "COB 6.2.43 R (1)" for the references to COB 6.5.15 R (2). |
COB 6.5.32 R (3) and COB 6.5.32 R (7)(a) | Scheme projections | Substitute "client" for the references to "private customer". |
- 01/05/2005
COB 6.2.40
See Notes
- 01/05/2005
Distance contracts for the sale of simplified prospectus schemes
COB 6.2.41
See Notes
- 01/05/2005
COB 6.2.42
See Notes
- 01/10/2005
- Past version of COB 6.2.42 before 01/10/2005
Projection for simplified prospectus scheme
COB 6.2.43
See Notes
- (1) When a firm sells, personally recommends or arranges for the sale of a simplified prospectus scheme to a private customer and the proposed transaction is for a scheme:
- (a) which relates to an election to make income withdrawals or purchase of a short-term annuity; or
- (b) where the private customer's primary objective is to acquire:
- (i) a specified sum of money on a specified date; or
- (ii) a specified sum of money on death; or
- (iii) an annuity of a specified amount payable as from a specified date;
- the firm must provide the private customer with a projection, illustrating how the principal terms of the proposed transaction apply to him.
- (2) (1) does not apply to a UCITS management company when it sells units in a UCITS scheme without personally recommending or arranging for the sale of such units.
- (3) (1) does not apply to a direct offer financial promotion in relation to units in a simplified prospectus scheme.
- 06/04/2006
- Past version of COB 6.2.43 before 06/04/2006
COB 6.2.44
See Notes
- 01/05/2005
PEP and ISA investments
COB 6.2.45
See Notes
- (1) When a firm sells, personally recommends or arranges for the sale of a unit in a simplified prospectus scheme to a private customer which is to be held within a PEP or ISA, it must provide him with the following additional information:
- (a) a description of the nature of the services the firm will provide for the private customer in relation to the PEP or ISA;
- (b) [deleted]
- (c) [deleted]
- (d) a statement that the favourable tax treatment of ISAs may not be maintained;
- (e) how and when statements (if any) will be sent;
- (f) an explanation how the ISA or plan may be terminated or transferred to another ISA or PEP manager;
- (g) whether the ISA is a mini or maxi-ISA agreement and an explanation of the differences between the two; and
- (h) whether the private customer has a choice to reinvest income, where uninvested money will be held and whether interest is paid on such money.
- (2) (1) does not apply to a UCITS management company when it sells units in a UCITS scheme without personally recommending or arranging for the sale of such units.
- (3) (1) does not apply to the extent that a private customer is making a purchase of a scheme holding in a simplified prospectus scheme in which he already has a scheme holding and has already been provided with the information set out at (1)(a) to (h) which remains up-to-date.
- 01/05/2005
Child trust fund investments
COB 6.2.45A
See Notes
- 01/10/2005
UCITS Directive: requirement to offer a simplified prospectus for section 264 schemes
COB 6.2.46
See Notes
- (1) When a firm sells, personally recommends or arranges (brings about) for the sale of a UCITS scheme which is a recognised scheme under section 264 of the Act (Schemes constituted in other EEA States) to a client, it must offer the client free of charge a copy of the scheme's most recent simplified prospectus before an application for the scheme holding is completed.
- (2) The simplified prospectus must meet the requirements of the UCITS Directive necessary for the scheme to enjoy the rights conferred by the Directive.
- (3) When the scheme holding is purchased on behalf of a client by an investment manager exercising discretion, the requirement in (1) will be satisfied by the investment manager being offered the simplified prospectus free of charge before the application form for a scheme holding is completed.
- (4) A firm must not carry on any of the activities referred to in (1) in relation to a UCITS scheme which is a recognised scheme under section 264 of the Act unless it is satisfied on reasonable grounds that:
- (a) the scheme's simplified prospectus has been sent to the FSA before any units in the scheme are marketed in the UK; and
- (b) the information contained in the simplified prospectus is up-to-date and is not in need of revision;
- and that any subsequent amendments thereto have been sent to the FSA.
- 01/10/2005
- Past version of COB 6.2.46 before 01/10/2005
Sale of a section 264 scheme by distance contract
COB 6.2.47
See Notes
- 01/05/2005
Composite documents for several schemes, sub-funds and classes
COB 6.2.48
See Notes
- 01/10/2005
Multiclass schemes: use of representative class
COB 6.2.49
See Notes
- 01/10/2005
COB 6.3
Post-sale confirmation: life policies
- 01/12/2004
Application
COB 6.3.1
See Notes
- 20/09/2001
COB 6.3.2
See Notes
- 01/12/2001
COB 6.3.3
See Notes
- 01/12/2001
COB 6.3.4
See Notes
- 01/12/2001
COB 6.3.5
See Notes
- 09/10/2004
Exceptions to post-sale confirmation
COB 6.3.6
See Notes
A long-term insurer need not send or give the post-sale confirmation required by COB 6.3.3 R when:
- (1) the long-term insurer has taken reasonable steps to determine that the life policy or variation is purchased or effected on behalf of a private customer by an investment manager exercising discretion; or
- (2) the life policy is purchased by the trustees of an occupational pension scheme; or
- (3) the life policy is purchased by the trustees or manager of a stakeholder pension scheme or if the life policy is otherwise sold as a stakeholder product;
- (4) a life policy issued before 1 January 1995 is being varied; or
- (5) at the time the private customer signs the application for the new life policy or variation, he is habitually resident:
- (a) in an EEA State other than the United Kingdom; or
- (b) outside the EEA and he is not present in the United Kingdom.
- 06/04/2005
- Past version of COB 6.3.6 before 06/04/2005
COB 6.4
Product disclosure: special situations
- 01/12/2004
Application
COB 6.4.1
See Notes
- 06/04/2007
- Past version of COB 6.4.1 before 06/04/2007
COB 6.4.2
See Notes
- 01/05/2005
- Past version of COB 6.4.2 before 01/05/2005
Occupational pension schemes
COB 6.4.3
See Notes
- 01/05/2005
- Past version of COB 6.4.3 before 01/05/2005
COB 6.4.4
See Notes
- (1) When a firm sells, personally recommends or arranges the sale of a new group or master life policy, the first in a series of individual life policies or the first units in a particular key features scheme or simplified prospectus scheme to or for the trustees of a money-purchase occupational scheme, it must provide the trustees with key features, in accordance with COB 6.2.7 R to COB 6.2.25 R or for a simplified prospectus scheme, with a simplified prospectus, in accordance with COB 6.2.26 R to COB 6.2.45 R.
- (2) In COB 6.2 to COB 6.5, for the purposes of (1), the firm must treat the trustees as private customers.
- (3) In addition to the information to be provided to trustees under COB 6.4.4 R (1), the firm must ensure that key features or the simplified prospectus are made available to the trustees to distribute to all scheme members at the outset of the scheme and for subsequent new members.
- (4) The requirement in COB 6.4.4 R (3) applies to main scheme benefits and to additional voluntary contributions where members' benefits are linked to earmarked segments of life policies or schemes. It does not apply where trustees make pooled investments and make their own arrangements for allocation of investment returns to determine members' benefits, whether attached to defined benefit pension schemes or money purchase occupational scheme.
- 01/10/2005
- Past version of COB 6.4.4 before 01/10/2005
COB 6.4.5
See Notes
- (1) The illustrative figures within the key features provided under COB 6.4.4 R (1) can be on an example basis, using a range of representative actual or hypothetical scheme members (covering, for example, different ages, sexes and salaries), so that the trustees can assess the effectiveness of the investment for their pension scheme members.
- (2) The definition of money-purchase occupational scheme includes executive pension plans (established for directors, executives and senior employees), small self-administered schemes that provide money-purchase benefits and additional voluntary contribution schemes.
- (3) Group personal pension schemes are not occupational pension schemes and COB 6.4.4 R does not apply to them. Firms should therefore provide each person who is offered membership of a group personal pension scheme with key features or a simplified prospectus in accordance with COB 6.1 and COB 6.2. This does not preclude generic key features being sent out as part of a financial promotion, provided that a post-sale confirmation is issued in accordance with COB 6.3.3 R.
- (4) The objective of COB 6.4.4 R (3) is to ensure that prospective scheme members have access to information about the occupational pension scheme that could enable comparison with alternative personal investments. Firms may decide for themselves the format (but not content) of this information. For example, individual sets of key features can be supplied or a schedule of details which the trustees or their advisers can assimilate into other pension scheme communications.
- 01/05/2005
- Past version of COB 6.4.5 before 01/05/2005
SIPPs, personal pension deposits and personal pension products
COB 6.4.5A
See Notes
When a firm sells, manages, personally recommends or arranges the sale of a SIPP, personal pension deposit or personal pension product (not the assets within them) to or for a private customer, the firm must, unless COB 6.4.27 R to COB 6.4.31A R apply, provide the private customer with:
- (1) sufficient information about the relevant scheme for the private customer to be able to make an informed decision before that customer completes an application for that scheme; and
- (2) (in respect of a distance contract with a retail customer) the relevant contractual terms and conditions and the information set out in COB App 1,
in a durable medium in good time before the customer is bound by the transaction.
- 06/04/2007
COB 6.4.5B
See Notes
- 06/04/2007
COB 6.4.5C
See Notes
COB 6.4.5A R does not apply to a scheme operator when its scheme is sold on the personal recommendation of, or arranged to be sold by, another person, provided that other person:
- (1) is a firm (or an appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
- (2) is operating from an establishment in an EEA State whose law imposes an obligation on the person to provide information about the scheme in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive.
- 06/04/2007
Assets to be held within a SIPP
COB 6.4.5D
See Notes
Where a firm makes a personal recommendation to a private customer about the purchase of an asset to be held within a SIPP, the firm must, unless COB 6.4.27 R to COB 6.4.31A R applies, provide the private customer with:
- (1) sufficient information about that asset, and the risks and advantages of the proposed asset purchase, for the customer to be able to make an informed decision about the asset purchase before it takes place; and
- (2) in respect of a distance contract with a retail customer) the relevant contractual terms and conditions and the information set out in COB App 1;
in a durable medium in good time before the customer is bound by the transaction.
- 06/04/2007
COB 6.4.5E
See Notes
- 06/04/2007
Sales of life policies (etc.) to operators of personal pension schemes
COB 6.4.6
See Notes
- (1) A firm which sells, personally recommends or arranges the sale of a new group or master life policy, the first in a series of individual life policies or the first units in a particular key features scheme or simplified prospectus scheme to the operator of a personal pension scheme, must provide the operator of that scheme with key features (in accordance with COB 6.2.7 R to COB 6.2.25 R) or a simplified prospectus (in accordance with COB 6.2.26 R to COB 6.2.45 R), as the case may be.
- (2) In COB 6.2 to COB 6.5, for the purposes of (1), members, prospective members and trustees must be treated by the firm as private customers.
- 06/04/2007
- Past version of COB 6.4.6 before 06/04/2007
COB 6.4.6A
See Notes
- 06/04/2007
Income withdrawals and short-term annuities
COB 6.4.8
See Notes
- 06/04/2007
- Past version of COB 6.4.8 before 06/04/2007
COB 6.4.8A
See Notes
When a firm personally recommends, arranges or effects an income withdrawal from a SIPP, personal pension deposit or personal pension product to or for a private customer, it must provide that customer with:
- (1) sufficient information about the income withdrawal for the customer to be able to make an informed decision; and
- (2) (in respect of a distance contract with a retail customer), the relevant contractual terms and conditions and the information set out in COB App 1,
in a durable medium in good time before the customer is bound by the transaction.
- 06/04/2007
COB 6.4.8B
See Notes
- 06/04/2007
COB 6.4.9
See Notes
In relation to an election to make income withdrawals, or short-term annuities, the requirement for the provision of key features or a simplified prospectus in:
- (1) COB 6.2.7 R also applies when an existing life policy is to be endorsed;
- (2) COB 6.2.22 R or, for simplified prospectus schemes, COB 6.2.33 R also applies when an existing scheme holding is to be used.
- 06/04/2006
- Past version of COB 6.4.9 before 06/04/2006
COB 6.4.10
See Notes
- 06/04/2006
- Past version of COB 6.4.10 before 06/04/2006
COB 6.4.11
See Notes
- 06/04/2007
- Past version of COB 6.4.11 before 06/04/2007
COB 6.4.12
See Notes
Where income is being taken, no less than six weeks before the end of the annuity period for a short-term annuity or at intervals no longer than 12 months from the date of an election by a private customer to make income withdrawals the product provider of the unvested pension scheme must:
- (1) provide the private customer with such information required by COB 6.6.13 R as will enable the private customer to review the options available; and
- (2) inform the private customer how to obtain advice on investments in respect of his unsecured or alternatively secured pension, and that it would be in his best interests to do so.
- 06/04/2006
- Past version of COB 6.4.12 before 06/04/2006
Cash deposit ISAs and cash deposit CTFs
COB 6.4.13
See Notes
- 09/10/2004
Traded life policies
COB 6.4.14
See Notes
- 09/10/2004
Stakeholder pension schemes
COB 6.4.15
See Notes
- 01/10/2005
- Past version of COB 6.4.15 before 01/10/2005
COB 6.4.16
See Notes
- 01/12/2001
COB 6.4.17
See Notes
- 01/12/2001
COB 6.4.18
See Notes
COB 6.4.15 R does not apply to a stakeholder pension scheme operator when its stakeholder pension scheme is sold on the personal recommendation of, or arranged to be sold by, another person, provided that other person:
- (1) is a firm (or an appointed representative) operating from an establishment maintained by the firm (or appointed representative) in the United Kingdom; or
- (2) is operating from an establishment in an EEA State whose law imposes an obligation on the person to provide information about the stakeholder pension scheme in accordance with articles 3 and 5(1) and (2) of the Distance Marketing Directive.
- 09/10/2004
COB 6.4.19
See Notes
- (1) When a firm sells, personally recommends or arranges the sale of a new group or master life policy, the first in a series of individual life policies or the first units in a particular key features scheme or simplified prospectus scheme to the trustees or the operator of a stakeholder pension scheme, it must provide the trustees or operator with key features, in accordance with COB 6.2.7 R to COB 6.2.25 R or for a simplified prospectus scheme, with a simplified prospectus, in accordance with COB 6.2.26 R to COB 6.2.45 R.
- (2) In COB 6.2 to COB 6.5, for the purposes of (1), the firm must treat trustees and operators as private customers.
- 01/10/2005
- Past version of COB 6.4.19 before 01/10/2005
COB 6.4.20
See Notes
- 01/12/2001
COB 6.4.21
See Notes
- 01/12/2001
COB 6.4.22
See Notes
- 09/10/2004
COB 6.4.23
See Notes
The notice in COB 6.4.22 R must:
- (1) confirm that no advice on investment has been given and that the private customer has decided that the stakeholder pension scheme is appropriate as a result of the answers he has given to the questions posed in the decision tree; and
- (2) include a copy of the decision tree indicating the answers which the private customer has given.
- 01/12/2001
COB 6.4.24
See Notes
- 01/12/2001
Entering into a distance contract for accepting deposits (other than a cash deposit ISA or a personal pension deposit)
COB 6.4.25
See Notes
- 06/04/2007
- Past version of COB 6.4.25 before 06/04/2007
Exemption: telephone sales
COB 6.4.27
See Notes
- (1) Where this chapter requires key features, a simplified prospectus or other information to be provided, in the case of voice telephony communications, a firm:
- (a) must provide the customer at the beginning of the telephone conversation with the name of the firm and (if the call is initiated by the firm) the commercial purpose of the call;
- (b) provided the customer gives his explicit consent to receiving only limited information, may proceed on the basis of at least the following information:
- (i) the name of the person in contact with the customer and his link with the firm;
- (ii) a description of the main characteristics of the service;
- (iii) the total price to be paid by the customer to the firm for the service, including all related fees, charges and expenses, and all taxes paid through the firm together with a statement, where relevant, that commission or remuneration will be paid to the adviser or representative, or, where an exact price cannot be indicated, the basis for the calculation of the price enabling the customer to verify it;
- (iv) where relevant, notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it;
- (v) the existence or absence of a right to cancel the service under COB 6.7 and, where there is such a right, its duration and the conditions for exercising it, including information on the amount which the customer may be required to pay if the contract is terminated early or unilaterally under its terms, as well as the consequences of not exercising it; and
- (vi) that other information is available on request, and the nature of that information, and
- (vii) in addition to (a) and (b) above, where the product is a CTF, provided the customer gives his explicit consent to receiving only limited information, may proceed on the basis of the information referred to in COB 6.5.40 R (7) given orally.
- (2) If the customer does not give his explicit consent to receiving limited information, and the parties wish to proceed by telephone, the firm must prior to the conclusion of the contract provide all of the information required by COB App 1 orally to the customer.
- (3) In the case of either (1) or (2), the firm must send the private customer immediately after the contract is concluded, the required key features, simplified prospectus or other information (as applicable) in a durable medium.
- 01/05/2005
- Past version of COB 6.4.27 before 01/05/2005
COB 6.4.28
See Notes
- 09/10/2004
Exemption: certain other means of distance communication
COB 6.4.29
See Notes
- 01/05/2005
- Past version of COB 6.4.29 before 01/05/2005
Exemption: successive or separate operations under an initial service agreement
COB 6.4.30
See Notes
- 01/05/2005
- Past version of COB 6.4.30 before 01/05/2005
Exemption: other successive and separate operations
COB 6.4.31
See Notes
This exemption applies where this chapter requires a key features, simplified prospectus or other information to be provided in relation to a distance contract, if:
- (1) the firm has no initial service agreement with the customer:
- (2) the firm has performed an operation for the customer within the last year: and
- (3) the contract is in relation to a successive operation or separate operation of the same nature (see COB 1.10.2 G (2)).
- 01/05/2005
- Past version of COB 6.4.31 before 01/05/2005
Exemption: automatic enrolment of employees in pension schemes
COB 6.4.31A
See Notes
COB 6.4.32
See Notes
At each anniversary of the date on which a long-term care insurance contract which is based on single premium investment bonds was entered into, the insurer must:
- (1) provide the private customer with a table based on the format of COB 6.5.24 containing at least the current fund value and projected future policy values (as in column "What you might get back");
- (2) where it is the case, inform the private customer of the possibility that future policy values may be insufficient to fulfil the original purpose of the contract; and
- (3) inform the private customer how to obtain advice on investments in respect of long-term care insurance contracts, and that it is in his best interest to do so.
- 01/12/2001
COB 6.4.33
See Notes
In the case of a long-term care insurance contract in which:
- (1) long-term care benefits are available after commencement of the policy at the option of the policyholder; and
- (2) as a result of the exercise of that option a new contract of insurance is offered to the policyholder;
provision is made in TC 2.5.5A R so that, in respect of the contract containing the option, an employee, although engaged in advising on long-term care insurance contracts need not be required to pass an appropriate examination for long-term care insurance contracts to do so.
- 01/12/2001
Exemption: Revenue allocated accounts
COB 6.4.34
See Notes
- 01/12/2001
COB 6.4.35
See Notes
- 01/12/2001
COB 6.5
Content of key features and important information: life policies, key features schemes, ISA and CTF cash deposit components and stakeholder pension schemes
- 01/10/2005
- Past version of COB 6.5 before 01/10/2005
Application
COB 6.5.1
See Notes
- 01/12/2001
General
COB 6.5.2
See Notes
A firm must ensure, unless COB 6.5.3 R applies, that:
- (1) the key features it produces for a life policy or a key features scheme other than a stakeholder pension scheme (whether or not held within a PEP or an ISA) includes the information required by COB 6.5.11 R, set out in the order shown divided by appropriate and prominent sub-headings, some of which are prescribed in the rules;
- (2) the information it produces under COB 6.4.13R (1) for a cash deposit ISA or cash deposit CTF complies with whichever of COB 6.5.42 R or COB 6.5.42A applies to it;
- (3) the information document or abbreviated form of key features it produces:
- (a) relating to friendly society tax exempt policies or traded life policies contains the applicable information specified in COB 6.5.43 R- COB 6.5.44;
- (b) relating to broker funds contains the applicable information in COB 6.5.45;
- (4) the post-sale confirmation document it produces contains the applicable information specified in COB 6.5.46 R;
- (5) the key features it produces or issues for a stakeholder pension scheme:
- (a) includes the relevant sub-headings set out at COB 6.5.11 R, the applicable information specified in COB 6.5.12 R - COB 6.5.40 R appropriate to those sub-headings; and
- (b) is, subject to COB 6.5.6 R, accompanied by or includes the decision trees specified in COB 6.5.8 R, unless the stakeholder pension scheme is being purchased as a result of a personal recommendation; and
- (6) all:
- (a) key features; and
- (b) abbreviated key features mentioned at COB 6.5.2 (3)(a) above,
- it produces in relation to a distance contract with a retail customer include or are accompanied by all the contractual terms and conditions and the information in COB App 1 except to the extent that they are separately provided to the retail customer in a durable medium in good time before the retail customer is bound by the contract or offer.
- 01/10/2005
- Past version of COB 6.5.2 before 01/10/2005
COB 6.5.3
See Notes
- 09/10/2004
COB 6.5.4
See Notes
- (1) Where the rules in COB 6.5 do not require the use of prescribed text, firms may give the relevant information using their own words and style.
- (2) For the purposes of COB 6.5.2 R (1):
- (a) a firm which offers more than one key features scheme may choose whether to produce separate key features for each scheme (including a fund or sub-fund or share class), or to produce a single key features to cover a range of funds (provided the differences between those funds are made clear);
- (b) where a publication covers more than one key features scheme (for example, in the case of a year book comprising information on all the funds offered by a unit trust manager), it might consist of a key features section at the beginning giving details common to all the relevant funds (whether unit trusts, ICVCs, sub-funds of an umbrella scheme or share classes within an ICVC), followed by separate pages setting out, for each fund, those items which are specific to it, for example 'Aims', 'Risk Factors' and 'Charges and their Effect'.
- 01/10/2005
- Past version of COB 6.5.4 before 01/10/2005
Stakeholder pension schemes: decision trees
COB 6.5.5
See Notes
- 01/08/2002
- Past version of COB 6.5.5 before 01/08/2002
COB 6.5.6
See Notes
- 01/12/2001
COB 6.5.7
See Notes
- 01/12/2001
COB 6.5.8
See Notes
- (1) Whether a firm produces decision trees within or separate from key features, it must (unless COB 6.5.9 R applies and subject to COB 6.5.8A R) reproduce the text, content and format set out in COB 6 Annex 1.
- (2) If COB 6 Annex 1 is subsequently amended:
- (a) the firm must amend its decision trees as soon as reasonably practicable and, in any case, within three months of the date when the amendments to COB 6 Annex 1 come into force; and
- (b) the firm may continue to use decision trees that complied with the previous version of COB 6 Annex 1 until it has done so.
- 01/08/2002
- Past version of COB 6.5.8 before 01/08/2002
COB 6.5.8A
See Notes
A firm must ensure that its decision trees include:
- (1) (in the place in the relevant table in the Further information text at COB 6 Annex 1 where the square brackets appear):
- (a) in the heading of the table, the current tax year; and
- (b) the Basic State Pension rates and Pension Credit minimum income rates for the current tax year;
- (2) (where the square brackets appear) at the bottom of the cover page and at the bottom of each page of the flow charts, the current tax year; and
- (3) (where the square brackets appear) in the introductory text where additional explanatory text within Further information is signposted, the appropriate page number.
- 01/05/2004
- Past version of COB 6.5.8A before 01/05/2004
COB 6.5.8B
See Notes
- (1) A firm must, subject to (2), make the changes required by COB 6.5.8A R as soon as reasonably practicable and, in any case, within three months of the start of the tax year.
- (2) Where, in any year, a firm is required to make changes to the trees under COB 6.5.8 R and COB 6.5.8A R, it may make both sets of changes at the same time, provided that it does so within the time limits in COB 6.5.8 R (2)(a).
- 01/08/2002
- Past version of COB 6.5.8B before 01/08/2002
COB 6.5.8C
See Notes
- (1) The FSA expects to review the decision trees once each year and will amend them as necessary as near as possible to the start of the new tax year. The amended version of the decision trees will be published on the FSA's web-site and available in printed form when the rules are amended each year. Firms must bring their trees into line with the amended rules within three months, but may continue to use their "old" trees until they have done so.
- (2) Firms are required, by COB 6.5.8A R, to insert the Basic State Pension rates and Minimum Income Guarantee rates for the current tax year into the relevant table in the introductory text to their decision trees each year and to identify the relevant year in the heading of the table and also at the bottom of the pages specified in COB 6.5.8A R (2). The rules require firms to do this within three months of the start of the tax year if no other changes to the trees are required. However, COB 6.5.8B R (2) allows them to delay updating the Basic State Pension and Minimum Income Guarantee rates until the same time as they make any other amendments to their trees which they are required to make under COB 6.5.8 R, provided that they do so within no more than three months of the date when those amendments come into force.
- (3) The appropriate rates will be those announced by the Government (usually, but not necessarily, in the Chancellor of the Exchequer's annual Budget) as applying to the tax year in question. The relevant Basic State Pension and Minimum Income Guarantee rates for the current tax year will be included in the version of the trees published by the FSA.
- 01/08/2002
- Past version of COB 6.5.8C before 01/08/2002
COB 6.5.8D
See Notes
- 01/08/2002
- Past version of COB 6.5.8D before 01/08/2002
COB 6.5.8E
See Notes
- 01/08/2002
- Past version of COB 6.5.8E before 01/08/2002
COB 6.5.8F
See Notes
- 01/08/2002
- Past version of COB 6.5.8F before 01/08/2002
COB 6.5.9
See Notes
- 01/08/2002
- Past version of COB 6.5.9 before 01/08/2002
COB 6.5.10
See Notes
- (1) There is a limited scope within COB 6.5.9 R to depart from the prescribed decision tree format and content in order to blend in the trees with other promotional materials such as key features or internet financial promotions. However, the text and general design should follow the prescribed content and format. Firms will be aware that the FSA publishes its own version of the decision trees for public use: firms may consider them as examples of acceptable design.
- (2) Examples of items and formatting where no adaptations should be made include:
- (a) the text - both content and order, whether in the introduction, the boxes within the flowcharts, or any other sections of the decision trees;
- (b) the use of boxed items within the introductory text;
- (c) the use of emphasis (firms can choose the method of giving emphasis, such as size, bold or italic text);
- (d) the vertical flow and pagination of the flowcharts within the decision trees;
- (e) the boxes within the flowchart pages, these should be rectangular and filled with one consistent colour, except that two tints of the base colour may be used to highlight tick boxes and to differentiate columns of figures;
- (f) the directional arrows linking the boxes within flowchart pages, these should be of one design and the same colour as fills the flowchart boxes.
- (3) Examples of items where adaptations can be made include:
- (a) the typeface and font size of the text;
- (b) the pagination of the introductory text and the use of columns;
- (c) the edging of boxes (for example, use of shadow or rounded corners);
- (d) the use of background colours, for example, to match corporate colours or product brochures (see (2)(e));
- (e) separate colour schemes to differentiate between sets of decision trees, for example between employed and self-employed versions;
- (f) the use of an extra colour to highlight headings within flowchart pages and to identify separate versions of the decision trees;
- (g) the size of paper used (A4 is recommended, but other sizes are possible, provided that the flowchart pages are clear and legible);
- (h) where delivery is through an interactive computer-based system, the wording of the introductory text that explains how to use the decision trees.
- 01/12/2001
COB 6.5.11
See Notes
Table of Information/Applicable provisions
This table belongs to COB 6.5.2 R (1)
Information | Applicable provisions | ||
Title | COB 6.5.12 R | ||
Nature of life policy or key features scheme or stakeholder pension scheme | COB 6.5.13 R - COB 6.5.14 G | ||
An example | COB 6.5.15 R - COB 6.5.19 R | ||
Description of the life policy or key features scheme or stakeholder pension scheme | COB 6.5.20 R | ||
Tables: | Life policies Key features schemes |
COB 6.5.23 R - COB 6.5.26 R COB 6.5.30 R - COB 6.5.32 R |
|
Deductions summary: | Life policies Key features schemes |
COB 6.5.27 R - COB 6.5.29 R COB 6.5.33 R - COB 6.5.36 G |
|
Commission and remuneration | COB 6.5.38 R - COB 6.5.39 G | ||
Further information | COB 6.5.40 R |
- 01/10/2005
- Past version of COB 6.5.11 before 01/10/2005
Title
COB 6.5.12
See Notes
- 01/10/2005
- Past version of COB 6.5.12 before 01/10/2005
Nature of life policy or key features scheme or stakeholder pension scheme
COB 6.5.13
See Notes
- (1) A firm must describe the nature of the life policy or key features scheme or stakeholder pension scheme under the following headings: 'its aims', 'your commitment', or, 'your investment' (whichever is more appropriate) and 'risk factors'.
- (2) Under 'risk factors' a firm must give a brief description of the factors which may have an adverse effect on performance or are otherwise material to the decision to invest.
- 01/10/2005
- Past version of COB 6.5.13 before 01/10/2005
COB 6.5.14
See Notes
The description which a firm is required to provide under 6.5.13R(2) might include information on the matters set out in the following non-exhaustive list:
- (1) whether the value of the capital and any income from it might fluctuate;
- (2) cancellation issues, including the fact that, if the value of the investment falls before notice of cancellation is given, a full refund of the original investment may not be provided but rather the original amount less the fall in value;
- (3) particular risks, if any, associated with the underlying assets in which the packaged product is invested;
- (4) risks associated with the markets in which investments will be made, with particular reference to emerging markets; such risks might include dealing difficulties, settlement and custody practices;
- (5) special risks such as capital erosion or constraints on capital growth in the case of funds where charges are deducted from capital, or where buying income or dividend stripping forms part of the investment strategy;
- (6) volatility, in particular with regard to higher volatility funds such as geared futures and options schemes and warrant schemes and the fact that the loss on realisation of the investment could be very high, even equalling the amount originally invested;
- (7) the inclusion of a 'market value adjustment' in respect of with-profits funds, and the risk that, in adverse circumstances, benefits could be reduced;
- (8) potential problems with investment in property in respect of liquidity, and the fact that repurchase or surrender might be delayed during a period when the property is not readily saleable, and that property valuation is a matter of judgement by a valuer;
- (9) in the case of a broker fund, whether the private customer has the right, or may be required, to transfer out of that fund to any other fund or scheme of a firm; if so, the name of the fund or scheme, the transfer terms and the circumstances in which, and by whom, such a transfer may be required or made;
- (10) the risk that a current favourable situation may not be maintained in future, for example the tax treatment of ISAs;
- (11) the fact that if the private customer does not maintain contributions he may not meet any target benefit which has been projected and may lose the benefits of any life protection;
- (12) in the case of a new fund, the risk that, if its assumed size is not achieved, the proportion of charges and expenses allocated to the investment may be higher and the value of the investment consequently reduced;
- (13) the fact that there is no guarantee that a life policy such as an endowment assurance used to repay an interest-only mortgage will produce sufficient funds at the end of the mortgage term and that the amount the investor will have to continue to pay may need to increase to achieve repayment of the loan;
- (14) the fact that with personal pensions there may be penalties if the private customer takes the benefits before the stated retirement date;
- (15) in the case of a guaranteed packaged product, where it is a possibility, the fact that there may be a capital shortfall at the end of the contract; where there is a fixed regular payment of income, it should be drawn to the attention of the private customer that such payments often involve a risk to capital;
- (16) for a security or an investment trust savings scheme which satisfies the conditions specified in COB 3.8.9 G (6), the fact that the investment may be subject to sudden and large falls in value and that the private customer may get back nothing at all if the fall in value is sufficiently large;
- (17) guarantees or other actual or potential liabilities, and their effect or potential effect, whether they are attributable to:
- (a) the contractual terms and benefits of the packaged product which the private customer is or may be acquiring; or
- (b) the contractual terms and benefits of any of the product provider's other products; or
- (c) the business activities of the product provider or its associates;
- if they have or may have a material adverse effect on the returns to the private customer or are otherwise material to his decision to invest; and
- (18) in the case of a long-term care insurance contract which is based on single premium investment bonds, the fact that the income produced by the bonds may be insufficient to continue to meet the premiums of the underlying contract of insurance. The description could also explain the consequences of this, including, if it is the case, that capital may be eroded, further single premium may be payable, or the cover reduced.
- 01/01/2004
An example
COB 6.5.15
See Notes
A firm must include a projection, illustrating how the principal terms of the proposed transaction apply to the private customer:
- (1) where the proposed transaction is for a life policy other than:
- (a) a long-term care insurance contract which is a pure protection contract;
- (b) a linked life stakeholder product.
- (c) one that relates to a CTF or a stakeholder product sold through basic advice,
- (2) where the proposed transaction does not relate to a CTF or a stakeholder product sold through basic advice and is for a key features scheme or a linked life stakeholder product:
- (a) and relates to an election to make income withdrawals or purchase of a short-term annuity; or
- (b) where the private customer's primary objective is to acquire;
- (i) a specified sum of money on a specified date; or
- (ii) a specified sum of money on death; or
- (iii) an annuity of a specified amount payable as from a specified date.
- 06/04/2006
- Past version of COB 6.5.15 before 06/04/2006
COB 6.5.16
See Notes
- 01/10/2005
- Past version of COB 6.5.16 before 01/10/2005
COB 6.5.16A
See Notes
- 31/10/2004
COB 6.5.16B
See Notes
- 06/04/2007
COB 6.5.17
See Notes
- 01/11/2002
COB 6.5.18
See Notes
- (1) All projections included in key features, except a specimen projection in a decision tree for a stakeholder pension scheme, must be calculated in accordance with COB 6.6 (Projections), using the lower, intermediate and higher rates of return in COB 6.6.50 R, and followed by the appropriate statements form COB 6.6.15 R.
- (2) In addition, if the projection in (1) is for a pension scheme or a stakeholder pension scheme, a firm may also include a type P projection in the key features (see COB 6.6.34 R (5)). The pension must assume increases linked to the retail prices index using the appropriate intermediate rate in COB 6.6.51 R.
- 01/12/2001
COB 6.5.19
See Notes
- (1) A life policy projection in key features must be specific to the private customer, calculated on the basis of the private customer's age and sex, the sum assured, the premium and other principal factors of the proposed life policy unless:
- (a) the life policy is a single premium life policy; or
- (b) the total premiums payable do not exceed £120 a year (or £130 a year if the premiums are paid every four weeks); or
- (c) the total premiums are less than £1,000; or
- (d) the key features are part of a direct offer financial promotion; or
- (e) the projection is in respect of a stakeholder product (which is not a stakeholder pension).
- (2) If (1)(a), (b), (c) or (d) applies and no customer specific projection is included, a projection must be provided which typically represents the type of business which the firm conducts (or proposes to conduct) in relation to the life policy in question.
- (3) A scheme projection in key features must be based on either:
- (a) the actual amount which the private customer is proposing to invest; or
- (b) an amount which typically represents the type of business which the firm conducts (or proposes to conduct) in relation to the scheme in question;
- unless it is for income withdrawals or purchase of a short-term annuity, when it must be on the basis of (a).
- 06/04/2006
- Past version of COB 6.5.19 before 06/04/2006
Description of the life policy or key features scheme or stakeholder pension scheme
COB 6.5.20
See Notes
- 01/10/2005
- Past version of COB 6.5.20 before 01/10/2005
COB 6.5.21
See Notes
The information required by COB 6.5.20 R should include:
- (1) for a life policy such as an endowment which is being used to repay an interest-only mortgage loan, details of how and when the private customer will be notified whether the life policy is on target to provide sufficient funds to repay the loan and, if it is not, what options the private customer has;
- (2) for a life policy, the consequences of making the life policy paid up or taking a contribution holiday;
- (3) for an FSAVC, a prominent warning that, as an alternative, a scheme AVC exists which may offer better terms, details of which can be obtained from the occupational pension scheme administrator;
- (3A) for a long-term care insurance contract, information to make policyholders aware of the importance of:
- (a) regularly reviewing their circumstances and the likely costs of long-term care with a view to ensuring that their long-term care needs continue to be appropriately covered; and
- (b) seeking advice in the event of change affecting the policyholder's long-term care needs, or in the event of a variation of the contract terms so as to provide long-term care benefits;
- (3B) for a long-term care insurance contract in which the insurer has the right to review the premium:
- (a) a statement of that fact, the frequency of any right to vary the premium payable and a description of the circumstances which would give rise to a variation of the premium, for example, a change in claims experience;
- (b) a statement of the consequences of not paying any increased or extra premium resulting from any review, such as a reduction in policy benefits;
- (c) a statement of the rate of investment return assumed in the premium calculation together with a note of each other main assumption subject to variation;
- (d) a statement that the higher the assumed rate of investment return, the greater the chances of being asked to pay increased or extra premiums following a premium review;
- (e) if the rate of investment growth assumed in the premium calculation is more than the intermediate rate shown in COB 6.6.50 R, an illustration of the potential increased regular premium or additional single premium that may be payable following the first premium review, assuming that the rate of investment return achieved up to the review and assumed thereafter was at the intermediate rate shown in COB 6.6.50 R;
- (3C) for a long-term care insurance contract in which long-term care benefits are available after commencement of the policy at the option of the policyholder, a statement of the amount of premium payable for that option. Where any change to the level of cover requires further underwriting this should, where possible, be made clear at the outset.
- (4) for a long-term care insurance contract which is based on single premium investment bonds -
- (a) a statement drawing attention to the possible effect on the capital invested where withdrawals are taken to pay for care; this can be communicated by including a standard, non-client-specific, example comparing the effect of claim payments on the value of the life policy, first assuming no claims and then assuming a claim beginning at age 80 and lasting for five years; the standard mid rate of return should be used assuming claim payments at the highest benefit level payable under the life policy; and
- (b) information to make the private customer aware that he can use key features to compare the investment potential of different product providers' packaged products, for example surrender values at various times and the effect of deductions;
- (5) for a personal pension scheme, including a group personal pension scheme, a clear and prominent indication of the general availability of stakeholder pension schemes and the fact that these might meet the consumer's needs at least as well as the personal pension scheme on offer;
- (6) for a stakeholder pension scheme, a description of the default investment option offered under regulation 3(5) of the Stakeholder Pension Schemes Regulations 2000;
- (7) for an individual pension account:
- (a) where the key features relate to a stakeholder pension scheme or personal pension scheme and the firm chooses to highlight, within key features or elsewhere, that the investment will be made through an IPA, a statement:
- (i) identifying by name any IPA eligible investments which are to be or may be held as assets of the stakeholder pension scheme or personal pension scheme; and
- (ii) indicating which of those assets will benefit from the Stamp Duty Reserve Tax exemption available to IPA's;
- (b) where the firm is acting as an operator or distributor of a regulated collective investment scheme or investment trust savings scheme and elects to include within key features a statement that some or all of the investments are IPA eligible investments, an indication in respect of each such investment whether pension scheme members will benefit from the Stamp Duty Reserve Tax exemption available to IPA's;
- (8) for a life policy or a key features scheme which is to be held within a CTF the information referred to in COB 6.5.40 R (7); and
- (9) for a with-profits policy, a cross-reference to the CFPPFM (see COB 6.10.9G G (8)).
- 31/12/2005
- Past version of COB 6.5.21 before 31/12/2005
Tables and deductions summaries for life policies, key features schemes and stakeholder pension schemes
COB 6.5.22
See Notes
- (1) COB 6.5.23 R - COB 6.5.29 R set out the Tables, Deductions Summary and method of calculating the 'Effect of deductions to date' for life policies.
- (2) COB 6.5.30 R to COB 6.5.36 G set out the Tables, Deductions Summary and method of calculating 'Effect of deductions to date' for key features schemes.
- (3) COB 6.5.37 R outlines a simplified illustration of charges for stakeholder pension schemes. There is no requirement for the tables of figures or the reduction in yield summary required for life policies or schemes.
- 01/10/2005
- Past version of COB 6.5.22 before 01/10/2005
COB 6.5.22A
See Notes
- 06/04/2007
Tables for life policies
COB 6.5.23
See Notes
- 01/12/2001
COB 6.5.24
See Notes
The early years
This table belongs to COB 6.5.23 R
The early years | ||||
WARNING - if you cash in during the early years you could get back less than you have paid in. | ||||
The last two columns assume that investments will grow at [insert the intermediate rate appropriate to the type of life policy set out in COB 6.6.50 ] a year. | ||||
At end of year | Total paid in to date | [Total actual deductions to date] | Effect of deductions to date | What you might get back |
£ | £ | £ | £ | |
1 | ||||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
The later years | ||||
Notes: The column headed 'Total actual deductions to date' is optional. If included, it must follow the requirements in COB 6.5.23 - COB 6.5.29. In the case of a Holloway sickness policy, an indication of the total cost of risk benefits expressed as a figure in £s may be given by way of a footnote to the column headed 'Effect of deductions to date'. |
- 01/12/2001
COB 6.5.25
See Notes
When completing COB 6.5.24 R, a firm must:
- (1) under the heading 'the early years' include figures for the first five years of the life policy or, if the life policy has a fixed term of less than five years, as many of them as fall before the maturity date;
- (2) under the heading 'the later years' include figures for the tenth and every subsequent fifth year of the term of the life policy (or of the contract period as defined in COB 6.6.25 R if that is shorter) and for the final year, except in the following cases:
- (a) for a whole-life policy, figures must be included for every tenth year and:
- (i) the final year, assuming that the life policy will continue (unless and until converted to a fixed term) until the insured life (or the youngest insured life) attains the age of 75 years or to a term of ten years if that is later; or
- (ii) the year in which the projected fund reaches zero if earlier than (i); the consequences of this must be drawn to the private customer's attention;
- (b) in the case of a single premium life policy with no fixed term, a term of ten years should be assumed, but figures for a longer term may be shown in addition;
- (c) for a ten-year life policy, the figures for the final year may be included in the 'early years' table;
- (d) for an alternatively secured pension, figures must be included for each year for a term of ten years, but figures for a longer term can be shown in addition; and
- (e) where there is any significant discontinuity in the trend of surrender or transfer values, figures should be given for all the intervening years.
- (3) in the 'Total paid in to date' column, include cumulative totals of premiums paid (making adjustment as necessary to take account of any automatic premium changes);
- (4) in the 'Total actual deductions to date' and 'Effect of deductions to date' columns, include the cumulative sum of the charges and expenses (as defined in COB 6.6.23 R) and the cost of any protection benefits expected to be levied against the life policy; they must be calculated in accordance with COB 6.5.29 R;
- (5) in the 'What you might get back' column, include projections of surrender values for the life policy:
- (a) these must be calculated in accordance with COB 6.6.38 R (projections of surrender values) assuming the premium and any other relevant matters given for the purposes of COB 6.5.13 R (Nature of policy) and COB 6.5.15 R (An Example);
- (b) the surrender value of a premium on a particular date must be calculated by assuming that any premium payable on that date is payable on the following day; and
- (c) where any surrender values are guaranteed they must be provided with a suitably adjusted heading and introductory text;
- (6) where the life policy is a personal pension, replace 'What you might get back' with 'What the transfer value might be' and make suitable amendments to the explanatory text; for a personal pension policy with income withdrawals or short-term annuity it must be replaced with 'Open market value';
- (7) where the private customer is entitled to exercise and has chosen, or expressed the intention, to exercise the right to make partial surrenders, include a column headed 'Withdrawals' or, in the case of a personal pension with income withdrawals or short-term annuity, 'Total income taken'; the sum of withdrawals must be shown;
- (8) for a personal pension with income withdrawals or short-term annuity, include a table headed 'What effect will the deductions have?' instead of 'The early years' and 'The later years'; where there is any charge or penalty in calculating the open market value, all the years to which this applies should be given; and
- (9) in the case of a long-term care insurance contract based on single premium investment bonds, where the standard ten-year table does not illustrate adequately how the charges taken from a policy can increase considerably with age:
- (a) the table must be extended to show figures at ten-year intervals and the year in which the private customer attains 100 years or the year the fund is exhausted if earlier; but
- (b) the standard ten-year figure must be used for the reduction in yield and the accompanying words amended accordingly;
- (10) in the case of a stakeholder product (which is not a stakeholder pension) the table may be given on the basis of generic figures and values.
- 06/04/2006
- Past version of COB 6.5.25 before 06/04/2006
COB 6.5.26
See Notes
- 01/12/2001
Deductions summary for life policies
COB 6.5.27
See Notes
The following statements must appear beneath the information required by COB 6.5.23 R, unless COB 6.5.28 R applies:
- (1) 'What are the deductions for?'
- (2) 'The deductions include [the cost of life cover, sickness benefits,] [commissions/remuneration,] expenses, charges, any surrender penalties and other adjustments.'
- (3) 'The last line in the table shows that over the full term of the policy the effect of the total deductions could amount to £x.'
- and then either:
- (4) 'Putting it another way, leaving out the cost of life cover [and sickness benefits] this would have the same effect as bringing investment growth from x% a year down to y% a year.' or
- (5) 'Putting it another way, if the growth rate were to be x%, which is in no way guaranteed, this would have the effect of reducing it to y% a year.'
- 01/12/2001
COB 6.5.28
See Notes
The information relating to 'Total actual deductions to date' and 'Effect of deductions to date' in COB 6.5.23 R, and the information relating to reduction in yield required by COB 6.5.27 R, do not need to be given for the following categories of life policy:
- (1) a without-profits life policy of which the benefits, except on surrender or variation, are guaranteed benefits;
- (2) a life policy for a term not exceeding five years; and
- (3) a life policy held within a CTF.
- 01/12/2001
Calculation method for 'effect of deductions to date' for life policies
COB 6.5.29
See Notes
In COB 6.5.24 R the 'Total actual deductions to date' and the 'Effect of deductions to date' must be calculated for each of the years detailed in COB 6.5.25 R. These are the amounts of all deductions that are expected to be levied against the assets and premiums in respect of charges and expenses (as defined in COB 6.6.23 R), and surrender penalties, as well as allowance for the cost of risk benefits (defined in COB 6.6.28 R) to the end of the year. They must be calculated as follows.
- (1) The premiums must be accumulated at the intermediate rate prescribed in COB 6.6.49 R for the category of life policy to which the key features relates (the 'prescribed rate'), making no allowance for charges and expenses and other deductions.
- (2) 'Effect of deductions to date' must be derived by subtracting the amount shown in the column 'What you might get back' from premiums accumulated in accordance with (1).
- (3) The figures in the column 'Effect of deductions to date' must reflect the charges and expenses accumulated at the prescribed rate. The column headed 'Total actual deductions to date' must show the sum of actual deductions.
- (4) The deductions for each year must be calculated by subtracting from the 'Effect of deductions to date' for that year the 'Effect of deductions to date' for the previous year (if any), increased by the amount of interest for the year calculated at the prescribed rate.
- (5) 'Total actual deductions to date' is the sum of the figures derived in accordance with (4) for the year in question and all previous years; where it is negative, nil must be shown for that year.
- 01/12/2001
Table for key features schemes
COB 6.5.30
See Notes
- 01/10/2005
- Past version of COB 6.5.30 before 01/10/2005
COB 6.5.31
See Notes
This table belongs to COB 6.5.30 R
How will charges and expenses affect my investment? | |||
[Give an indication of the nature and amount or rate of the charges and expenses which the private customer will or may bear, including any relevant proportion of scheme charges deducted directly from the fund or not directly attributed to the account of the private customer. In describing the nature of charges state how the charges will be made, in particular whether they will be taken from capital or income. Include a statement that dealing costs are not included.] | |||
[Give a statement that there is a buying price and a selling price (if that is the case) and that the difference between them is called the 'spread', and an indication of where up-to-date information may be obtained on these prices.] | |||
Their effect on an investment of £______ assuming growth of [insert the intermediate rate appropriate to the type of scheme (set out in COB 6.6.49 )] a year, is set out below | |||
[Where (except as described in COB 6.5.15 (2) ) a projection is not a requirement, include a statement that the figures are not guaranteed and serve only to demonstrate the effect of charges and expenses on an investment.] | |||
At end of year | Investment to Date | Effect of deductions to date | What you might get back [at the appropriate intermediate rate] |
£ | £ | £ | |
1 | |||
3 | |||
5 | |||
10 |
- 01/12/2001
COB 6.5.32
See Notes
When including the contents of COB 6.5.31 R, a firm must replace the wording in brackets as directed by the instructions in those brackets and:
- (1) when the inclusion of a scheme projection within key features is compulsory in accordance with COB 6.5.15 R (2), include figures calculated in accordance with COB 6.6 (Projections):
- (a) at the end of years 1, 3, 5 and 10 and (optionally) for years 2 and 4;
- (b) then for each fifth year following the tenth year which falls within the period of the projection; and
- (c) the final year of the projection;
- (2) when a scheme projection is not required by COB 6.5.15 R (2) but is included at a firm's discretion, include figures at the end of years 5 and 10 and (optionally) for years 1 and 3 or for years 1 to 4, all calculated in accordance with COB 6.6 (Projections);
- (3) in the 'Investment to date' column, include:
- (a) the actual amount which the private customer is proposing to invest; or
- (b) an amount which is representative of the type of business which the firm conducts (or proposes to conduct) in relation to the contract in question;
- but where, under COB 6.5.15 R (2), a projection is included in the key features, the amount shown as the 'Investment' must be the same as the amount used as the basis for the projection;
- (4) in the 'Effect of deductions to date' column, include the cumulative sum of charges and expenses (as defined in COB 6.6.23 R) for each of the years shown, these figures must be calculated in accordance with COB 6.5.35 R- Calculation Method for Effect of charges to date;
- (5) in the 'What you might get back' column, include figures taking account of charges and expenses showing what the value might be if the scheme were cashed in;
- (6) where the contract is a personal pension, replace 'What you might get back' with 'What the transfer value might be', and make suitable amendments to the explanatory text; for a personal pension contract with income withdrawals or short-term annuity the replacement must be 'Open market value';
- (7) include extra columns in the Table in the following cases:
- (a) where the private customer is entitled to exercise and has chosen, or expressed the intention, to exercise the right to make partial withdrawals, an extra column must be included headed 'Withdrawals' or, in the case of a personal pension contract with income withdrawals or short-term annuity, 'Total income taken'; 'Withdrawals' must include distributions of income;
- (b) where the investment involves periodic redemptions at pre-determined intervals to make payments to the private customer, a column headed 'Redemptions' is needed;
- (c) where the investment distributes income and does not involve the automatic reinvestment of this income, a column headed 'Income' must be included;
- in (a), (b) and (c) the arithmetic sum of the withdrawals or redemptions or income payments must be stated, on the assumption that these are made throughout on the same basis as contemplated at the time the projection was prepared; the method set out in COB 6.6.36 R must be used to calculate distributions of income;
- (8) for a personal pension contract with income withdrawals or short-term annuity, include in a table under the heading 'What effect will deductions have?' figures for every fifth year; where there is any charge or penalty in calculating the open market value, all the years to which this applies must be given;
- (9) include a statement that allowance for tax relief has been made in the calculation where any tax relief available to the scheme has been taken into account in the calculation of charges and expenses.
- (10) in the case of a stakeholder product (which is not a stakeholder pension) the table may be given on the basis of generic figures and values.
- 06/04/2006
- Past version of COB 6.5.32 before 06/04/2006
Deductions summary for key features schemes
COB 6.5.33
See Notes
The statements in (1) and (2), or in (1) and (3) must appear beneath the information required by COB 6.5.31 R:
- (1) 'The last line in the table shows that over [n] years the effect of the total charges and expenses could amount to £x';
- (2) 'Putting it another way, if the growth rate were to be (x)%, which is in no way guaranteed, this would have the effect of reducing it to (y)% a year';
- (3) 'Putting it another way, this would have the same effect as bringing investment growth from (x)% a year down to (y)% a year'.
- 01/12/2001
COB 6.5.34
See Notes
- (1) The figure [n] in the prescribed wording in COB 6.5.33 R is the number of years in figures given at the bottom of the table, as appropriate for each transaction.
- (2) The 'Investment to date' must be accumulated to the end of [n] years at the relevant rate of return (x)% making full allowance for the charges and expenses (as specified in COB 6.6.23 R).
- (3) The rate of return (y)% must be found which, if applied (on a compound basis) to the amounts included in the 'Investment to date' column over the [n] years, without making any allowance for the charges and expenses, would produce the same sum as that calculated in (2).
- 01/12/2001
Calculation method for 'effect of charges to date' for key features schemes
COB 6.5.35
See Notes
For each year, figures must be given for the effect of deductions assuming the fund grows in accordance with a relevant rate of return (as defined in COB 6.6.33 R). These calculations must reflect all deductions (charges and expenses as defined in COB 6.6.23 R) expected to be levied against the fund and against the private customer's investment. The calculations must be made on the basis of the following principles:
- (1) for each year the 'Investment' must be accumulated, at the relevant rate of return (as specified in COB 6.6.33 R), to the end of each year, making due allowance for the charges and expenses;
- (2) for each year the 'Investment' must be accumulated, at the relevant rate of return, to the end of each year, but making no allowance for the charges and expenses;
- (3) the 'Effect of deductions to date' is the amount calculated in (1) subtracted from the amount calculated in (2);
- (4) a rate of return which is lower than the relevant rate of return must be used where the firm expects that rate would imply an overstatement of the investment potential; and
- (5) the calculations specified in (1) and (2) must allow for any partial encashment of units or shares or distributions of income where under the terms of the scheme the private customer has exercised, or has expressed the intention of exercising, an option to make such encashments or to receive such income or where such encashments or distributions will automatically apply. The allowance must be assumed in accordance with the estimated rate or amount, unless to do so would be inappropriate for that scheme.
- 01/12/2001
COB 6.5.36
See Notes
- 01/12/2001
Stakeholder pension schemes
COB 6.5.37
See Notes
- (1) The statement in (2) must appear beneath or within the information required by COB 6.5.20 R.
- (2) "There is an annual charge of [y]% of the value of the funds you accumulate. If your fund is valued at £500 throughout the year, this means we deduct [£500 x y/100] that year. If your fund is valued at £7500 throughout the year, we will deduct [£7500 x y/100 that year."
- 01/12/2001
CTFs and stakeholder products: annual charges
COB 6.5.37A
See Notes
- (1) If a firm imposes one annual charge including expenses, it need not make the detailed disclosures required by COB 6.5.24 and COB 6.5.30; but if it does not make those disclosures, it must instead include either:
- (a) the following statement (the last sentence must be included if and only if it is clear at the time of acquisition that the annual charge will reduce to r% after a fixed period):
- "There is an annual charge of [y]% of the value of the funds you accumulate. If your fund is valued at £250 throughout the year, this means we deduct [£250 x y/100] that year. If your fund is valued at £500 throughout the year, this means we deduct [£500 x y/100] that year. After ten years these deductions would reduce to [£250 x r/100] and [£500 x r/100] respectively."
- or;
- (b) the information required by COB 6.5.20.
- 01/12/2004
Commission and commission equivalent for life policies, key features schemes and stakeholder pension schemes
COB 6.5.38
See Notes
A firm must include under the heading 'How much will the advice cost?' either the statement prescribed in (1), (1A) or (1B), as applicable, or the information required by (2):
- (1) for life policies (other than long-term care insurance contracts which are pure protection contracts) or stakeholder pension schemes: 'Your adviser will give you details about the cost. The amount will depend on the size of the premium and the length of the policy term. It will be paid for out of the deductions'; or
- (1A) for key features schemes : 'Your adviser will give you details about the cost. The amount will depend on the size of your [use: 'investment' or 'contribution'] [add if appropriate: 'and in the case of regular savings the period for which you make them']. It will be paid for out of the charges'; or
- (1B) for long-term care insurance contracts which are pure protection contracts: 'Your adviser will give you details about the cost. The amount will depend on the size of the premium and the length of the policy term.'
- (2)
- (a) the amount or value in cash terms of the commission or remuneration, and an indication of the timing of these payments; and
- (b) a statement that commission or equivalent is paid for out of 'the deductions or charges, if more appropriate' and, if applicable, that the amount will depend on the size of the premium or contribution and the length of the life policy, scheme or stakeholder pension scheme term.
- 01/10/2005
- Past version of COB 6.5.38 before 01/10/2005
COB 6.5.39
See Notes
- 01/12/2001
Further information for life policies, key features schemes, stocks and shares ISAs, PEPs, CTFs and stakeholder pension schemes
COB 6.5.40
See Notes
A firm must include the following information in the key features, separately or as part of the information required by COB 6.5.2 R:
- (1) for life policies:
- (a) a clear indication, in one place, of the nature and amount or rate of any charges or expenses which the private customer will or may bear; if charges or expenses are levied in the form of reduced investment, both the method and effect must be clearly explained; in the case of a single premium charge for mortality or morbidity under linked benefit policies, it is sufficient to describe its nature and basis;
- (b) the information that Annex III to the Consolidated Life Directive requires to be communicated to policyholders, which is specified in COB 6.5.49 R; and
- (c) an explanation how the private customer may obtain further information about compensation arrangements and other matters relating to the life policy;
- (2) for all key features schemes , an explanation that other information about the scheme is available on request and how it may be obtained;
- (3) for regulated collective investment schemes that constitute key features schemes and for such investments held within a PEP or an ISA:
- (a) a statement where details of the latest estimated distribution yield and buying and selling prices can be found;
- (b) in the case of any purchase, how and when the price to be allocated in respect of each payment will be determined;
- (c) whether certificates will be issued and, if so, when they will be sent;
- (d) how units or shares may be redeemed and when payment on redemption will be made;
- (e) the names and addresses of the scheme manager or authorised corporate director, and the names of the trustees, or depositary (if any);
- (f) where and how copies of scheme particulars, annual and half-yearly reports and accounts and prospectuses can be obtained;
- (g) an explanation of any relevant right to cancel or withdraw, or, where it is the case, that such rights do not apply;
- (h) how complaints and queries are dealt with and how further details of compensation arrangements (if any) can be obtained;
- (i) a summary of the private customer's potential liability (if any) to income tax and capital gains tax;
- (j) whether the private customer has a choice to reinvest income, where uninvested money will be held and whether interest is paid on such money;
- (k) for single-priced schemes:
- (i) how the scheme may suffer dealing costs as a result of transactions in units; and
- (ii) whether it is the authorised fund manager's policy that investors who carry out such transactions may be liable to contribute towards those dealing costs by means of a dilution levy or dilution adjustment, and, if not, an explanation of how this may affect the future growth of the scheme;
- (l) in relation to SDRT provision:
- (i) how the scheme may suffer stamp duty reserve tax as a result of transactions in units; and
- (ii) whether the authorised fund manager's policy is such that an SDRT provision may be imposed;
- (m) if there is any arrangement intended to result in a particular capital or income return from the units or shares or any investment objective of giving protection to their capital value or income return:
- (i) details of that arrangement or protection;
- (ii) for any related guarantee, sufficient details about the guarantor and the guarantee to enable a fair assessment of the guarantee; and
- (iii) a description of the risks that could affect achievement of that return or protection including details of what happens when an investment is encashed before the expiry of any related guarantee or protection;
- (n) if there is a class of limited issue shares or limited issue units, a summary of the restrictions on the issue and sale of those shares or units.
- (4) for investment trust savings schemes and for such investments held within a PEP or an ISA:
- (a) when shares will be purchased for the scheme, where uninvested money will be held and whether interest is paid;
- (b) where information about the investment trust share price, yield, and premium and discount information can be obtained;
- (c) where information about the net asset value and latest dividend can be found;
- (d) whether the private customer has a choice to reinvest income, how it is reinvested, or how it is paid to the private customer;
- (e) details of any nominees with which shares are registered;
- (f) how shares can be sold and how the sale proceeds are determined;
- (g) whether applications and payments will be acknowledged and whether contract notes or certificates are issued;
- (h) whether there will be a statement of account showing details such as number and cost of shares and balance of cash;
- (i) an explanation of any right to withdraw or cancel (as specified in COB 6.7) or, where it is the case, that such rights do not apply;
- (j) where the investment trust report and accounts may be obtained;
- (k) information about the manager and administrator of the scheme;
- (l) the private customer's options in the case of items such as rights issues;
- (m) how to stop investing in or how to leave a scheme and the position in respect of the shares held;
- (n) terminations or alterations by the scheme manager;
- (o) taxation details in respect of the private customer's investment; and
- (p) how complaints are dealt with and how further details of compensation arrangements (if any) can be obtained;
- (5) for ISAs with a stocks and shares (equity and insurance) component and PEPs, in addition to (1), (2), (3) or (4):
- (a) a description of the nature of the services which will be provided for the private customer;
- (b) [deleted]
- (c) [deleted]
- (d) a statement that the favourable tax treatment of ISAs may not be maintained;
- (e) how and when statements (if any) will be sent;
- (f) an explanation how the ISA or plan may be terminated or transferred to another ISA or PEP manager; and
- (g) whether the ISA is a mini-or maxi-ISA agreement and an explanation of the differences between the two.
- (6) For stakeholder pension schemes, an explanation how complaints are dealt with and how further details of compensation arrangements (if any) can be obtained.
- (7) For investments held within a CTF:
- (a) a prominent statement that after money is paid into a CTF it is locked in, and that this means that it can only be accessed by the child when he is 18, except as permitted by the CTF Regulations, and any contributions made to the CTF cannot be returned to the donor;
- (b) if the CTF is a stakeholder CTF, an explanation of the minimum standards (as described in paragraph 2 of the Schedule to the CTF Regulations) and CTF lifestyling approach (as described in paragraph 2 of the Schedule to the CTF Regulations), together with a statement that satisfying these minimum standards does not mean that the investment is suitable for a customer or that there is any guarantee of performance;
- (c) if the CTF is a non-stakeholder CTF, a prominent statement that it is not a stakeholder CTF and that a stakeholder CTF is available from a named alternative CTF provider, together with a detailed description of that stakeholder CTF;
- (d) a statement that the CTF will not be opened until any cancellation period has expired; and
- (e) a balanced comparison between stakeholder CTFs and non-stakeholder CTFs.
- 01/10/2005
- Past version of COB 6.5.40 before 01/10/2005
COB 6.5.42
See Notes
If COB 6.4.13 R applies, for a cash deposit ISA, the private customer must be given the following information (in accordance with COB 6.4.13 R) and, in relation to a distance contract with a retail customer, all the contractual terms and conditions and the information in COB App 1 in place of key features:
- (1) [deleted]
- (2) a statement making it clear whether the ISA is a mini or a maxi-ISA agreement and explaining the differences between the two;
- (3) the minimum amount needed to open an account;
- (4) the maximum yearly deposit;
- (5) the interest rate earned, and if and how it may vary;
- (6) the calculation of interest;
- (7) how to make withdrawals and any limits;
- (8) details of the arrangements for the application of the right to cancel, including the following:
- (a) the options available on cancellation (a firm must either assist the private customer in switching accounts or refund all monies deposited together with interest);
- (b) information about how cancellation will operate in circumstances where the account forms part of a maxi-ISA which contains other components;
- (c) a statement that the effect of cancelling the last component has the effect of cancelling the entire ISA agreement and may also (where it is the case) delay the customer from entering into another ISA agreement until the next tax year; and
- (d) a statement that a private customer who exercises a right to cancel will not incur any additional charges or be affected by any notice period;
- (9) the arrangements for handling complaints;
- (10) that the favourable tax treatment may not be maintained;
- (11) that compensation may be available from the Financial Services Compensation Scheme;
- (12) where applicable, that the firm cannot accept money directly and acts only as agent in arranging the cash deposit ISA, identifying the principal to whom such monies should be made payable, and explaining that the principal has accepted responsibility for the activities of the firm in relation to the cash deposit ISA;
- (13) where a private customer can obtain further information about ISAs and, if applicable, other products within the firm's range; and
- (14) a warning that a mini- and maxi-ISA may not be opened in the same tax year and that, by opening a mini cash ISA, the customer will be limiting the amount of investment in equities that he can make through ISAs, if he does not already have a mini stocks and shares or insurance ISA (not applicable for a TESSA-only ISA).
- 06/04/2005
- Past version of COB 6.5.42 before 06/04/2005
COB 6.5.42A
See Notes
If COB 6.4.13 applies, for a cash deposit CTF, the private customer must be given in place of key features:
- (1) the information contained in COB 6.5.42 (4) and COB 6.5.42 (8) and in COB 6.5.40 (7);
- (2) details of the arrangements for exercising any right to cancel;
- (3) a statement explaining where a private customer can obtain further information about CTFs
- (4) in relation to a distance contract with a retail customer, all the contractual terms and conditions and the information in COB App 1.
- 01/12/2001
Friendly Society tax exempt policies
COB 6.5.43
See Notes
Where a private customer buys a tax-exempt policy issued by a friendly society, or agrees to make additional contributions to such a policy, the firm may, where there is a right to cancel under COB 6.7 (Cancellation and withdrawal), issue an abbreviated form of key features containing the following details:
- (1) the amount of the contribution;
- (2) the term over which the contribution will be paid;
- (3) material differences between the terms of any increase and those of the existing policy;
- (4) the amount or value in cash terms of the commission or remuneration; and
- (5) in relation to a distance contract with a retail customer, all the contractual terms and conditions and the information in COB App 1.
- 09/10/2004
- Past version of COB 6.5.43 before 09/10/2004
Traded life policies
COB 6.5.44
See Notes
- 09/10/2004
- Past version of COB 6.5.44 before 09/10/2004
Broker funds
COB 6.5.45
See Notes
In relation to any fund or scheme of which the firm is a broker fund adviser, at the same time as providing a private customer with a suitability letter (in accordance with COB 5.3 (Suitability)) or before any change in investment objectives or strategies, the firm must inform the private customer in writing of:
- (1) the investment objectives, and the policies and strategies which are proposed to be followed to achieve those objectives;
- (2) the relevant published index or other indicator with which comparison of the performance of the fund or scheme may fairly be made, which is, in the case of:
- (a) life policies or pension funds:
- (i) where the long-term insurer has its own managed unit-linked life or pension fund, the average performance of that managed fund; or
- (ii) the average performance of one or more other funds, which are not broker funds, into which under the terms of the policy the private customer may switch, the objectives of which do not conflict with those of the broker fund; or
- (iii) where there is no such fund, the sector average of general managed life or pension funds;
- (b) broker unit trusts, the sector average of unit trusts appropriate to the objectives and strategy of the broker unit trust;
- (3) a published index or sector average which the firm must identify as appropriate to the investment objectives and strategy of the fund or scheme under comparison; and
- (4) the name of any person providing advice under the arrangement.
- 01/12/2001
Other information: post-sale confirmation: life policies
COB 6.5.46
See Notes
- 01/12/2001
Consolidated Life Directive annex III: 'information for policyholders'
COB 6.5.47
See Notes
- (1) A firm to which COB 6.5.40 R (1)(b) applies must communicate in writing the information prescribed in COB 6.5.49 R to the policyholder, before the policy is concluded, in an official language of the EEA State of the commitment.
- (2) This information may be in another language if the policyholder so requests, and the law of the EEA State so permits or the policyholder is free to choose the law applicable.
- 01/12/2001
COB 6.5.48
See Notes
- 01/12/2001
COB 6.5.49
See Notes
Consolidated Life Directive annex III table of 'information for policyholders'
This table belongs to COB 6.5.47 R
Consolidated Life Directive - 'information for policyholders' | |
Information about the assurance undertaking | Information about the commitment |
1. The name of the undertaking and its legal form | 4. Definition of each benefit and each option |
2. The name of the EEA State in which the head office and, where appropriate, the agency or branch concluding the policy is situated | 5. Term of the policy |
3. The address of the head office and, where appropriate, of the agency or branch concluding the policy | 6. Means of terminating the policy |
7. Means of payment of premiums and duration of payments | |
8. Means of calculation and distribution of bonuses | |
9. Indication of surrender and paid-up values and the extent to which they are guaranteed | |
10. Information on the premium for each benefit, both main benefits and supplementary benefits, where appropriate | |
11. For unit-linked policies, definition of the units to which the benefits are linked | |
12. Indication of the nature of the underlying assets for unit-linked policies | |
13. Arrangements for application of the right to cancel | |
14. General information on the tax arrangements applicable to the type of policy | |
15. The arrangements for handling complaints concerning policies by policyholders, lives assured or beneficiaries under policies, including, where appropriate, the existence of a complaints body, making clear that its existence is without prejudice to the right to take legal proceedings. | |
16. Law applicable to the policy where the parties do not have a free choice or, where the parties are free to choose the law applicable, the law the long-term insurer proposes to choose. |
- 01/03/2003
- Past version of COB 6.5.49 before 01/03/2003
Life policies: requests for quotations for surrender values
COB 6.5.50
See Notes
When a long-term insurer receives:
- (1) a request from a private customer for a quotation for the surrender value of a life policy; or
- (2) any other indication that a private customer wishes to surrender a life policy;
- which is of a type which may be traded on an existing secondary market for life policies, it must, before or when providing the quotation (or, if no quotation is provided, before accepting a surrender), make the policyholder aware in writing of:
- (3) the fact that, as an alternative to surrendering to the long-term insurer, the life policy may be traded on that secondary market;
- (4) the fact that there may be financial benefits in trading the life policy when compared to surrendering it to the long-term insurer;
- (5) how the policyholder may trade the life policy on the secondary market should he decide to do so; and
- (6) other relevant options available to the policyholder.
- 01/09/2002
- Past version of COB 6.5.50 before 01/09/2002
COB 6.5.51
See Notes
- (1) When complying with COB 6.5.50 R, a long term insurer may identify whether the policy is of a type which may be traded by obtaining information from a trade association or other body which holds information on the relevant secondary market.
- (2) COB 6.5.50 R (5) requires a firm to ensure that the policyholder is made aware of the existence of the secondary market and how he might access it. A firm may, if it wishes, go further than this (for example, by telling the policyholder more about the market and the procedures) but it is not obliged to do so.
- (3) The other relevant options referred to in COB 6.5.50 R(6) may, for example, include informing the policyholder about making the policy paid-up or taking a loan against the policy, and about the desirability of obtaining professional advice before surrendering.
- 01/09/2002
- Past version of COB 6.5.51 before 01/09/2002
COB 6.5.52
See Notes
- 01/09/2002
- Past version of COB 6.5.52 before 01/09/2002
Open market option: "Wake-up letter"
COB 6.5.53
See Notes
- (1) A firm must provide a scheme member or policyholder described in (2) with the information set out in (3) in writing:
- (a) when there is a request for a retirement quotation more than four months before the scheme member's or policyholder's intended retirement date; and
- (b) at least four months before the scheme member's or policyholder's intended retirement date.
- (2) A person in relation to whom (1) applies is a private customer who:
- (a) is a member of a personal pension scheme; or
- (b) is a member of a stakeholder pension scheme; or
- (c) is the holder of a free-standing additional voluntary contribution contract; or
- (d) (where an open market option is available under the contract terms) is the holder of a retirement annuity contract; or
- (e) (where an open market option is available under the contract terms) is the holder of a pension buy-out contract.
- (3) The information which a firm must provide in writing under (1) is an explanation of:
- (a) the open market option (including the fact that companies offer different annuity rates and different types of annuity, and that these include:
- (i) annuities which provide level or increasing benefits;
- (ii) annuities which cover either a single life or make provision for a spouse or a partner; and
- (iii) annuities which may be with or without guarantee on the early death of the scheme member or policyholder;
- and that the scheme member or policyholder may get a better deal by shopping around);
- (b) the financial advantages and disadvantages in general terms of making use of this option when compared with taking a pension annuity with that firm;
- (c) how the scheme member or policyholder may make use of the open market option should he decide to do so; and
- (d) the advisability of taking professional advice.
- 21/04/2005
- Past version of COB 6.5.53 before 21/04/2005
COB 6.5.53A
See Notes
- 21/04/2005
COB 6.5.54
See Notes
- 01/09/2002
- Past version of COB 6.5.54 before 01/09/2002
COB 6.5.55
See Notes
- (1) A firm may comply with its obligations under COB 6.5.53 R (3)(a) (b) (c) and (d) and COB 6.5.53A R by providing a copy of the FSA's factsheet about annuities entitled "Your pension 'it's time to choose'". However, if a firm is aware that its pension scheme or contract offers particular features which are likely to be relevant to customers' decisions (for example, an option to acquire an annuity at a guaranteed rate of interest) then the firm would also be expected to draw attention to those features. Firms can obtain copies of this factsheet by contacting the FSA's Consumer Helpline on 0845 606 1234.
- (2) Where a firm provides the FSA 's factsheet about annuities ("Your pension "it's time to choose?") under COB 6.5.53 R, it may wish to include the following wording in its covering letter: "The enclosed factsheet about your options is from the Financial Services Authority (FSA), the independent watchdog set up by Parliament. Please read this document carefully".
- 21/04/2005
- Past version of COB 6.5.55 before 21/04/2005
Open market option: "Reminder letter?"
COB 6.5.56
See Notes
- 01/09/2002
- Past version of COB 6.5.56 before 01/09/2002
Pension income withdrawals and phased retirement
COB 6.5.57
See Notes
When a scheme member or policyholder described in COB 6.5.53 R (2) indicates to the provider of that scheme or policy that he is considering or has decided:
- (1) to discontinue an income withdrawal arrangement; or
- (2) to take out a further sum of money from his pension fund to buy an annuity as part of a phased retirement arrangement;
the provider of that scheme or policy must send the scheme member or policyholder the information required by COB 6.5.53 R, unless the scheme member or policyholder has already been sent the information by the provider in the previous 12 months.
- 01/04/2003
- Past version of COB 6.5.57 before 01/04/2003
COB 6.5.58
See Notes
- 01/04/2003
- Past version of COB 6.5.58 before 01/04/2003
COB 6.6
Projections
- 01/12/2004
Application
COB 6.6.1
See Notes
- 06/04/2007
- Past version of COB 6.6.1 before 06/04/2007
Purpose
COB 6.6.2
See Notes
- 01/05/2005
- Past version of COB 6.6.2 before 01/05/2005
Content
COB 6.6.3
See Notes
COB 6.6 sets out:
- (1) when these rules apply COB 6.6.4 R - COB 6.6.7 R);
- (2) the information and statements to accompany projections COB 6.6.8 R - COB 6.6.18 R);
- (3) what records must be kept of projections issued to customers COB 6.6.19 R);
- (4) the method of calculating a projection COB 6.6.20 G - COB 6.6.53 G);
- (5) the method of calculating the effect of deductions (the reduction in yield) which must be included within key features COB 6.6.54 G - COB 6.6.62 R);
- (6) the method of calculating charges and expenses relating to key features schemes or simplified prospectus schemes. COB 6.6.63 G - COB 6.6.79 G);
- (7) assumptions to be used when converting a retirement fund into an annuity COB 6.6.80 R - COB 6.6.85 R); and
- (8) how to produce a pension transfer value analysis COB 6.6.86 G - COB 6.6.93 R).
- 01/05/2005
- Past version of COB 6.6.3 before 01/05/2005
General
COB 6.6.4
See Notes
- 01/05/2005
- Past version of COB 6.6.4 before 01/05/2005
COB 6.6.4A
See Notes
- 06/04/2007
Exceptions
COB 6.6.5
See Notes
COB 6.6.4 R does not apply to a firm when it provides a projection:
- (1) of the benefits payable under a defined benefit occupational pension scheme, unless they are money-purchase benefits;
- (2) issued with a view to determining a maximum contribution allowed by HM Revenue and Customs, provided the assumptions used in calculating such a contribution are disclosed;
- (3) if the benefits are fixed and do not depend on an assumption of a future investment return;
- (4) of a benefit under an existing contract where the date to which the benefit is being projected is not more than six months after the date on which the projection is given;
- (5) contained in a decision tree as specified in COB 6.5.8 R;
- (6) of the benefits payable under pension scheme or a stakeholder pension scheme if they were:
- (a) calculated and issued in accordance with regulations made under section 113 of the Pensions Schemes Act 1993; or
- (b) calculated and issued as in (a) and, in addition, includes one or more of the following benefits:
- (i) the projected fund at the projection date; or
- (ii) the cash sum and the residual pension in real terms; or
- (iii) the pension in real terms calculated assuming a rate of return 1% per annum less than that prescribed in the regulations; or
- (c) calculated as in (a) or (b) but where the illustration of benefits is not required to be issued under the regulations by reference to proximity to the projection date or the small size of the fund.
- (7) provided in accordance with COB 8.2.4 R and COB 8.2.17 E where the life policy, key features scheme, simplified prospectus scheme, or stakeholder pension scheme is a structured capital-at-risk product.
- 01/05/2005
- Past version of COB 6.6.5 before 01/05/2005
COB 6.6.5A
See Notes
- (1) A revised projection to take account of a different marital or civil partnership status or projection date will fall within the exception in COB 6.6.5 R (6) as long as it meets the conditions of that rule.
- (2) Where the exception in COB 6.6.5 R (6) does not apply and a firm provides a real value projection for a pension scheme or a stakeholder pension scheme, then normally it would be a type P projection if in terms of prices or a type Q projection if in terms of earnings. The calculation method is set out in COB 6.6.34 R (5).
- 05/12/2005
- Past version of COB 6.6.5A before 05/12/2005
Higher volatility funds
COB 6.6.6
See Notes
- 01/12/2001
Projections issued by independent intermediaries
COB 6.6.7
See Notes
- 01/12/2001
Information to accompany projections
COB 6.6.8
See Notes
- (1) A document containing a projection must include the information detailed in COB 6.5 (Key Features) under the headings 'An Example', 'Tables', 'Deductions Summary' and 'Commission and Remuneration', unless (2) applies.
- (2) The information under the headings 'Tables', 'Deductions Summary' and 'Commission and Remuneration' need not be included in a projection issued in respect of:
- (a) an existing contract; or
- (b) a financial promotion (other than a direct offer financial promotion); or
- (c) an execution-only transaction relating to a key features scheme or a simplified prospectus scheme.
- (3) If the projection relates to a contract to which regular premiums or contributions can be made, the total amount or number of premiums or contributions payable over the projection term must be made clear.
- (3A) If the projection is a type P projection or a type Q projection, the basis used for increases in premiums or contributions must be disclosed.
- (4) Other than a type P projection or a type Q projection, where a projection is given which makes allowance for increases in premiums or contributions, the premium or contribution in the final year must be shown (or, where the rate of possible future increments is based upon rates of growth in a salary or index, details of that salary or index).
- 01/05/2005
- Past version of COB 6.6.8 before 01/05/2005
Generic and stochastic projections
COB 6.6.9
See Notes
- (1) A firm may provide a generic projection for illustrative purposes based on a single rate of investment return only in the following circumstances:
- (a) in a financial promotion (other than a direct offer financial promotion) which comprises a table (or extracts from a table) published by a newspaper, magazine or other periodical publication, or by the firm itself, which compares illustrative projections from at least five product providers; or
- (b) where the purpose is to indicate the likely cost of a proposed transaction; or
- (c) to provide an estimate of the additional premium or contribution required to achieve a specified target; or
- (d) when providing a type P projection or a type Q projection.
- (2) A firm which provides a generic projection must ensure that:
- (a) it does not relate solely to an existing contract;
- (b) the rate of return used does not exceed the higher projection rate for its class of business;
- (c) where the rate used exceeds the middle rate by more than 0.5 percentage point, a statement is included advising why it is believed reasonable to project at such a high rate of return;
- (d) where the charges and expenses (as described in COB 6.6.23 R) of the product provider are available, they are used, or an estimate is given based on the firm's knowledge of the charges and expenses applicable to similar contracts;
- (e) it is accompanied by the written statements contained in COB 6.6.17 R; and
- (f) key features or a simplified prospectus are supplied in accordance with COB 6.1 to COB 6.5 (Key Features) if a recommendation is subsequently made.
- (3) A firm may issue a stochastic projection only where:
- (a) the purpose is to indicate a range of possible outcomes; and
- (b) either:
- (i) it is provided for the purpose of a proposed transaction; or
- (ii) it is provided in addition to a projection which: (A) is not a stochastic projection but which complies with COB 6.6.4 R; or (B) is a projection excepted under COB 6.6.5 R(6).
- (4) A firm which issues a stochastic projection must ensure that:
- (a) it is based on a reasonable number of simulations and is consistent with the economic assumptions underlying the rates of inflation in COB 6.6.48A R and the intermediate rates of return in COB 6.6.50 R and COB 6.6.51 R;
- (b) its presentation does not reduce the impact of non-stochastic projections; and
- (c) it is issued only in circumstances in which the firm has taken reasonable steps to ascertain that the customer will be able to understand the stochastic projection.
- 01/05/2005
- Past version of COB 6.6.9 before 01/05/2005
COB 6.6.9A
See Notes
- (1) For the purposes of COB 6.6.9 R (3)(a) and (4)(a) and (b):
- (a) to indicate a range of expected outcomes, a firm should present the results:
- (i) as amounts showing the median (50%) figure and, in addition, at least the amounts at 10% and 90%, or at least the amounts at 20% and 80%; or
- (ii) graphically showing the frequency of results from at least 10% to 90%; or
- (iii) in a diagrammatic form which indicates both the range and frequency of results;
- (b) to base the stochastic projection on a reasonable number of simulations, a firm should incorporate the results of at least 500 simulations; to enable consistent projections to be issued and to facilitate recreating previously issued projections, a firm should use the same set of simulations until the investment model or the underlying assumptions are revised; and
- (c) to be consistent with the economic assumptions, a firm should ensure that:
- (i) the parameters of each asset class are consistent with each other and the median (50%) result for a fund invested 70% in UK equities and 30% in UK government fixed interest stocks does not exceed a projection calculated using the intermediate rate of return from COB 6.6.50 R or COB 6.6.51 R; and
- (ii) the investment model is tested and adjusted so that the results are consistent with COB 6.6.9 R(4)(a).
- (2) Compliance with (1) may be relied upon as tending to establish compliance with COB 6.6.9 R(3)(a) and (4)(a) and (b).
- 01/05/2003
Pension projections
COB 6.6.10
See Notes
- 01/12/2001
COB 6.6.11
See Notes
A projection in respect of the protected rights for an appropriate personal pension must, for the purpose of comparison, include a projection which:
- (1) is calculated to the customer's State retirement age, using the lower and higher real rates of return specified in COB 6.6.52 R, together with a statement of the benefits which the minimum contributions would secure if the customer did not take out an appropriate personal pension;
- (2) [deleted]
- (3) aggregates contributions in respect of the current and the next two tax years;
- (4) is followed by the appropriate personal pension projection and a description of any differences in:
- (a) presentation, for example, real or monetary rates of return, joint or single life;
- (b) the dates from which the benefits are assumed to be payable;
- (c) the nature of the benefits, for example, index-linked or limited price indexation ('LPI') increases.
- 01/11/2002
- Past version of COB 6.6.11 before 01/11/2002
COB 6.6.12
See Notes
- 01/11/2002
- Past version of COB 6.6.12 before 01/11/2002
COB 6.6.13
See Notes
A projection for an unsecured or alternatively secured pension from a personal pension or stakeholder pension scheme:
- (1) must include:
- (a) a statement of the initial amount of maximum income as specified in the current tables published by the Government Actuary for an unsecured or alternatively secured pension;
- (b) a statement of the assumed initial level of income and the assumed basis for future years and in particular where there is a short-term annuity, if subsequent short-term annuities are assumed;
- (c) a schedule showing under the heading 'WHAT THE BENEFITS MIGHT BE' the amount of income and the fund at each, or every fifth, anniversary for each of the rates of return specified in COB 6.6.49 R;
- (d) a statement of the projected open market values and the amounts of annuity at age 75 or the date at which it is reasonably assumed an annuity will be purchased; and which for an alternatively secured pension will be after ten years; and
- (e) a statement of the amount of annuity that could be secured using an immediate annuity rate available in the market; and
- (2) must assume that the current rate of gilt-index yield will continue to apply in projecting amounts of minimum and maximum income throughout the term of the projection.
- 06/04/2006
- Past version of COB 6.6.13 before 06/04/2006
Statements to accompany projections
COB 6.6.14
See Notes
- (1) A document containing a projection must include the appropriate statements set out in COB 6.6.16 R - COB 6.6.18 R.
- (2) A statement may be altered if a firm believes on reasonable grounds that it is not wholly appropriate to the contract in question. But the alteration must not reduce the significance or impact of the statement.
- (3) Any statement required to accompany a projection must appear adjacent to the projected values and be in a type size no smaller or less prominent than that used for the projected values.
- 01/11/2002
COB 6.6.15
See Notes
- (1) The statements in COB 6.6.16 R must accompany each projection for a life policy, key features scheme or simplified prospectus scheme as indicated, except a generic projection given in accordance with COB 6.6.9 R (see COB 6.6.17 R), or a protected rights annuity projection calculated in accordance with COB 6.6.11 R (see COB 6.6.18 R).
- (2) For a pension scheme or stakeholder pension scheme, the appropriate statement from item 4 of COB 6.6.16 R must appear immediately after the projection.
- (3) Where a pension scheme or stakeholder pension scheme projection, using monetary rates of return in COB 6.6.51 R, is provided at the same time as a type P projection or a type Q projection, the appropriate statement from COB 6.6.16 4 must appear immediately after the projection. The remainder of the appropriate statements in COB 6.6.16 R need only be included once, as long as the firm makes it clear that these statements apply to both types of projection.
- 01/05/2005
- Past version of COB 6.6.15 before 01/05/2005
COB 6.6.16
See Notes
Statements to accompany projections of life policies, key features schemes, simplified prospectus schemes, or stakeholder pension schemes (excluding generic projections and protected rights annuity projections)
This table belongs to COB 6.6.15 R
Statements to accompany projections of life policies, key features schemes, simplified prospectus schemes, or stakeholder pension schemes (excluding generic projections and protected rights annuity projections) |
1. These figures are only examples and are not guaranteed - they are not minimum or maximum amounts. What you will get back depends on how your investment grows and on the tax treatment of the investment. |
2. [You could get back] [your retirement fund could be] more or less than this. |
3. All firms use the same rates of growth for projections but their charges vary. [They also use the same rates to show how funds may be converted into pension income]. |
4. (a) Do not forget that inflation would reduce what you could buy in the future with the amounts shown. (b) This illustration shows, in today's prices, the pension that might be payable when you retire. This means we have allowed for future inflation to give you an indication of how much you would be able to buy with your pension if it were payable today. |
5. [Your pension income will depend on how your investment grows and on interest rates at the time you retire]. |
6. These rates of return are not necessarily appropriate [for contracts written in] [for units traded in] [for shares traded in] currencies other than sterling. |
7. Benefits may also be affected by fluctuations in exchange rates. |
Note: In respect of statement 4, the firm must include the appropriate statement (a) or (b). Statement 5 applies to pension contracts only and statements 6 and 7 apply to non-sterling investments only. |
- 01/05/2005
- Past version of COB 6.6.16 before 01/05/2005
COB 6.6.17
See Notes
Statements to accompany generic projections
This table belongs to COB 6.6.15 R
Statements to accompany generic projections |
These figures are only illustrative. |
An assessment of your needs will be confirmed before a recommendation can be made OR Your needs will be confirmed before a recommendation can be made. |
Key features or a simplified prospectus , together with a projection which is personal to your circumstances, will be provided if a recommendation for an investment product is made. |
- 01/05/2005
- Past version of COB 6.6.17 before 01/05/2005
COB 6.6.18
See Notes
Statements to accompany projections for protected rights contracts
This table belongs to COB 6.6.15 R
Statements to accompany projections for protected rights contracts |
1. These figures are only meant to give you a rough idea of the amount of pension you might get compared with the benefit that you would be giving up under the State Second Pension. |
2. The figures show what might happen if we achieved an investment return of [x%] or [y%] each year on top of the rate of earnings inflation. |
3. They are only examples and are not guaranteed - they are not minimum or maximum amounts. What you will get back depends on how your investment grows. |
4. You could get back more or less than this. |
5. All firms use the same rates of growth for projections but their charges vary. They also use the same rates to illustrate how funds may be converted into pension income. |
6. Your pension income will depend on how your investment grows and interest rates at the time you retire. |
Note: [x%] and [y%] in statement 2 are the real rates of return used in the projection as specified in COB 6.6.51 . |
- 01/11/2002
Records
COB 6.6.19
See Notes
A firm must ensure that a record of a projection provided to a customer is made and retained, unless it relates to a proposal which does not proceed. The record must be retained for a minimum period of:
- (1) six years in the case of a record relevant to a life policy, pension contract or stakeholder pension scheme;
- (2) indefinitely in the case of a record relevant to a pension transfer or pension opt-out;
- (3) three years in any other case.
- 01/12/2001
The calculation of a projection
COB 6.6.20
See Notes
COB 6.6.21 R - COB 6.6.53 G set out:
- (1) definitions of key terms used in the calculation of a projection (COB 6.6.21 R);
- (2) the basic approach to be used when calculating a projection for life policies (COB 6.6.34 R), Holloway sickness policies( COB 6.6.35 R), key features schemes or simplified prospectus schemes (COB 6.6.36 R) and stakeholder pension schemes (COB 6.6.34 R);
- (3) principles which must be taken into account when calculating a projection including general principles which may apply to all life policies, key features schemes, simplified prospectus schemes and stakeholder pension schemes (COB 6.6.37 R - COB 6.6.38 R) and specific principles applicable to certain types of product or features within a product (COB 6.6.39 R - COB 6.6.46 R);
- (4) tables containing the rates of return to be used when calculating a projection depending on the type of contract being projected COB 6.6.47 R - COB 6.6.53 G).
- 01/05/2005
- Past version of COB 6.6.20 before 01/05/2005
Key terms used in the calculation of a projection
COB 6.6.21
See Notes
- 01/12/2001
Adjusted premium
COB 6.6.22
See Notes
- (1) The adjusted premium is the premium or contribution payable under the contract during the contract period (defined in COB 6.6.25 R), disregarding any increases that cannot be quantified at the commencement of the contract (but allowing for any increases which are assumed and disclosed in the key features or projection).
- (2) When calculating the amount of premium or contribution, a firm may deduct:
- (a) the cost of any rider benefits;
- (b) any part of a premium or contribution which is payable in respect of an exceptional mortality risk.
- 01/05/2005
- Past version of COB 6.6.22 before 01/05/2005
Charges and expenses
COB 6.6.23
See Notes
- (1) For a key features scheme, simplified prospectus scheme or unit-linked life policy, charges and expenses are all explicit charges and expenses the customer will or may bear:
- (a) including:
- (i) all other deductions and expenses which will or may bear upon the fund (including charges in respect of any collective investment scheme or insurance fund in which any funds of the contract in question are invested but excluding dealing costs of the underlying portfolio); and
- (ii) all deductions from the premium or contribution payable which do not accrue to the benefit of the customer by way of contribution to the value of the benefit;
- (b) having regard to:
- (i) the principal terms of the contract; and
- (ii) any tax relief which will be available to the fund or key features scheme or simplified prospectus scheme in respect of so much of the fund's or scheme's gross expenses as can be properly attributed to the contract.
- (2) For a with-profits contract, or a unit-linked life policy where not all charges and expenses are determined in accordance with (1), charges and expenses are such expenses as the firm reasonably determines to be appropriate to the contract having regard to:
- (a) the principal terms of the contract;
- (b) any tax relief which will be available to the firm in respect of so much of the firm's gross expenses as can properly be attributed to the contract;
- (c) any transfers to shareholders' funds, or equivalent retentions from established surplus offset by any sustainable rate of transfer of surplus from non-profit business;
- (d) dealing costs of the underlying portfolio which should be excluded; and
- (e) any guidance published by the Institute of Actuaries or the Faculty of Actuaries (or by both jointly).
- (3) If a contract has explicit charges, it should be assumed that they continue at a rate no less than that at which similar charges are being made at the time when the projection or calculation of the effect of the charges is made.
- 01/05/2005
- Past version of COB 6.6.23 before 01/05/2005
COB 6.6.24
See Notes
- 01/12/2001
Contract period
COB 6.6.25
See Notes
The contract period of a life policy, key features scheme, simplified prospectus scheme or stakeholder pension scheme is the period beginning with the commencement of the contract and ending as follows:
- (1) for a contract which contains an option under which benefits may be:
- (a) payable earlier than the date on which they would be payable if the option were not exercised; and
- (b) the marketing of which seeks to draw to the attention of customers the existence of an option or surrender value, so that it is reasonable to infer that the firm expects some customers to purchase the contract with the intention of exercising the option or surrendering the contract in whole or in part;
- on the earliest date on which an option may be exercised or the contract may be surrendered (in whole or in part);
- (2) for a contract which is a whole life assurance the premiums under which are regular premiums:
- (a) the anniversary of the commencement of the contract which first falls after the seventy-fifth birthday of the person whose life is assured under the contract, taking, if there are two or more such persons:
- (i) the older or oldest if the benefits under the contract are payable on the death of the first of them to die; and
- (ii) the younger or youngest in any other case; or
- (b) the tenth anniversary of the commencement of the contract;
- whichever is the later;
- (3) in the case of an endowment assurance or a non-pension deferred annuity, the premiums under which are regular premiums, on the maturity date;
- (4) in the case of an endowment assurance or a non-pension deferred annuity under which the only premium payable is a single premium and the term of which does not exceed ten years, on the maturity date;
- (5) in the case of a Holloway sickness policy, on the latest date on which the sickness benefit will cease to be payable;
- (6) in the case of a pension contract other than an immediate annuity, on the maturity date or, if the contract provides for annuities at various dates, the latest date at which an annuity may be purchased, except for an alternatively secured pension, where this is at the tenth anniversary of the contract;
- (7) in the case of an immediate annuity, on the date to which the customer is expected to live, calculating the expectancy of life for this purpose by reference to an appropriate mortality basis; and
- (8) for the purpose of this section 'maturity date' means:
- (a) in relation to an endowment type assurance, the date specified in the contract as the maturity date;
- (b) in relation to a pension contract or stakeholder pension scheme, the vesting date of the annuity payable under the contract or, if no vesting date for the annuity is specified in the contract, the date specified in relation to the annuity as the retirement date by the firm in the projection in question, being a date not earlier than the earliest date on which the annuity could vest and not later than the latest such date.
- 06/04/2006
- Past version of COB 6.6.25 before 06/04/2006
COB 6.6.26
See Notes
- 01/12/2001
COB 6.6.27
See Notes
In the case of any contract not falling within COB 6.6.25 R, then:
- (1) for key features schemes and simplified prospectus schemes, the contract period will end on the tenth anniversary of the commencement date of the contract; and
- (2) for all other contracts there will be two contract periods, the first ending on the fifth anniversary of the commencement date of the contract, and the second ending on the tenth anniversary of the commencement date.
- 01/05/2005
- Past version of COB 6.6.27 before 01/05/2005
Cost of risk benefits
COB 6.6.28
See Notes
Cost of risk benefits means:
- (1) explicit mortality or morbidity charges (at a level no lower than the current level); or
- (2) the implicit cost or effect of mortality or morbidity appropriate to the class of customers;
and risk benefits means all forms of mortality and sickness benefits under a contract.
- 01/12/2001
Relevant contribution
COB 6.6.29
See Notes
- 01/05/2005
- Past version of COB 6.6.29 before 01/05/2005
Relevant premium
COB 6.6.30
See Notes
- 01/12/2001
Relevant premium or contribution for protected rights annuities
COB 6.6.31
See Notes
- 01/12/2001
COB 6.6.32
See Notes
- 01/12/2001
Relevant rate of return
COB 6.6.33
See Notes
- 01/12/2001
Basic calculation method life policy or stakeholder pension scheme calculation
COB 6.6.34
See Notes
- (1) A projection of any future benefit payable under a life policy or stakeholder pension scheme must be calculated by reference to the relevant premium for the policy or stakeholder pension scheme.
- (2) The relevant premium must be accumulated to the projection date at the rate of return for its class of business as detailed in COB 6.6.50 R to COB 6.6.52 R, subject to charges and expenses (as described in COB 6.6.23 R) and the cost of risk benefits. The intermediate projection rate need not be used for an existing contract.
- (3) An allowance must be made where a customer has exercised or has expressed the intention to exercise an option to effect a partial surrender of a policy.
- (4) Allowance must not be made for income withdrawals, surrenders, lapses or early discontinuance, except as in (3).
- (5) A type P projection or a type Q projection must be calculated as follows:
- (a) the relevant premium for the pension scheme or stakeholder pension scheme must be used;
- (b) the relevant premium, with allowance for premium increases as specified in COB 6.6.48A R, must be accumulated to the projection date at the intermediate monetary rate of return detailed in COB 6.6.51 R subject to charges and expenses (as described in COB 6.6.23 R) and the cost of risk benefits;
- (c) the retirement fund from (b) must then be converted to a real retirement fund by discounting from the projection date using the rate of increase in the retail prices index (for type P projection) or the rate of increase in earnings (for type Q projection) in COB 6.6.48A R;
- (d) the pension must be calculated from the real retirement fund using the appropriate intermediate rate in COB 6.6.51 R, using the mortality tables in COB 6.6.84 R, the format in COB 6.6.82 R (7) and expenses in COB 6.6.83 R.
- 01/11/2002
Holloway sickness policy calculation
COB 6.6.35
See Notes
- 01/12/2001
Key features scheme and simplified prospectus scheme calculation
COB 6.6.36
See Notes
- (1) A projection of any future benefit payable under a key features scheme or simplified prospectus scheme must be calculated by reference to the relevant contribution for the scheme.
- (2) The relevant contribution must be accumulated to the projection date at the rates of return for the relevant class of business as detailed in COB 6.6.50 R, subject to charges and expenses (as described in COB 6.6.23 R). The intermediate rate of return need not be used for an existing contract.
- (3) An allowance must be made where a customer has exercised or expressed the intention to exercise an option under the key features scheme or simplified prospectus scheme to make withdrawals, either by:
- (a) encashment of units; or
- (b) distribution of income, which must be calculated using an estimated gross distribution yield, reduced by the rate of tax relevant to the contract; the distribution yield must be rounded to the higher 0.1%.
- (4) No allowance must be made for the distribution of income except as in (3).
- (5) A type P projection or, a type Q projection must be calculated in accordance with COB 6.6.34 R (5) but substituting "contribution" for "premium" throughout.
- 01/05/2005
- Past version of COB 6.6.36 before 01/05/2005
General rules applicable to the calculation of projections
COB 6.6.37
See Notes
- (1) A projection must be rounded down to not more than three significant figures.
- (2) Where the projection, other than a projection in real terms of a pension contract or stakeholder pension scheme, is less than the amount guaranteed under the life policy, key features scheme or simplified prospectus scheme, the projection must be increased to that guaranteed amount.
- (3) Where a customer is entitled, and has expressed the intention, to increase the premium or contribution by an amount linked to future salary or other index increases, the relevant premium or contribution may be calculated:
- (a) for a type P projection or a type Q projection, making allowance for increases at the relevant rate set out in COB 6.6.48A R; and
- (b) for all other cases, by making allowance for such increases on the same basis as that used for administration charges in COB 6.6.47 R.
- 01/05/2005
- Past version of COB 6.6.37 before 01/05/2005
Projections of surrender values and transfer values
COB 6.6.38
See Notes
A projection of a surrender or transfer value:
- (1) must be given using the intermediate rate of return appropriate to its category of business, unless:
- (a) the firm reasonably expects the rate to overstate the potential of the contract, in which case a lower rate of return must be used and disclosed; or
- (b) the customer so requests, in which case a lower rate of return may be used, and the fact that it has been used must be disclosed;
- (2) must make allowance for partial surrenders of a contract where the contract terms permit this and the customer has exercised this option or expressed the intention to do so;
- (3) must allow for the firm's surrender value basis and reflect the current approach of the firm towards applying penalties on surrender, including less than full credit for accrued terminal bonus, specific penalties or exit charges; and
- (4) for a with-profits contract where bonus rates apply, must ensure that the bonus rates supported by the relevant premium are assumed to apply throughout the term of the contract.
- 01/12/2001
Rules specific to products or features of products: annuities
COB 6.6.39
See Notes
- (1) Any projection of an annuity with one or more years to maturity must show an annuity value based on the higher and lower rates of return as set out in COB 6.6.50 R to COB 6.6.52 R, and make allowance for:
- (a) mortality (as set out in COB 6.6.84 R) and also, in the case of life policies, morbidity appropriate to the class of customers; and
- (b) charges and expenses (as described in COB 6.6.23 R).
- (2) Any projection of an annuity with less than one year to maturity must be calculated using annuity rates no more favourable than the firm's current immediate annuity rates.
- (3) Where a firm which does not offer annuities issues a projection for a contract the proceeds of which are to be applied to the purchase of an annuity, the firm must use annuity rates no more favourable than those currently being used in the open market for such a projection.
- 01/11/2002
COB 6.6.40
See Notes
In the case of a contract for an immediate annuity:
- (1) the uniform rate of continuous change in annuity supported by the actual premium to be paid must be determined for each rate of return with allowance for:
- (a) mortality appropriate to the class of customer; and
- (b) charges and expenses (as described in COB 6.6.23 R) on the assumptions used when calculating the firm's own annuity rates;
- (2) the rate of continuous change in annuity calculated must then be:
- (a) applied to the initial annuity under the contract which is the subject of the projection; and
- (b) assumed to be maintained throughout the term of the contract.
- 01/12/2001
Appropriate personal pensions and protected rights annuities
COB 6.6.41
See Notes
- (1) The retirement fund for a protected rights annuity under an appropriate personal pension scheme or stakeholder pension scheme must be calculated by accumulating the relevant contribution less charges and expenses (as described in COB 6.6.23 R) at the relevant rates of return for the period.
- (a) The relevant period is either:
- (i) where the relevant contribution is a minimum contribution, from the 1st September following the end of the tax year to which the minimum contribution relates up to the maturity date; or
- (ii) where the relevant contribution is a transfer value, from the commencement of the contract up to the maturity date.
- (b) The relevant rates of return are:
- (i) in the case of a protected rights annuity projection issued in accordance with COB 6.6.11 R (1), the real rate of return in COB 6.6.52 R;
- (ii) in the case of any other protected rights annuity projection, the monetary rates of return in COB 6.6.51 R.
- (2) The annuity must be calculated by reference to the retirement fund using the relevant rates of return set out in COB 6.6.51 R, with allowance for mortality (as set out in COB 6.6.84 R) charges and expenses and the relevant rate of increase in payment.
- 01/12/2001
Pension schemes or stakeholder pension schemes
COB 6.6.42
See Notes
- (1) An additional projection may be given for a pension scheme or stakeholder pension scheme where the period to maturity is five years or less. This:
- (a) may be calculated using the intermediate rates of return specified in COB 6.6.51 R or COB 6.6.52 R;
- (b) may use a current annuity rate calculated using a rate of return no higher than the higher rate specified in COB 6.6.51 R or COB 6.6.52 R.
- (2) If the firm providing the projection offers annuities, it must use its own annuity rates.
- 01/11/2002
Single premium contracts
COB 6.6.43
See Notes
A projection relating to a series of single premiums (other than a protected rights annuity) may be a calculation set out as if those premiums were regular premiums, provided:
- 01/12/2001
With-profits endowment business
COB 6.6.44
See Notes
For with-profit endowment assurance where the amount of any guaranteed benefit payable on death is not calculated by reference to the total value of the premiums paid under the contract before that event:
- (1) the cost of risk benefits must allow for the bonus rate or rates supported by the relevant premium (given the basic sum assured for such a policy with an appropriate office premium) calculated for each rate of return; and
- (2) the rate or rates of bonus must then be applied under the policy which is the subject of the projection and be assumed to be maintained throughout the term of the policy.
- 01/12/2001
With-profits whole life assurance business
COB 6.6.45
See Notes
For with-profit whole life assurance other than a policy the bonuses under which are added to the surrender value:
- (1) the cost of risk benefits must allow for the bonus rate or rates supported by the premium (given the basic sum assured for such a policy with an appropriate office premium) calculated for each rate of return; and
- (2) the rate or rates of bonus must then be applied under the policy which is the subject of the projection and be assumed to be maintained throughout the term of the policy.
- 01/12/2001
Contracts with reviewable administration charges
COB 6.6.46
See Notes
In respect of policies with reviewable administration charges:
- (1) a firm must make allowance for increases in administration charges which are reviewable at the firm's discretion, on a basis which:
- (a) is fair and reasonable; and
- (b) takes into account the firm's pricing policy as regards future levels of administration charges;
- (2) increases must be assumed at the appropriate rates of increase in COB 6.6.48A R for type P projections and type Q projections and the rates in COB 6.6.47 R for other projections, for any contracts where:
- (a) an administration charge is reviewable by the firm (whether or not any increases are contractually linked to an external index); or
- (b) expenses in respect of future renewal or claims costs are expressed as monetary amounts.
- 01/11/2002
COB 6.6.47
See Notes
Table of assumed rates of increase for policies with reviewable administration charges
This table belongs to COB 6.6.46 R
Basis of review | Assumed rate of increase | ||
Lower rate of return | Intermediate rate of return | Higher rate of return | |
Administration charge reviewed in line with price increases | 0.5% | 2.5% | 4.5% |
Administration charge reviewed in line with earnings increases | 2% | 4% | 6% |
- 01/12/2001
Contracts with rider benefits or extra premiums for underwriting risks
COB 6.6.48
See Notes
In respect of a contract with rider benefits, or where an extra premium is being charged for an increased underwriting risk:
- (1) the rider benefit or extra premium charged for an impaired life, hazardous pursuit, or on the grounds of occupation, must be taken into account when determining a projection;
- (2) if a deduction is made from the actual premium for a rider benefit or increased underwriting risk (or both), the sum of the amounts of the relevant premium must be quoted with the projection; and
- (3) for policies with rider benefits, a firm may apply the following procedure:
- (a) if the policy is also available without the rider benefit, then the same values must be projected as would be projected for such a policy with the premium appropriately reduced; and
- (b) if the contract is available only with one or more rider benefits, the firm must deduct a fair estimate of the cost of the extra benefits from the premium when determining the projection; if a fair estimate cannot be made, a rough estimate (rounded to the next higher 10% of the total premium payable by the policyholder) must be deducted.
- 01/12/2001
Rate of inflation assumptions
COB 6.6.48A
See Notes
For pension schemes and stakeholder pension schemes, the following rates of inflation must be used when calculating type P projections or type Q projections:
- (1) rate of increase in the Retail Prices Index (for type P projections): 2.5%;
- (2) rate of increase in earnings (for type Q projections): not less than 1.5% in excess of the rate of increase in the Retail Prices Index in (1).
- 01/11/2002
Rate of return assumptions
COB 6.6.49
See Notes
- (1) The appropriate rates of return for the type of contract being projected, taken from COB 6.6.50 R - COB 6.6.52 R, must be used when calculating a projection;
- (2) reduced rates of return must be used if the firm expects the rates in the tables to overstate the investment potential of a contract;
- (3) reduced rates of return may be used if requested by a customer; and
- (4) whenever reduced rates are used, they must be disclosed in the document containing the projection.
- 01/12/2001
COB 6.6.50
See Notes
Rate of return assumptions for all key features schemes, simplified prospectus schemes, ordinary branch non-pensions, industrial branch, friendly society, immediate annuity and Holloway sickness policies (all monetary rates of return)
This table belongs to COB 6.6.49 R
Rate of return assumptions for all key features schemes, simplified prospectus schemes , ordinary branch non-pensions, industrial branch, friendly society, immediate annuity and Holloway sickness policies (all monetary rates of return) | |||
Lower rate | Intermediate rate | Higher rate | |
(a) Non-tax-exempt business relating to key features schemes, simplified prospectus schemes, ordinary branch non-pensions and industrial branch business | 4% | 6% | 8% |
(b) Holloway sickness policies | 4% | 6% | 8% |
(c) Tax-exempt business held within an ISA , PEP or CTF or by a friendly society, relating to key features schemes, simplified prospectus schemes, ordinary branch non-pensions and industrial branch business | 5% | 7% | 9% |
(d) immediate annuities | 5% | 7% | 9% |
Note: In relation to key features schemes and simplified prospectus schemes : The monetary rates of return above include any distribution of income. The rates of return may be used for contracts for units denominated in currencies other than sterling unless it is expected they will overstate the investment potential of the contract. |
- 01/05/2005
- Past version of COB 6.6.50 before 01/05/2005
COB 6.6.51
See Notes
Rate of return assumptions for pension contracts and stakeholder pension schemes excluding contracts for immediate annuities and protected rights annuities issued in accordance with COB 6.6.11 R (1)
This table belongs to COB 6.6.49 R
Rate of return assumptions for pension contracts and stakeholder pension schemes excluding contracts for immediate annuities and protected rights annuities issued in accordance with COB 6.6.11 (1) | |||
Lower | Intermediate | Higher | |
rate | rate | rate | |
(a) in deferment | |||
Monetary rates of return | 5% | 7% | 9% |
(b) after vesting - | |||
Monetary rates of return | Y+1.5% | Y+3.5% | Y+5.5% |
For annuities linked to the retail price index | Y-1% | Y% | Y+1% |
For annuities linked to LPI (limited price indexation) | Y-1% | Y% | Y+1% |
Note: For the after vesting rates of return: Y= 0.5 * ( ILG5 + ILG0) -0.5 and rounded to the nearest 0.2%, with an exact 0.1% rounded down. Where: ILG5 is the real yield on the FTSE Actuaries Government Securities Index-linked Real Yields over 5 years assuming 5% inflation, and ILG0 is the real yield on the FTSE Actuaries Government Securities Index-linked Real Yields over 5 years assuming 0% inflation. The ILG0 and ILG5 yields to be used in the calculation of Y are the yields on the 15 February, or, where necessary, the previous working day. The rate of return Y must be updated on the following 6 April each year and used up to and including 5 April of the next year. |
- 21/04/2005
- Past version of COB 6.6.51 before 21/04/2005
COB 6.6.52
See Notes
Rate of return assumptions for protected rights annuity projections given in accordance with COB 6.6.11 R (1)
This table belongs to COB 6.6.49 R
Rate of return assumptions for protected rights annuity projections given in accordance with COB 6.6.11 (1) | |||
Lower | Intermediate | Higher | |
rate | rate | rate | |
(a) In deferment: for periods in excess of five years - real rates of return | 1% | N/A | 3% |
for periods of five years or less - monetary rates of return | 5% | 7% | 9% |
(b) after vesting: - for annuities linked to the retail prices index | 1% | 2% | 3% |
- 21/04/2005
- Past version of COB 6.6.52 before 21/04/2005
COB 6.6.53
See Notes
- 01/12/2001
Calculation of the reduction in yield due to the effect of charges and expenses content
COB 6.6.54
See Notes
- 01/05/2005
- Past version of COB 6.6.54 before 01/05/2005
Basic calculation method of the reduction in yield
COB 6.6.55
See Notes
- (1) A firm must accumulate the adjusted premium to the end of the contract period at the relevant rate of return, making:
- (a) full allowance for the charges and expenses (as described in COB 6.6.23 R); and
- (b) no allowance for charges and expenses.
- (2) A firm must then calculate the rate of return which, if applied (on an annual compound basis) to the adjusted premium over the contract period, without making any allowance for the charges and expenses, will produce the same sum as that calculated under (1)(a).
- (3) The reduction in yield is the difference between the relevant rate of return and the rate of return found in (2).
- 01/12/2001
COB 6.6.56
See Notes
- (1) When a firm is calculating a projection, charges which relate to benefits for any mortality or morbidity risks, or a proportion of them, must be assumed not to be made:
- (a) providing the assumption does not produce figures for the effect of charges deductions which suggest that the charges under the contract are lower than they actually are; and
- (b) only in so far as they are attributable solely to benefits for mortality or morbidity risks, a proper apportionment being made of any composite charges.
- (2) When a charge cannot be apportioned, (1) will not apply, but the firm may include in the information required to be given within a projection a statement to the effect that the reductions have been calculated without disregarding charges relating to benefits for any mortality or morbidity risks.
- 01/12/2001
Alternative calculation method of the reduction in yield for a life policy
COB 6.6.57
See Notes
The following alternative method of calculation of the reduction in yield may be used at a firm's discretion for a life policy:
- (1) The adjusted premium must be accumulated to the end of the contract period at the relevant rate of return, making full allowance for the charges and expenses (as described in COB 6.6.23 R).
- (2) If the accumulated value will reach zero before the end of the contract period, the accumulation must cease at that stage; subsequent references in this rule to the contract period are to be taken where relevant as referring to that shorter calculation period.
- (3) In making this calculation, the total of all charges and expenses not solely attributable to the risk benefits must be assessed separately and accumulated to the end of the contract period at the relevant rate of return.
- (4) The adjusted premium must be accumulated to the end of the contract period at the relevant rate of return, making no allowance for charges and expenses.
- (5) The reduction in yield must be calculated in accordance with, COB 6.6.55 R, but using the shorter calculation period specified in (2), if applicable.
- 01/12/2001
Other provisions
COB 6.6.58
See Notes
- 01/12/2001
COB 6.6.59
See Notes
- 01/12/2001
Unit-linked contracts with more than one fund
COB 6.6.60
See Notes
- (1) Where there is more than one fund into which the premiums under a unit-linked contract are expected to be paid initially (disregarding any option of the customer to require the funds to be changed):
- (a) the effect of charges and expenses must be calculated separately in relation to each such fund;
- (b) unless a representative figure is shown in accordance with (3), each of those reductions in yield must be shown in the information required within key features; and
- (c) a brief explanation of the difference between them may be included.
- (2) If any of the funds referred to in (1) is a unitised with-profits fund, the calculation relating to that fund must be made on the with-profits expenses basis as described in COB 6.6.23 R (2).
- (3) If, in the case of any contract, two or more of the calculations of the effect of charges and expenses would produce results which are so similar that one may fairly be regarded as representative of the other or others, only one figure for the effect of charges and expenses need be shown, accompanied by an indication that it is a representative figure.
- 01/12/2001
Regular and single premium contracts
COB 6.6.61
See Notes
- 01/12/2001
Table of specimen values of the reduction in yield
COB 6.6.62
See Notes
Where COB 6.6.60 R or COB 6.6.61 R applies in relation to the calculation of the reduction in yield, either:
- (1) different tables must be shown with the values calculated separately for each fund or for the regular premiums and the single premiums (as the case may require); or
- (2) one table may be used, but it must contain those values calculated separately as required by (1), and it must make clear to the customer (or any potential customer in the case of a financial promotion) what the different values refer to.
- 01/12/2001
Charges and expenses disclosure for key features schemes and simplified prospectus schemes
COB 6.6.63
See Notes
- 01/05/2005
- Past version of COB 6.6.63 before 01/05/2005
COB 6.6.64
See Notes
- 01/12/2001
Charges and expenses disclosure for authorised unit trusts
COB 6.6.65
See Notes
- (1) Charges and expenses as described in COB 6.6.23 R means "all explicit charges and expenses, and includes all other deductions and expenses which will or may bear upon the fund". The following paragraphs give guidance on the assessment and apportionment of expenses.
- (2) Those expenses that were, or would be, reported in the Annual report and Financial Statement of authorised unit trust schemes in accordance with the Statement of Recommended Practice ("SORP") issued by the FSA, will normally provide a suitable starting point for any assessment of the level of charges and expenses. The same principles apply to funds and schemes which are not within the scope of the SORP.
- (3) Where expenses are charged directly against the assets of the fund, it will normally be appropriate to express such expenses as an annual percentage charge against the fund, which is then added to other such charges. An example is a manager's periodic charge to form an aggregate percentage charge. It is reasonable to round this charge to the nearest 0.05%.
- (4) Where a key features scheme or simplified prospectus scheme invests in other packaged products, it will be necessary to look through to ensure that all charges and expenses which the customer will or may bear are included. Appropriate allowance may be made for any abatement to avoid double charging. If the product provider is not required to make expense disclosure in respect of such packaged products, the charges and expenses of an equivalent product from another provider should be used. In the case of investment trusts, the method in COB 6.6.70 G (4) should be used.
- (5) Where the unit trust invests in other unit trusts, charges and expenses will be based on a reasonable distribution of assets that takes account of the investment philosophy of the unit trust.
- 01/05/2005
- Past version of COB 6.6.65 before 01/05/2005
Representative unit trust
COB 6.6.66
See Notes
- (1) Where a document refers to investment in a number of trusts, charges and expenses (as described in COB 6.6.23 R) applicable to the trusts selected by the customer should be used. Where this is not practicable, it is permissible to use the charges and expenses of a representative unit trust.
- (2) The representative unit trust will normally be the one that is most likely to be selected by the customers to whom the material is issued. Where advantage is taken of this option, the document should include information which shows the differences if other trusts are selected. The normal presentation will be to show the differences as a reduction of investment return, or as an adjustment to the Table in key features or in the projection accompanying the simplified prospectus. Where the reduction of investment return is used, it will not be necessary to show differences unless the rounded difference is at least 0.1% and the unrounded difference is at least 0.05%.
- 01/05/2005
- Past version of COB 6.6.66 before 01/05/2005
Types of expenses
COB 6.6.67
See Notes
- (1) The following are those expenses and costs of investment that firms should take into account when making their calculations. The list is not comprehensive. These are in addition to explicit charges.
- (2) Examples of expenses are:
- (a) registration fees;
- (b) safe custody fees;
- (c) trustees' fees;
- (d) handling charges;
- (e) audit fees;
- (f) regulatory fees and subscriptions;
- (g) costs of investment management, but excluding dealing costs of the underlying portfolio, and costs associated with routine management and servicing of existing property investments;
- (h) bid/offer spread in the pricing of units.
- (3) The spread in (h) should be on a basis that fairly represents the expected levy of such spread in the firm's experience of normal trading conditions.
- (4) The expenses should include allowance for any value added tax which is not recoverable.
- 01/12/2001
Translation to fund level
COB 6.6.68
See Notes
- (1) The expenses and explicit charges need to be adjusted for any expected variation in costs from the period of the report to the period relevant to the disclosure expenses if such variation is believed to make a material difference.
- (2) The adjusted expenses should be expressed as a proportion of the relevant fund. For established funds, the relevant fund is the average size of the fund for the period of the report.
- (3) Where the use of the figure calculated as in (2) would be misleading, a fair estimate of the size of the relevant fund which is consistent with the adjusted expenses should be used. The same method should be used in the case of new funds. In determining the reasonable levels of expense to be assumed, account should be taken of the expense attributable to the existing fund which most closely corresponds to it, with proper regard to material differences in cost.
- 01/12/2001
Review of expenses
COB 6.6.69
See Notes
- 01/12/2001
Charges and expenses disclosure for investment trust savings schemes charges and expenses
COB 6.6.70
See Notes
- (1) Charges and expenses as described in COB 6.6.23 R should be taken to include all explicit charges and, in addition, all other deductions and expenses which are not financed from explicit charges. These include deductions and expenses within the trust.
- (2) The method is to identify all expenses that will be borne by the customer, and these will include not only the cost of acquiring a holding but also the cost of disposing of the investment.
- (3) Where expenses are charged directly against the assets of the investment trust, it will normally be appropriate to express the expenses as an annual percentage charge against the trust, which is then added to such charges, for example, a periodic management fee, to form an aggregate percentage charge. It will be reasonable to round to the nearest 0.05%.
- (4) Where an investment trust company (A) invests in another investment trust company (B), it will be necessary to look through to ensure that all charges or expenses which the customer will or may bear are included. Appropriate allowance may be made for any abatement to avoid double charging. Charges and expenses will be based on a reasonable distribution of assets that takes account of the investment philosophy of the investment trust company (A). If the investment trust company (B) is not required to make expense disclosure in respect of such assets, the charges and expenses of a similar company should be used.
- 01/12/2001
Representative investment trust company
COB 6.6.71
See Notes
- (1) Where a document refers to investment in a number of investment trusts, charges and expenses (as described in COB 6.6.23 R) applicable to the trusts selected by the customer must be used. Where this is not practical, it is permissible to use the charges and expenses of a representative investment trust company.
- (2) The representative investment trust company will normally be the one that is most likely to be selected by the customers to whom the material is issued. Where advantage is taken of this option, the document must include information which shows the differences if other trusts are selected. The normal presentation will be to show the differences in the other reduction of investment return, or as an adjustment to the Table in key features. Where the reduction of investment return is used, it will not be necessary to show differences unless the rounded difference is at least 0.1% and the unrounded difference is at least 0.05%.
- 01/12/2001
Types of expense
COB 6.6.72
See Notes
- (1) Expenses may be incurred either in acquiring or in holding an investment in an investment trust company. The list in (2) is not comprehensive and, in respect of other expenses, the list sets out the type of expense that should be included. The report and accounts of the investment trust company will normally provide a starting point in assessing the expenses that are charged against the assets of the investment trust company. These are in addition to disclosable charges.
- (2) Expenses to be included will be of four main types:
- (a) deductions levied against the assets of the investment trust company;
- (b) management expenses levied against the assets of the investment trust company; these expenses include management fees plus any management costs financed from commission received, directors' fees, pension contributions, non-recurring expenses, all other professional and regulator's fees and subscriptions, rents paid, depreciations, custody fees, audit fees and all other pre-tax expenses (except for interest paid); management expenses include marketing costs, if any;
- (c) expenses borne by the customer in acquiring or disposing of investment trust shares; these include adviser's commission (if any), stockbroker dealing commission on purchases and sales, stamp duty and withdrawal charges;
- (d) investment spread in the pricing of the investment trust shares.
- (3) Expenses should include allowance for any value added tax which is not recoverable.
- (4) Expenses in (2)(c) and the spread in (2)(d) should be on bases that fairly represent the expected level of such expenses and spread. Where appropriate, a representative level of expenses and the spread should be used.
- 01/12/2001
Translation to trust level
COB 6.6.73
See Notes
- (1) Having identified all the expenses in COB 6.6.72 G (2), a firm needs to express them as rates of charges and expenses (as described in COB 6.6.23 R) that can be used in projections and key features.
- (2) The process is as follows.
- (a) The expenses in COB 6.6.72 G (2)(a) and (b) should be expressed as a proportion of the overall fund using net asset value: For established companies, the relevant fund is taken to be based on the average size of the investment trust company for the period of assessment.
- (b) The expenses in COB 6.6.72 G (2)(c) and (d) will usually be expressed as a proportion of the fund based on share price or the amount of the investment, as appropriate. Some expenses will be a one-off expense or spread and some will be in the form of an annual charge.
- (c) The rates of charges and expenses calculated under (a) and (b) should be added together. The fact that the calculation at (a) used net asset value can be ignored as it is assumed that the level of discount or premium remains unaltered.
- (3) The charges and expenses will normally be historic and need to be adjusted for any expected variation in the level of costs from the period used in the assessment to the period relevant to the disclosure of the expenses if such variation is believed to make a material difference.
- (4) Where the use of the figure calculated in (3) would be misleading, a fair estimate of the size of the company which is consistent with the adjusted expenses should be used. The same method should be used in the case of new investment trusts. In determining the reasonable levels of expense to be assumed, account may be taken of the expenses attributable to the existing investment trust which most closely corresponds to it, but with proper regard to any material differences in cost.
- (5) Set-up costs may be amortised over a limited period not normally exceeding five years.
- 01/12/2001
Review of expenses
COB 6.6.74
See Notes
- 01/12/2001
Example of the calculation of reduction in investment return
COB 6.6.75
See Notes
- 01/12/2001
General
COB 6.6.76
See Notes
- (1) The reduction in investment return shows the effect of all charges and expenses to the customer.
- (2) The rates of investment return allow for all tax and withholding tax for which the product provider is responsible. The current rate of tax may be used to calculate the net distribution of income. Where appropriate, the net distributions are offset from the rate of investment return.
- (3) It is not necessary to allow for daily changes so that monthly steps are acceptable.
- (4) The rates of return are assumed to compound annually. The twelfth root is used to calculate the monthly rate. This is different from the fund management charge, where normally one twelfth of the annual rate is deducted monthly.
- (5) The bid/offer spread should be allowed as an initial charge so that subsequent figures are on the basis of the bid price, except where the context requires allowance to be made for the spread.
- 01/12/2001
The parameters
COB 6.6.77
See Notes
- (1) Contract details: unit trust for a term of 10 years with a single investment of £6,000 (SP).
- (2) Distributions: at the rate of 2.4% per annum, distributed as 1.2% of the offer value at the end of each half year.
- (3) Charges:
- (a) initial charge of 3% of investment (IC);
- (b) fund management charge of 1/12 of 1.25% per month (FMC) on distribution units;
- (c) attributable expenses of 1/12 of 0.25% per month (AE);
- (d) investment spread of 3% (IS) making total bid/offer spread of 6%.
- (4) Calculation:
- (a) investment of £6,000 (SP) less (IC+IS) giving an initial bid value of £5,640
- (b) interest of 6% pa or 0.4868% per month less (FMC + AE) = 1.004868 x (1- 0.015/12) 1 = 0.3612% per month
- (c) the value after 10 years as shown in COB 6.6.79 G is £6,720
- (d) the internal rate of return necessary to generate £6,720 plus distributions over 120 months from an initial investment of £6,000 is 0.3030% per month or 3.7% per annum
- (e) one method of creating the table is to use 20 periods of six months, each of which end with the payment of a distribution.
- (f) after 6 months:
- (i) the bid value of the fund before the distribution is 6000 x 0.94 x (1.003612)^6 = £5,763
- (ii) the distribution is 0.012 x 5763/0.94 = £73
- (iii) the fund carried forward is 5763 - 73 = £5,690
- (iv) after the end of Year 1, that is, after the second 6 months
- (v) the bid value of the fund before the distribution is 5690 x (1.003612)^6 = £5,814
- (vi) the distribution is 0.012 x 5814/0.94 = £74
- (vii) the fund carried forward is 5814 - 74 = £5,740
- (viii) this bid value is disclosed as there is no exit penalty as what you might get back.
- (g) the "effect of deductions" is calculated from the accumulation of the investment with no allowance for charges and expenses but with allowance for income:
- (i) the accumulated fund after 1 year with no allowance for charges is [6000 x (1.004868)^6 - 73] x (1.004868)^6 - 74 = £6,210
- (ii) the "effect of deductions" is this figure less "what you might get back", that is, £6,210 - £5,740 = £470
- (h) this process is continued throughout the term of the table; after 10 years, the accumulated investment at 0.4868% per month with no allowance for charges and expenses but with allowance for the same distributions of income is £8,621; "What you might get back" is £6,723 so the "effect of deductions" is the difference or £1,898;
- (i) the deduction in investment return is determined by calculating the rate of interest which accumulates the investment with no allowance for charges and expenses but with allowance for income to £6,723; this is 0.3030% per month (0.4868% per month gives £8,621); the yearly rate is (1.00303)^12 - 1 or 3.7%.
- 01/12/2001
COB 6.6.78
See Notes
- 01/12/2001
COB 6.6.79
See Notes
Specimen table of presentation of the effect of charges and expenses
This table belongs to COB 6.6.75 G
At end of year | Investment to date £ | Income to date £ | Effect of deductions to date £ | What you might get back £ |
1 | 6,000 | 148 | 470 | 5,740 |
3 | 6,000 | 451 | 715 | 5,940 |
5 | 6,000 | 766 | 998 | 6,150 |
10 | 6,000 | 1,600 | 1,890 | 6,720 |
The last line in the table shows that over 10 years the effect of total charges and expenses could amount to £1,890. | ||||
Putting it another way, this would have the same effect as bringing the illustrated investment growth from 6.0% a year down to 3.7% a year. |
- 01/12/2001
Assumptions for pension annuities
COB 6.6.80
See Notes
The formulae shown must be used for calculating the factors for converting a retirement fund into an annuity. The formulae in COB 6.6.81 R assume that the annuity will be payable monthly in advance for a term certain of n years (typically five):
- (1) for an RPI-linked and LPI-linked annuity (excluding a protected rights annuity): use Factor (1);
- (2) for an annuity which is static or has fixed rates of escalation: use Factor (2);
- (3) for a spouse's reversionary annuity (excluding a protected rights annuity, and whether or not there is overlap with any guaranteed period under the associated single life annuity): use Factor (3);
- (4) [deleted]
- (5) for a protected rights annuity: use Factor (5).
- 01/11/2002
COB 6.6.81
See Notes
Table of formulae for pension annuity factors
This table belongs to COB 6.6.80 R and COB 6.6.82 R
Factor | Formula |
(1) | (1+E)*[ä n (12) + D x+n /D x * ä x+n (12) ] |
(2) | (1+E)*[ä n (12) + D x+n /D x * ä x+n (12) ] |
(3) | (1+E)*[a y -a x:y ] |
(4) | (1+E)*[ä f (12) + 0.45*(a m -a m:f )] |
(5) | (1+E)*[ä f (12) + 0.50*(a m -a m:f )] |
(6) namely a x (12) | = a x + 13/24 |
(7) namely ä x:t (12) | = 13/24 * a x:t + 11/24* a x:t |
- 01/12/2001
- Past version of COB 6.6.81 before 01/12/2001
COB 6.6.82
See Notes
- (1) All factors must be rounded to three decimal places before being applied to the retirement fund.
- (2) In the formulae the letters a and D have their normal actuarial notation meanings. In formulae for two lives, x is the member and y is the spouse or civil partner, and for the protected rights formulae, f indicates the use of female mortality and m that for males. In addition, a monthly annuity is either Factor (6) or (7).
- (3) For retirement other than on a birthday, the factors must be obtained by linear interpolation on complete months. Where a member is not able (for practical reasons or otherwise) to determine the exact age at retirement, it must be assumed that the exact age at retirement is then the age at the last birthday.
- (4) Where the projection is of an annuity after taking a tax-free lump sum, the table must be used with the retirement fund reduced by the projected tax-free lump sum before rounding. Any tax-free lump sum illustrated should be rounded to three significant figures, unless the lump sum is equal to the amount of a loan.
- (5) Where a retirement fund includes both protected rights and non-protected rights benefits, the appropriate factors are to be used for each relevant part of the total fund.
- (6) Where there are protected rights funds and the person is not expected to be married or registered as a civil partner at retirement, an illustration of single life pensions may be provided. The factor must be calculated using the same assumptions as formula (5) in COB 6.6.81 R but ignoring the reversionary annuity part of the formula.
- (7) For type P projections, the annuity should assume 50% spouse's reversionary pension unless the firm has evidence that a different assumption would be more appropriate.
- 05/12/2005
- Past version of COB 6.6.82 before 05/12/2005
COB 6.6.83
See Notes
- 01/11/2002
COB 6.6.84
See Notes
In the formulae in COB 6.6.81 R, mortality rates must be calculated as follows:
- (1) the mortality tables to be used are PMA92 (for males) and PFA92 (for females) appropriate to the individual's year of birth with the medium cohort projection improvements; these tables are published by the Faculty of Actuaries and Institute of Actuaries;
- (2) where there are two lives concerned, for reversionary and for protected rights annuities, the husband is normally to be taken as being three years older than his wife; where the firm is aware that the wife is more that six years younger than her husband, an exact calculation must be performed using actual ages;
- (3) protected rights annuities must be calculated for both sexes on the basis that the member experiences female mortality and the spouse experiences male mortality.
- 21/04/2005
- Past version of COB 6.6.84 before 21/04/2005
COB 6.6.85
See Notes
In the formulae in COB 6.6.81 R, the mortality functions must be calculated at a rate of interest J, where:
- (1) J = (1 + I)/(1 + R) - 1;
- (2) R is the rate of escalation increase appropriate for the customer in formulae (2) and (3) in COB 6.6.80 R; it is 3% for pre-April 1997 protected rights benefits in formula (4), and zero otherwise;
- (3) the rate of return assumptions (1) are as set out in the tables in COB 6.6.50 R - COB 6.6.52 R with real rates of return being used for formulae (1) and (5) in COB 6.6.81 R and monetary rates otherwise; and
- (4) different factors will need to be calculated where a projection is being prepared on lower and higher rates of return, and where appropriate also the intermediate rate.
- 01/12/2001
Pension transfer value analysis requirements content
COB 6.6.86
See Notes
- 01/12/2001
Basis of a pension transfer value analysis
COB 6.6.87
See Notes
- (1) The basis for the pension transfer value analysis must be clear, fair and not misleading.
- (2) The information analysed must include details relevant to the customer's circumstances:
- (a) spouse's, dependants' and children's pensions;
- (b) early retirement provision, including provision for retirement in ill-health;
- (c) a transfer value quotation detailing:
- (i) guarantee period;
- (ii) pre- and post-April 1988 Guaranteed Minimum Pension and excesses;
- (iii) revaluation rates both in deferment and payment, and whether they are guaranteed or discretionary;
- (iv) tax-free cash arrangements;
- (d) lump sum death benefits;
- (e) transfer club arrangements, if applicable;
- (f) relevant earnings;
- (g) period of service;
- (h) scheme details (for example, benefits, bridging pensions, guarantee periods, position before and after normal retirement date, history of discretionary increases);
- (i) whether members' benefits have been equalised for service from 17 May 1990;
- (j) ill-health benefits.
- 01/12/2001
Required comparisons
COB 6.6.88
See Notes
The analysis must contain the following:
- (1) where the period before benefits are assumed to commence is one year or more:
- (a) a statement of the rates of return, calculated as in COB 6.6.92 R (2), which would have to be achieved under the transfer contract in order to provide the same level of benefits as those which would be afforded by the occupational pension scheme if the customer were to retire at normal retirement date ("the Target Benefits");
- (b) if in the firm's opinion early retirement would be materially more favourable to the customer than retirement at normal retirement date, a statement of the rates of return, calculated as in COB 6.6.92 R (2), which would have to be achieved under the transfer contract in order to provide the same pension as that afforded by the occupational pension scheme, assuming early retirement at a date on which the customer may be expected, or will have the option, to retire;
- (c) a statement of the value of the benefits payable on the death of the customer, under the transfer contract and under the occupational scheme, on the assumption that the customer were to die on the day after the date on which the transfer contract is assumed to have commenced; comparisons assuming other dates of death may be included if they are likely to enhance understanding of the differences between the benefits payable under the transfer contract and the occupational pension scheme;
- (2) where the period before benefits are assumed to commence is less than one year:
- (a) a statement of the annuity payable under the transfer contract and of the comparable Target Benefits;
- (b) where the normal retirement date under the occupational pension scheme is not within a year, a statement of the rates of return, calculated as in COB 6.6.92 R (2), which would have to be achieved under the transfer contract in order to provide the Target Benefits.
- 01/12/2001
COB 6.6.89
See Notes
- (1) In all cases (except in a case within COB 6.6.88 R (2) in respect of the annuity) a statement of the assumptions must be provided which complies with the requirements of COB 6.6.90 R.
- 01/12/2001
Required assumptions
COB 6.6.90
See Notes
- (1) The assumptions in COB 6.6.91 R must be made for the purposes of the required calculations, except as envisaged by this rule.
- (2) The assumptions may be varied only to incorporate more cautious assumptions.
- (3) If an annuity interest rate different from the Annuity Interest Rate (as specified in COB 6.6.91 R) is used, it must be the interest rate for annuities in payment provided that it is a multiple of 0.5% per annum and must not exceed the Annuity Interest Rate.
- (4) Where the occupational pension scheme has a record of discretionary increases in pension, the assumptions must be consistent with the published practice of the trustees, if any, or based on a comparison of the increases granted over the last five years with a published index. It must be assumed that increases will continue, and allowance must be made for continuation by:
- (a) relying on any statement by the trustees of their practice;
- (b) comparing recent experience with the increase in the retail price index and restricting the future allowance to a maximum of the increase in the retail price index;
- (c) making a default assumption of limited pension indexation;
- (d) assessing the likelihood whether such increases will continue to be paid.
- 01/11/2002
COB 6.6.91
See Notes
Assumptions to be made
This table belongs to COB 6.6.90 R
Formula | |
Annuity interest rate ("AIR") | The intermediate after vesting monetary rate of return in COB 6.6.51 (b) |
Retail prices index | 2.5% |
Average earnings index ("AEI") and section 21 orders | 4.0% |
Pre-retirement limited price indexation revaluation | 2.5% |
Post-retirement limited price indexation increases | 2.5% |
Index-linked pensions | The rate of intermediate return in COB 6.6.51 for annuities linked to the retail price index |
Note: The interest rate in deferment must not be assumed but calculated as required by COB 6.6.92. |
- 01/11/2002
Method of calculation
COB 6.6.92
See Notes
- (1) In calculating the Target Benefits for the purposes of the comparisons required by COB 6.6.88 R, regard must be had to benefits which commence at different times.
- (a) Where a benefit becomes payable at a different age from the age at which the Guaranteed Minimum Pension becomes payable, the benefit must be valued from its appropriate commencement date.
- (b) In the case of pensions payable only for a limited period, an allowance must be made.
- (2) The method of calculating the rate to be used for the purpose of the comparisons required by COB 6.6.88 R is:
- (a) make the assumptions required by COB 6.6.91 R;
- (b) on those assumptions, calculate the Target Benefits;
- (c) calculate, in accordance with COB 6.6.34 R- COB 6.6.62 R which relate to the calculation of projections, the interest rate in deferment necessary to attain a transfer value sufficient to provide benefits equal to the Target Benefits.
- 01/12/2001
Required disclosures
COB 6.6.93
See Notes
The analysis must also contain:
- (1) a list of all the main assumptions made for the purposes of the analysis, set out consecutively and with equal prominence;
- (2) a warning as to the differences between the amounts of benefit under the occupational pension scheme and the level of benefits under the proposed transfer contract which depends on future investment performance and on interest rates at the time of retirement;
- (3) a description of any differences in the dates on which the pensions become payable, for example in the case of a protected rights pension under a personal pension scheme which will not become payable until the customer attains the State retirement age;
- (4) a warning of any shortfall in the value of the death benefits provided by the transfer contract and, where there is such a shortfall, if appropriate, a quotation for provision to make good the shortfall.
- 01/12/2001
COB 6.7
Cancellation and withdrawal
- 01/12/2004
Application
COB 6.7.1
See Notes
COB 6.7 applies to:
- (1) a product provider except when providing a non-investment insurance contract;
- (1A) a CTF provider;
- (2) an insurer which provides pure protection contracts which are long-term care insurance contracts;
- (3) a firm when acting as an EIS manager, ISA manager, CTF provider or plan manager, or when selling on to a customer units which the firm has bought or redeemed as principal for that purpose;
- (4) a deposit-taking firm, when acting as ISA manager, CTF provider or as the firm responsible for holding deposits in respect of another firm's cash deposit ISA or cash deposit CTF;
- (5) the operator of a personal pension scheme or a stakeholder pension scheme;
- (6) a firm which enters into distance contracts with retail customers, the making or performance of which constitutes, or is part of:
- (a) dealing as agent, advising or arranging in relation to designated investments, unless the distance contract is concluded merely as a stage in the provision of another service by the firm or another person (see COB 1.10.6 G);
- (b) any other designated investment business; or
- (c) accepting deposits;
- 06/04/2007
- Past version of COB 6.7.1 before 06/04/2007
COB 6.7.2
See Notes
- 14/01/2005
- Past version of COB 6.7.2 before 14/01/2005
COB 6.7.4
See Notes
- 09/10/2004
- Past version of COB 6.7.4 before 09/10/2004
COB 6.7.5
See Notes
Cancellable investment agreements.
This table belongs to COB 6.7.4 G
Cancellable investment agreements | |||
Post-sale right to cancel? | Pre-sale right to withdraw? | Maximum period of reflection (but see COB 6.7.11 R) | |
A. Contracts where the right arises regardless of means of sale. | |||
Appropriate personal pension (APP) | Yes5, 6 | No | 30 days |
Cash deposit ISA | Yes5, 6 | No | 14 days |
Life policy (including pension annuity or within ISA or CTF) or a personal pension scheme | Yes1, 5, 6, 12 | No1 | 30 days |
Stakeholder pension scheme (SHP) | Yes1, 5, 6 | No1 | 30 days |
Certain variations of existing life policies, personal pension schemes and SHP's | Yes1, 5, 6, 8 | No1 | 30 days |
B. Contracts where the right arises only if advice is given or if sold by distance contract. | |||
Units in an AUT, recognised scheme or ICVC (within an ISA or PEP) | |||
(1) if sold by distance contract; | No | No | |
(2) if sold otherwise with advice | Yes4 | No4 | 14 days |
Units in an AUT, recognised scheme or ICVC (within a CTF): | |||
(1) if sold by distance contract | Yes10, 12 | No | |
(2) non-stakeholder CTFs not sold by distance contract sold with advice | Yes11, 12 | No | |
(3) non-stakeholder CTF not sold by distance contract sold without advice | No | No | |
(4) stakeholder CTFs not sold by distance contract | No | No | |
ISA, PEP or CTF not mentioned in any other row | |||
(1) if sold by distance contract | Yes5, 6, 12 | No | 14 days |
(2) if sold otherwise with advice | No | Yes3, 9 | 7 days |
Units in an AUT, recognised scheme or ICVC (outside an ISA, PEP or CTF) | |||
(1) if sold by distance contract | No | No | |
(2) if sold otherwise with advice | Yes | No | 14 days |
EIS | |||
(1) if sold by distance contract | Yes5, 6 | No | 14 days |
(2) if sold otherwise with advice | No | Yes3 | 7 days |
C. Contracts where the right arises for distance contracts only | |||
Distance contract to accept deposits | Yes5, 6 | No | 14 days |
Distance contract not mentioned in another row the making or performance of which constitutes, or is part of, designated investment business | Yes5, 6, 7 | No | 14 days |
Notes: | |||
1. For a pension annuity or pension transfer (and a relevant variation), the firm can, in certain circumstances, choose to provide the right to cancel, in whole or part, through a right to withdraw in COB 6.7.19 R. A firm may offer a right to withdraw, even where there is no right to cancel. | |||
2. [Deleted] | |||
3. There is no right to withdraw for a second or subsequent EIS or ISA, or (for an EIS or non-packaged product ISA or PEP) where the firm has previously disclosed to the customer that no such rights will apply. | |||
4. For units in an AUT, recognised scheme or ICVC (within an ISA or PEP), the firm can choose to offer a seven-day pre-sale right to withdraw rather than a post-sale right to cancel (see COB 6.7.14 (1)). There is no right to cancel or withdraw for a second or subsequent ISA. | |||
5. There is no post-sale right to cancel for a distance contract where the price depends on fluctuations in the financial market place outside the firm's control which may occur during the cancellation period. | |||
6. There is no post-sale right to cancel for a distance contract: | |||
(a) where the performance of the distance contract has been fully completed by both parties at the customer's express request before the customer exercises his right to cancel; or | |||
(b) where a firm has an initial service agreement with the customer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COB 1.11.3 R). | |||
In the case of life policies held within a CTF sold by distance contract, the right to cancel applies only to any initial service agreement. | |||
7. For a distance contract to give advice, arrange deals, or deal as agent see COB 1.11.3 R (Distance contracts for intermediation services). | |||
8. There is no right to cancel for variations of life policies held within a CTF. | |||
9. For contracts relating to a CTF, there is no right to withdraw. | |||
10. The initial service agreement is cancellable. | |||
11. The cancellation rules that apply are the same as those that apply to the underlying investments. | |||
12. Where a right to cancel applies to an agreement relating to a CTF that has been opened, the money may be reinvested but will not be returned to the private customer. | |||
13. A private customer's right to cancel a contract for a SIPP may lapse in certain circumstances (see COB 6.7.13A R (Right to cancel a personal pension deposit, a personal pension product or a SIPP)). |
- 06/04/2007
- Past version of COB 6.7.5 before 06/04/2007
Purpose
COB 6.7.6
See Notes
- 09/10/2004
- Past version of COB 6.7.6 before 09/10/2004
Post-sale right to cancel
COB 6.7.7
See Notes
A retail customer has a right to cancel:
- (1) a contract specified in row 1 of COB 6.7.15 R or COB 6.7.17 R, unless the right to cancel is disapplied or replaced by anything in row 2 of COB 6.7.15 R or COB 6.7.17 R;
- (2) a contract to join a stakeholder pension scheme, a personal pension deposit, a personal pension product or a SIPP for which a right to cancel applies under COB 6.7.12 R; or COB 6.7.13A R;
- (3) a contract for a cash deposit ISA, unless the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R, or a cash deposit CTF if the cash deposit CTF is sold by distance contract;
- (4) a variation of a life policy, personal pension scheme or stakeholder pension scheme for which a right to cancel applies under COB 6.7.23 R, COB 6.7.23A R and COB 6.7.26A R.
- 06/04/2007
- Past version of COB 6.7.7 before 06/04/2007
COB 6.7.8
See Notes
- 06/04/2007
- Past version of COB 6.7.8 before 06/04/2007
COB 6.7.9
See Notes
- (1) COB 6.7.8 R applies, for example, when trustees or operators of a personal pension scheme purchase life policies or schemes as investments of their pension schemes. Individual members of a personal pension scheme or a stakeholder pension scheme have a right to cancel initial membership of the scheme and, in some circumstances, a subsequent variation of their contributions.
- (2) A product provider or operator of a stakeholder pension scheme may be unsure whether any of the situations in row 2 of COB 6.7.17 R applies to the contract in question. In such circumstances the product provider or operator of a stakeholder pension scheme may find it convenient to contract with an intermediary for the provision of documentary evidence needed to confirm the status of customers. However, the responsibility for ensuring compliance with the cancellation rules remains with the product provider or operator of a stakeholder pension scheme.
- 06/04/2007
- Past version of COB 6.7.9 before 06/04/2007
Cancellation period
COB 6.7.10
See Notes
When a retail customer has a right to cancel under COB 6.7.7 R, that right must (unless COB 6.7.11 R applies) be exercised:
- (1) (in the case of a life policy, personal pension scheme or stakeholder pension scheme) within 30 days; or
- (2) (in any other case) within 14 days.
- 06/04/2007
- Past version of COB 6.7.10 before 06/04/2007
COB 6.7.10A
See Notes
The cancellation period begins on:
- (1) (other than for distance contracts, cash deposit ISAs and CTFs) the date the customer receives the reminder notice of his right to cancel in accordance with COB 6.7.30;
- (2) (for distance contracts , cash deposit ISAs and CTFs) the later of:
- (a) (for a life policy ) the day the retail customer is informed that the contract has been concluded; or
- (b) (for any other contract) the day of the conclusion of the contract; or
- (c) the day on which the retail customer receives the contractual terms and conditions and other information required by COB 3.9, COB 4.2 or COB 6, as applicable.
- 09/10/2004
COB 6.7.11
See Notes
- 09/10/2004
- Past version of COB 6.7.11 before 09/10/2004
Right to cancel a stakeholder pension scheme
COB 6.7.12
See Notes
- (1) A retail customer who has entered into a contract for a stakeholder pension scheme has a right to cancel, unless:
- (a) the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R; or
- (b) the relevant transaction is funded (wholly or partly) by a pension transfer, but only if and to the extent that the right to cancel has been replaced by a right to withdraw (see COB 6.7.17 R (Cancellable contracts and exceptions - non-life)).
- (2) When the retail customer has entered into a contract for a stakeholder pension scheme involving recurring contributions to that stakeholder pension scheme, only the first contribution will attract a right to cancel provided that:
- (a) the intention or option to make regular contributions has been disclosed in advance of the retail customer entering into the investment agreement; and
- (b) the retail customer's intention to make regular contributions is evidenced.
- 06/04/2007
- Past version of COB 6.7.12 before 06/04/2007
COB 6.7.13
See Notes
- 09/10/2004
- Past version of COB 6.7.13 before 09/10/2004
Right to cancel a personal pension deposit, a personal pension product or a SIPP
COB 6.7.13A
See Notes
A retail customer who has entered into a contract to join a personal pension deposit, personal pension product or a SIPP has a right to cancel, unless:
- (1) the right to cancel is disapplied for a distance contract by case 15 of row 2 to COB 6.7.17 R (Cancellable contracts and exceptions - non-life);
- (2) the relevant transaction is funded (wholly or partly) by a pension transfer, but only if and to the extent that the right to cancel has been replaced by a right to withdraw (see COB 6.7.19 R (Cancellation substitute)); or
- (3) (in the case of a SIPP) the performance of the contract (to join the SIPP) has been fully completed by both parties at the customer's express request before the customer exercises his right to cancel.
- 06/04/2007
COB 6.7.13B
See Notes
- 06/04/2007
Pre-sale right to withdraw
COB 6.7.14
See Notes
A retail customer has a right to withdraw an offer to enter into:
- (1) an EIS, ISA or PEP:
- (a) following advice on investments;
- (b) which is not a distance contract;
- (c) unless a right to cancel is offered under COB 6.7.7 R (3), COB 6.7.15 R or COB 6.7.17 R; and
- (d) subject to cases 8 and 9 of row 2 COB 6.7.17 R;
- the right to withdraw procedures are that the offer made by the customer to enter into the contract cannot be accepted by the firm until at least seven days after the offer is made; or
- (2) a pension annuity or a pension transfer (or a relevant variation), to the extent that the right to cancel is provided through a right to withdraw under the procedures set out in COB 6.7.19 R.
- 09/10/2004
COB 6.7.15
See Notes
Cancellable contracts and exceptions - life
This table belongs to COB 6.7.7 R (1).
Cancellable contracts and exceptions- life | |||
Long-term insurance contracts which a retail customer has a right to cancel under COB 6.7.7 R (1) (subject to row 2): | |||
Row 1 | A. | life policy (whether or not held within an ISA or CTF - see notes 1, 2, 3, 6 and 7 in COB 6.7.16 R) (see COB 6.7.23 R regarding variation of an existing life policy); | |
B. | appropriate personal pension which is a pension policy; | ||
C. | pure protection contract. | ||
Row 2 | There is no right to cancel where any one or more of the following cases applies: | ||
1. | pension fund management policy (but see note 5 in COB 6.7.16 R); | ||
2. | life policy that relates to or is associated with securing benefits under a defined benefits pension scheme (but see note 5 in COB 6.7.16 R); | ||
3. | any life policy for a term of six months or less (unless note 3 in COB 6.7.16 R applies) (see also note 5 in COB 6.7.16 R); | ||
3A. | A pension policy that is itself a SIPP; | ||
4. | pension policy funded (wholly or in part) from payments derived from: | ||
(a) | a pension transfer, to the extent that the right to cancel is provided through the right to withdraw (see COB 6.7.14 R (2)), using the cancellation substitute in COB 6.7.19 R; or | ||
(b) | compensation or redress paid by a firm following a review undertaken in relation to a complaint; | ||
5. | traded life policy; | ||
6. | life policy effected by the trustees of an occupational pension scheme or the employer, or the manager or trustees of a stakeholder pension scheme that represents a: | ||
(a) | pension buy-out contract; or | ||
(b) | purchase of a without-profits deferred pension annuity; or | ||
(c) | defined benefits pension scheme or a single premium payment to any occupational pension scheme with a pooled fund (that is, underlying investments are not earmarked for individual scheme members); or | ||
(d) | purchase made to insure and secure members' pension benefits under a money-purchase occupational scheme or stakeholder pension scheme (unless it is the master, first or only policy); | ||
7. | pension annuity that is: | ||
(a) | due to commence within a year and a day of the contract, to the extent that the right to cancel is provided through the right to withdraw (see COB 6.7.14 R (2)), using the cancellation substitute in COB 6.7.19 R; or | ||
(b) | funded (wholly or in part) from compensation or redress paid by a firm following a review undertaken in relation to a complaint; | ||
8. | the retail customer, other than an EEAECA recipient , at the time he signs the application, is habitually resident: | ||
(a) | in an EEA State other than the United Kingdom (but see note 4 and note 5 in COB 6.7.16 R); or | ||
(b) | outside the EEA and is not present in the United Kingdom; | ||
9. | pure protection contract effected by the trustees of an occupational pension scheme, an employer or a partnership to secure benefits for employees or the partners in the partnership; | ||
10. | life policy which is a distance contract where the price depends on fluctuations in the financial market place outside the firm's control which may occur during the cancellation period; | ||
11. | the contract is a distance contract where: | ||
(a) | the performance of the distance contract has been fully completed by both parties at the retail customer's express request before the retail customer exercises his right to cancel; or | ||
(b) | a firm has an initial service agreement with the retail customer and the contract is in relation to a successive operation or separate operations of the same nature under that agreement (see COB 1.10.2 G). |
- 06/04/2007
- Past version of COB 6.7.15 before 06/04/2007
COB 6.7.16
See Notes
Notes to cancellable contracts and exceptions - life
This table belongs to COB 6.7.15 R
Notes to COB 6.7.15R: | |
1. | Recurring single premium life policy: Under certain conditions, only the first premium in what might be a series of premiums attracts cancellation rights under COB 6.7.7 R (1). The conditions are: |
(a) the option to make a series of single premium payments is disclosed at outset (for example, in the key features); and | |
(b) the intention is evidenced (for example, by the retail customer establishing a direct-debit mandate). | |
2. | Multiple contracts: Where a retail customer enters into a set of contracts at the same time (for example, the different components held within a maxi-ISA and with the same firm), and that set is being purchased to fulfil one investment objective of the retail customer, the firm may treat the multiple contracts as being one contract for the purposes of COB 6.7. But if it does so, the firm must ensure that the customer retains a right to cancel each contract separately. This note applies also to a group of life policies which have been established as part of a specific marketing arrangement. Such an arrangement may not have an investment objective. The cancellation rights for any non-investment insurance contracts are set out in ICOB 6. |
3. | A purchaser of a single premium pension policy has a right to cancel where the designated retirement date is within six months of the date of the policy , unless the policy falls within case 1, 4 or 7(b) of row 2. |
4. | For a customer , other than an EEA ECA recipient , habitually resident in an EEA State other than the United Kingdom , firms are reminded that they may need to apply cancellation in accordance with the requirements in that EEA State. |
5. | This exemption from giving a right to cancel does not apply for distance contracts. |
6. | In the case of life policies held within CTFs that are distance contracts, the initial service agreement is cancellable. |
7. | If the CTF has been opened the life insurer must not cancel the life policy until it has new instructions to deal with the proceeds in accordance with the CTF Regulations. |
8. | In relation to Revenue allocated accounts, the life insurer must not accept any additional contributions until the cancellation period has expired without the right to cancel being exercised. |
- 06/04/2005
- Past version of COB 6.7.16 before 06/04/2005
COB 6.7.17
See Notes
Cancellable contracts and exceptions - non-life
This table belongs to COB 6.7.7 R (1) and COB 6.7.14 R (1)
Cancellable contracts and exceptions - non-life | ||||
Contracts which a retail customer has a right to cancel under COB 6.7.7 R (1) (subject to row 2): | ||||
Row 1 | A. | pension contract (see notes 1, 2 and 4 in COB 6.7.18 R); | ||
B. | appropriate personal pension which is a pension contract (see note 4 in COB 6.7.18 R); | |||
C. | subscriptions (but see notes 1, 2 and 5 in COB 6.7.18 R) which can be invested only in units (whether or not held within an ISA, PEP, pension contract , personal pension product or SIPP) in an AUT , recognised scheme or ICVC purchased from: | |||
(a) | the operator; or | |||
(b) | its associate acting as an ISA manager or plan manager; | |||
D. | distance contracts (but see notes 6 and 8 in COB 6.7.18 R) (whether or not held within a CTF ) (other than for a life policy, stakeholder pension scheme, personal pension deposit, personal pension product, SIPP, cash deposit ISA, cash deposit CTF or a contract in A, B or C) the making or performance of which by the firm constitutes or is part of: | |||
(a) | dealing as agent, advising or arranging in relation to designated investments, unless the distance contract is concluded merely as a stage in the provision of another service by the firm or another person (see COB 1.9.2 G (3)); or | |||
(b) | any other designated investment business; or | |||
(c) | accepting deposits. | |||
E. | subscriptions (but see note 7 in COB 6.7.18 R) which can be invested only in units held within a non-stakeholder CTF (other than a contract contained in D) in an AUT , recognised scheme or ICVC purchased from a CTF provider, where advice is given. | |||
Row 2 | There is no right to cancel where any one or more of the following cases applies: | |||
1. | the customer is not a private customer (but see note 5 in COB 6.7.18 R); | |||
2. | the contract is entered into with the firm as an execution-only transaction (unless note 4 or note 5 in COB 6.7.18 R applies); | |||
3. | the contract is entered into through a direct offer financial promotion (unless note 4 or note 5 in COB 6.7.18 R applies); | |||
4. | the contract represents an exchange of units between sub-funds; | |||
5. | the contract represents a defined benefits pension scheme (but see note 5 in COB 6.7.18 R); | |||
6. | the contract is entered into under a customer agreement or during negotiations (which are not ISA , PEP or CTF related) intended to lead to a client agreement (unless note 4 or note 5 in COB 6.7.18 R applies); | |||
7. | the contract relates to an ISA or PEP for which the right to cancel is replaced by the right to withdraw (but see COB 6.7.14 R (1) and note 5 in COB 6.7.18 R); | |||
8. | the contract relates to an EIS or non-packaged product ISA, PEP or CTF and is entered into, following advice on investments, and following an explanation that neither of the rights specified in case 7 will apply, given to the customer in accordance with COB 3.9.21 R or COB 4 Ann 2E(9)(a) in a direct offer financial promotion , terms of business, or given in EIS particulars (but see note 5 in COB 6.7.18 R); | |||
9. | the contract entered into is a second or subsequent ISA (or EIS) on substantially the same terms (see note 3 in COB 6.7.18 R) as an ISA (or EIS) purchased from the same ISA manager (or EIS manager) in the previous tax year (but see note 5 in COB 6.7.18 R); | |||
10. | the contract relates to a change from accumulation units to income units or vice versa, in the same scheme; | |||
11 | pension contract funded (wholly or in part) from payments derived from compensation or redress paid by a firm following a review undertaken in relation to a complaint; | |||
12. | pension contract funded (wholly or in part) from payments derived from a pension transfer to the extent that the right to cancel is provided through a right to withdraw (see COB 6.7.14 R (2)) using the cancellation substitute in COB 6.7.19 R; | |||
13. | the contract relates to a recognised scheme and the agreement is with an operator who is not: | |||
(a) | an authorised person; or | |||
(b) | carrying on business in the United Kingdom; | |||
14. | the contract relates or would relate to exported products, that is to say: | |||
(a) | where the customer is not habitually resident in the United Kingdom (or, for a distance contract , EEA) at the date of the offer of the contract; or | |||
(b) | the firm has reasonable grounds for assuming that no advice on investments about the contract was provided by anyone carrying on designated investment business in the United Kingdom (but see note 5 in COB 6.7.18 R; | |||
15. | for distance contracts: | |||
(a) | the price depends on fluctuations in the financial market outside the firm's control which may occur during the cancellation period, such as contracts related to: | |||
(i) | foreign exchange; or | |||
(ii) | money market instruments; or | |||
(iii) | transferable securities; or | |||
(iv) | units in collective investment undertakings; or | |||
(v) | financial-futures contracts, including equivalent cash-settled instruments; or | |||
(vi) | forward interest-rate agreements; or | |||
(vii) | interest-rate, currency and equity swaps; or | |||
(viii) | options to acquire or dispose of any instruments in (i) to (vii), including cash-settled instruments and options on currency and on interest rates; or | |||
(b) | the performance of the distance contract has been fully completed by both parties at the customer's express request before the customer exercises his right to cancel; or | |||
(c) | the firm has an initial service agreement with the 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). |
- 06/04/2007
- Past version of COB 6.7.17 before 06/04/2007
COB 6.7.18
See Notes
Notes to cancellable contracts and exceptions - non-life
This table belongs to COB 6.7.17 R
Notes to COB 6.7.17R: | ||
1. | Recurring single payment pension contracts and unit savings plans. Under certain conditions, only the first payment in what might be a series of payments attracts cancellation rights under COB 6.7.7 (1) . The conditions are: | |
(a) | the intention or option to make a series of single payments is disclosed at outset (for example, in key features); and | |
(b) | the intention is evidenced (for example, by the customer establishing a direct debit mandate) . | |
2. | Multiple contracts. Where a customer enters into a set of contracts at the same time (for example, regarding different components held within a maxi-ISA) and with the same firm, and that set is being purchased to fulfil one investment objective of the customer, the firm may treat the contracts as being one contract for the purposes of COB 6.7. But if it does so, the firm must ensure that the customer has a right to cancel each contract separately. | |
3. | For example, mini- to mini-ISA or maxi- to maxi-ISA would be regarded in this context as 'on substantially the same terms'. | |
4. | A customer has a right to cancel an appropriate personal pension or pension contract at the outset and on any subsequent agreement for a variation of a pension contract (see COB 6.7.23 regarding variation of an existing contract). | |
5. | This exemption from giving a right to cancel does not apply for distance contracts . | |
6. | In the case of contracts held within CTFs , the initial service agreement is cancellable in all cases. | |
7. | Cancellation rights exist only where the registered contact has received advice. In cases in which cancellation rights apply, they are the same as the cancellation rights that would apply to the underlying units if they were not held within a CTF. | |
8. | In relation to Revenue allocated accounts , the firm must not accept any additional contributions until the cancellation period has expired without the right to cancel being exercised. |
- 09/10/2004
COB 6.7.19
See Notes
Cancellation substitute
This table belongs to COB 6.7.12 R, COB 6.7.13A R (2), COB 6.7.14 R (2), cases 4(a) and 7(a) of row 2 to COB 6.7.15 R, case 12 of row 2 to COB 6.7.17 R, COB 6.7.23 (3) and COB 6.7.26A (2).
Cancellation substitute | ||
The retail customer's right to cancel under COB 6.7.7 R (1) ; COB 6.7.7 R (4) or COB 6.7.13A R (2) is provided through (see note 2) a right to withdraw only if: | ||
1. | the firm has supplied (or has reasonably relied upon another firm to supply) to the retail customer, at least 14 days before the contract is concluded, a written notice (see note 1) which prominently states: | |
(a) | that the retail customer has a specified period in which to consider his pension options; | |
(b) | the dates at which the period begins and ends (which must be, in the case of a pension transfer, before the transfer has been irrevocably effected); | |
(c) | the pension options available (for example, the open-market option in relation to a pension annuity); | |
(d) | the steps the retail customer must take in order to exercise a particular pension option; | |
(e) | that the retail customer is entitled to key features and is advised to check with the firm if the key features have not been received; | |
(f) | the cost of any advice given to the retail customer in relation to the transaction; and | |
2. | the firm has taken sufficient steps (or has reasonably relied upon the same firm as in 1. to take those steps) to ensure that the customer has been informed and made fully aware of the potential advantages and disadvantages of proceeding and has had an opportunity to consider all other possible alternatives. | |
Notes: | ||
1. The notice must be issued separately or feature prominently as part of another document supplied to the customer. | ||
2. Where the retail customer's right to cancel is provided through a right to withdraw of less than 30 days, a further right to cancel of at least 30 days less the right to withdraw period must be provided in accordance with these rules so that the total period provided is at least 30 days. |
- 06/04/2007
- Past version of COB 6.7.19 before 06/04/2007
Voluntary provisions
COB 6.7.21
See Notes
- 09/10/2004
- Past version of COB 6.7.21 before 09/10/2004
COB 6.7.22
See Notes
- (1) If the firm has any doubt whether a contract or the circumstances of its purchase bring the case within any part of COB 6.7.7 R (1), it should treat the contract as if it were cancellable.
- (2) A firm that informs a retail customer that he has a right to cancel where it is not obliged to give a right to cancel will be taken to have voluntarily granted the retail customer a right to cancel (unless, for the purposes of COB 6.7.17 R, there is a relevant client agreement between the firm and the retail customer).
- 09/10/2004
- Past version of COB 6.7.22 before 09/10/2004
Variations
COB 6.7.23
See Notes
- (1) After an increase in regular or single premiums or payments (including a pension transfer) to a life policy, personal pension scheme or stakeholder pension scheme, a retail customer has a right to cancel (see COB 6.7.7 R (4)) in the following circumstances, unless (2) or (2A) apply:
- (a) any variation, other than a 'pre-selected option' (see COB 6.7.26 G), providing for substantial increases in premium or payment where the increase:
- (i) is being paid by way of varying the existing contract; or
- (ii) will result in a new contract established on the same terms as the original contract;
- and, in each case, represents an increase on the original premium or payments (or the previous highest agreed premium or payment) of more than 25% (see COB 6.7.25 G); or
- (b) any variation, other than a 'pre-selected option' (see COB 6.7.26 G), that results in a new contract which involves fresh contract terms or imposes additional obligations on the retail customer due to a change in the terms of the original contract; or
- (c) any variation where the increase represents the proceeds of a pension transfer; or
- (d) the variation of a long-term care insurance contract to provide long-term care benefits.
- (2) Paragraph (1) does not apply if:
- (a) there would have been no right to cancel the original contract under COB 6.7.7 R (1) had that agreement been entered into on the date of the variation; or
- (b) the variation arises out of the settlement of a claim for damages or compensation connected with a previous contract; or
- (c) the variation is in respect of a life policy held within a CTF.
- (2A) Paragraphs (1)(a), (b) and (d) do not apply if the variation is in respect of a SIPP.
- (3) A firm may use the cancellation substitute in COB 6.7.19 R in relation to a variation of a contract in any case where that substitute would have been available to it had the contract been entered into on the date of the variation.
- 06/04/2007
- Past version of COB 6.7.23 before 06/04/2007
COB 6.7.23A
See Notes
COB 6.7.24
See Notes
- 01/12/2001
COB 6.7.25
See Notes
- 01/12/2001
COB 6.7.26
See Notes
- 01/12/2001
COB 6.7.26A
See Notes
- (1) If a customer who is an individual varies an existing personal pension scheme or stakeholder pension scheme by exercising an option to make income withdrawals, he has a right to cancel that first variation.
- (2) A firm may use the cancellation substitute in COB 6.7.19 in relation to the right to cancel in (1).
Electronic communication relating to cancellation and withdrawal
COB 6.7.27
See Notes
- 09/10/2004
- Past version of COB 6.7.27 before 09/10/2004
Reminding the customer of the right to cancel - contracts other than distance contracts and cash deposit ISAs
COB 6.7.30
See Notes
Other than for distance contracts , cash deposit ISAs and CTFs that are not distance contracts, where there is a right to cancel, the firm which enters into the contract with the customer must send the customer, in writing, a clear and prominent reminder notice of this right:
- (1) (for any contract specified in Part II of COB 6.7.57 to which shortfall applies), no later than the end of the eighth day; and
- (2) (in any other case) no later than the end of the fourteenth day;
after the contract is concluded.
- 09/10/2004
COB 6.7.31
See Notes
When the customer is a trustee or an operator of a personal pension scheme who is reasonably believed by the firm to be expected to act on the instructions of the individual beneficiary, scheme member or purchaser of the policy or contract, the firm must send the notice of the right to cancel in COB 6.7.30 R to:
- (1) the trustee or operator, as appropriate; and
- (2) the beneficiary, scheme member or purchaser;
and must inform the beneficiary, scheme member or purchaser of the need to give instructions, within the specified cancellation period, to the trustee or operator where the right to cancel is to be exercised.
- 06/04/2007
- Past version of COB 6.7.31 before 06/04/2007
Failure to give information on cancellation rights
COB 6.7.41
See Notes
- 09/10/2004
- Past version of COB 6.7.41 before 09/10/2004
Exercising the right to cancel
COB 6.7.42
See Notes
A retail customer who has a right to cancel under COB 6.7.7 R may, without giving any reason, cancel the contract by serving notice upon the firm, before expiry of the relevant cancellation period either:
- (1) by post to the firm's last known address; or
- (2) in accordance with any other practical instructions for exercising that right provided to the customer in accordance with COB App 1.1.1 R (17)(b).
- 09/10/2004
- Past version of COB 6.7.42 before 09/10/2004
COB 6.7.44
See Notes
- 01/12/2001
COB 6.7.45
See Notes
- 01/12/2001
COB 6.7.46
See Notes
- 01/12/2001
Record keeping
COB 6.7.47
See Notes
Where notice of cancellation or withdrawal has been served on a firm (or its appointed representative or agent), the firm must make and retain records (which include a copy of any receipt of notice issued to the customer and the customer's original notice instructions):
- (1) indefinitely in the case of a record relevant to a pension transfer, pension opt-out or FSAVC;
- (2) for a minimum period of:
- (a) six years in the case of a record relevant to a life policy, personal pension scheme or stakeholder pension scheme; and
- (b) three years in any other case;
and, in each case, the minimum time period runs from the date when the firm first became aware that notice of cancellation had been served.
- 06/04/2007
- Past version of COB 6.7.47 before 06/04/2007
Cancellation notices served out of time
COB 6.7.48
See Notes
- 01/12/2001
Death of the life assured: cancellation of a pension annuity
COB 6.7.49
See Notes
- 01/12/2001
Joint policyholders: effecting cancellation of a life policy
COB 6.7.50
See Notes
- 01/12/2001
Effects of cancellation
COB 6.7.51
See Notes
By exercising a right to cancel under COB 6.7.7 R (1), (2), (4), (5) or (6), the customer withdraws from the contract and:
- (1) the entire contract; or
- (2) the particular ISA component; or
- (3) the variation alone (see COB 6.7.23 R (1));
is terminated.
- 06/04/2007
- Past version of COB 6.7.51 before 06/04/2007
Automatic cancellation of an attached distance contract
COB 6.7.51A
See Notes
Obligations on cancellation
COB 6.7.52
See Notes
Unless the agreement relates to a CTF, when a retail customer exercises a right to cancel under COB 6.7.7 R:
- (1) the firm must:
- (a) pay to the retail customer (or, in the case of a pension transfer or pension annuity , for the benefit of the retail customer) without delay, and no later than 30 days after the date on which the firm received notice of cancellation from the retail customer, any sums which the customer has paid to or for the benefit of the firm in connection with the contract (including sums paid by the retail customer to agents of the firm) except for the amount referred to in (b);
- (b) subject to (c), the firm is permitted to require the retail customer to pay for the services it has actually provided in connection with the contract; the amount payable, however, must be in accordance with the sums which the retail customer agreed to pay and must not:
- (i) exceed an amount which is in proportion to the extent of the service already provided to the retail customer by the firm; and
- (ii) be such that it could be construed as a penalty;
- (c) sub-paragraph (b) applies only if:
- (i) the contract is a distance contract within COB 6.7.17 R, Row 1, case D (Distance contracts for certain designated investment business or accepting deposits);
- (ii) where performance of the contract has commenced before expiry of the cancellation period, this was requested by the retail customer; and
- (iii) the firm can demonstrate that the retail customer was provided with details of the amount which he may be required to pay if exercising his right to cancel in accordance with COB App 1.1.1 R (17)(a).
- (2) The firm is entitled to receive without delay, and no later than 30 days after the date on which the customer posted or otherwise sent notice of cancellation to the firm:
- (a) any sums or property or both that became the customer's under the contract; and
- (b) payment of any shortfall due under COB 6.7.54 R.
- 06/04/2007
- Past version of COB 6.7.52 before 06/04/2007
COB 6.7.52A
See Notes
- (1) When a person exercises a right to cancel a contract in connection with a CTF that has been opened, the CTF provider must ensure that:
- (a) where the CTF provider and the firm that provides the underlying investment are different persons , any money that was held by the firm that provides the underlying investment in connection with the CTF is returned to the CTF provider as soon as reasonably practicable;
- (b) any sums which any person has paid to or for the benefit of any firm in connection with the CTF continue to be held in a CTF bank account until the CTF provider receives further instructions regarding the investment of those sums in accordance with the CTF Regulations
- (c) where a CTF provider holds sums in accordance with COB 6.7.52A, the CTF provider notifies the private customer in writing as soon as reasonably practicable, stating that the money is held awaiting re-investment instructions; and
- (d) if the CTF bank account is non-interest bearing, the registered contact is informed of that fact as soon as possible after the money has been deposited in the account.
- (2) When a person exercises the right to cancel a contract in connection with a CTF that has not been opened and the CTF provider holds money awaiting instructions, the CTF provider must comply with the requirements of COB 6.7.52A(1)(b), (c), and (d).
- 01/12/2001
COB 6.7.52B
See Notes
- 01/12/2001
COB 6.7.53
See Notes
- 01/12/2001
Shortfall
COB 6.7.54
See Notes
- 01/12/2001
Shortfall: worked example
COB 6.7.55
See Notes
- 01/12/2001
Exceptions to shortfall
COB 6.7.56
See Notes
A firm will have no right to charge a retail customer for any shortfall which results from the customer having exercised a right to cancel in any of the following circumstances:
- (1) if the firm does not give the customer notice of his cancellation rights as required by COB 6.7 (17);
- (2) if the firm fails to make any prominent mention of shortfall in the information about cancellation;
- (3) if the firm has failed to send a reminder notice as required by COB 6.7.30 R (2);
- (4) if the customer has served the cancellation notice before the contract is concluded.
- 01/12/2001
COB 6.7.57
See Notes
Table: Contracts which are subject to shortfall.
This table belongs to COB 6.7.54 R
Investment agreements which are subject to shortfall | |
Part I: any contract specified in row 1 of COB 6.7.15 R (unless note 1 applies): | |
which is: | where the investment agreement is effected as a: |
(1) a life policy (2) a pension policy |
(a) single premium life policy; or (b) single premium pension policy; or (c) single premium addition to an existing single or regular premium life policy or pension policy. |
Part II: any contract specified in COB 6.7.13A R or row 1 of COB 6.7.17 R (unless note 2 applies): | |
which is: | where the investment agreement is effected as: |
(1) a pension contract (1A) a personal pension product (2) a subscription to invest in an AUT (3) a subscription to invest in an ICVC |
(a) a single payment arrangement; or (b) a single payment addition to an existing single or regular payment pension contract or unit savings plan. |
Part III: a single contribution to a stakeholder pension scheme except where the contribution is a recurring contribution or the stakeholder pension scheme has been established at the outset on the basis of regular contributions. | |
Notes: Shortfall does not apply to any contract which is established at the outset: |
|
1. on a regular premium basis, or as a recurring single premium life policy or pension policy; | |
2. on a regular payment basis, or as a recurring single payment pension contract or unit savings plan. |
- 06/04/2007
- Past version of COB 6.7.57 before 06/04/2007
COB 6.7.58
See Notes
Table: Calculation of shortfall.
This table belongs to COB 6.7.54 R
Calculation of shortfall | |
A firm must calculate shortfall as at the 'relevant date' (see note 1) as follows: | |
A. | take the actual payment made, whether only or first payment (see note 2); |
B. | take the equivalent payment that would have been quoted (see notes 3, 4 and 5) to the same retail customer assuming an identical purchase was made at the 'relevant date'; |
C. | add to the figure at B the amount of any income included in the figure at A (but originally excluded from the figure at B for the purposes of distribution to retail customers); and |
D. | deduct the figure at B (as amended by C) from the figure at A; if the resultant figure is zero or negative, there is no shortfall. |
Notes: 1. The 'relevant date' is the date when the firm first became aware that notice of cancellation had been served upon it. | |
2. If the agreement is a variation of a previous contract (see COB 6.7.23 ), the firm must treat the increase in premium as the sum in A. | |
3. If details of the payments necessary to calculate B (for example, premium rates, investment prices or yields etc) are not publicly available (see note 6) at the 'relevant date', there is no shortfall. | |
4. If the agreement relates to a life policy or pension annuity on the life of another, the firm must treat the first life assured as the customer for the comparison in B. | |
5. Where the change is yield and not premium or price, in order to calculate B the firm must convert the change in yield (if an enhancement) into a change in premium or price. | |
6. In the case of a forward price, the requirement of public availability is satisfied if both the previous and next relevant prices are published in a national UK newspaper). |
- 01/12/2001
COB 6.8
Insurance contracts: life policies
- 14/01/2005
- Past version of COB 6.8 before 14/01/2005
Application
COB 6.8.1
See Notes
- 14/01/2005
- Past version of COB 6.8.1 before 14/01/2005
Purpose
COB 6.8.2
See Notes
- 14/01/2005
- Past version of COB 6.8.2 before 14/01/2005
Life policies: Information to be provided during the term of the contract
COB 6.8.6
See Notes
COB 6.8.7 R and COB 6.8.8 R apply to a long-term insurer, unless, at the time of application, the client, other than an EEA ECA recipient, was habitually resident:
- (1) in an EEA State other than the United Kingdom; or
- (2) outside the EEA and he was not present in the United Kingdom.
- 01/03/2003
COB 6.8.7
See Notes
- 14/01/2005
- Past version of COB 6.8.7 before 14/01/2005
COB 6.8.8
See Notes
If a life policy entered into on or after 1 July 1994 provides for the payment of bonuses and the amounts of bonuses are unspecified, the long-term insurer must, in every calendar year except the first, either:
- (1) notify the policyholder in writing of the amount of any bonus which has become payable under the contract, and which has not previously been notified under this rule; or
- (2) give the policyholder in writing sufficient information to enable him to determine the amount of any such bonus.
- 14/01/2005
- Past version of COB 6.8.8 before 14/01/2005
COB 6.8.9
See Notes
- 01/12/2001
COB 6.8.10
See Notes
- 01/12/2001
Provision of information: general
COB 6.8.15
See Notes
- (1) When a firm provides information in accordance with COB 6.8.3 R, COB 6.8.7 R, COB 6.8.8 R or COB 6.8.12 R, it must provide the information in writing, unless (2) applies.
- (2) If the contract is being made by telephone, the firm may give the information orally to the customer. If the customer enters into the contract, a written version of the required information must be sent to the customer within five business days of the contract being entered into.
- 01/12/2001
COB 6.8.16
See Notes
- 01/12/2001
COB 6.8.17
See Notes
- 14/01/2005
- Past version of COB 6.8.17 before 14/01/2005
Record keeping
COB 6.8.18
See Notes
- 14/01/2005
- Past version of COB 6.8.18 before 14/01/2005
COB 6.10
Principles and Practices of Financial Management (PPFM)
- 01/12/2004
Application and purpose Application
COB 6.10.1
See Notes
- (1) The whole of this section, except COB 6.10.4A G and COB 6.10.21A R to COB 6.10.21K R , applies to a firm that:
- (a) carries on with-profits business;
- (b) is not an EEA insurer; and
- (c) is not a non-directive friendly society.
- (2) COB 6.10.4A G and COB 6.10.21A R to COB 6.10.21K R apply only to an EEA insurer that carries on with-profits business.
- (3) This section does not apply to with-profits business that consists of effecting or carrying out Holloway sickness policies.
- 31/12/2005
- Past version of COB 6.10.1 before 31/12/2005
Purpose
COB 6.10.2
See Notes
- 30/04/2004
COB 6.10.3
See Notes
- 31/12/2005
- Past version of COB 6.10.3 before 31/12/2005
COB 6.10.4
See Notes
- 30/04/2004
COB 6.10.4A
See Notes
Principles and Practices of Financial Management
COB 6.10.5
See Notes
- (1) A firm must establish and maintain the Principles and Practices of Financial Management according to which the business of its with-profits funds is conducted.
- (2) A firm must make a record of its Principles and Practices of Financial Management in (1), and retain that record for six years from the date on which it was superseded by a more up-to-date record.
- 30/04/2004
COB 6.10.6
See Notes
- 30/04/2004
COB 6.10.7
See Notes
In order to comply with COB 6.10.5 R a firm should:
- (1) establish and maintain a document approved by its governing body, setting out its PPFM; and
- (2) keep a record of each version of the PPFM as it changes over time.
- 30/04/2004
Obligation to provide copies
COB 6.10.8
See Notes
A firm must provide a copy of its PPFM, or the PPFM applicable to specified with-profits funds:
- (1) free of charge at the request of any with-profits policyholder of the firm; and
- (2) at the request of any person who is not a with-profits policyholder of the firm if that person pays any reasonable charge the firm may make for providing that copy.
- 30/04/2004
COB 6.10.9
See Notes
- 31/12/2005
- Past version of COB 6.10.9 before 31/12/2005
Obligation to produce a consumer-friendly version of the PPFM
COB 6.10.9A
See Notes
- 31/12/2005
COB 6.10.9B
See Notes
- (1) describe the most important information set out under each of the headings in its PPFM (see COB 6.10.22 R);
- (2) be expressed in clear and plain language that can be easily understood by a with-profits policyholder, or potential with-profits policyholder, who does not possess any specialist or technical knowledge;
- (3) be provided:
- (a) with any:
- (i) written notice, sent to the firm's with-profits policyholders, which sets out the firm's proposed changes to its with-profits principles (see COB 6.10.12 R and COB 6.10.13 R);
- (ii) annual statements sent to the firm's with-profits policyholders; and
- (iii) key features for a with-profits policy; and
- (b) free of charge at the point of delivery; and
- (4) the information set out in the CFPPFM may be included in another document, including those referred to in (3).
- 31/12/2005
COB 6.10.9C
See Notes
- 31/12/2005
COB 6.10.9D
See Notes
- 31/12/2005
COB 6.10.9E
See Notes
- 31/12/2005
COB 6.10.9F
See Notes
- 31/12/2005
COB 6.10.9G
See Notes
In complying with COB 6.10.9B R (1) and COB 6.10.9BR (2), a firm should:
- (1) have regard to Principle 7 (Communications with clients);
- (2) give its CFPPFM a consumer-friendly title (for example, 'How we manage our with-profits business - a guide');
- (3) include a short and clear statement at the beginning of its CFPPFM (for example, on a front cover) explaining its purpose and the importance of the information in it;
- (4) use a contents page, bold headings, bullet points and colours, whenever that will help to make the CFPPFM more accessible and more easily understood;
- (5) provide information in context, whenever that is necessary or appropriate (for example, by explaining what a with-profits policy is, and how it works, before describing the most important information set out under each of the headings in the firm's PPFM);
- (6) use, short and concise paragraphs and, whenever reasonably possible, active verbs and personal pronouns rather than passive verbs and indirect pronouns (for example, a question could be: 'How do we make our bonus decisions?');
- (7) avoid using technical, or industry specific, terms whenever that is reasonably possible (if a firm cannot reasonably avoid using such terms, it should explain, in plain language, what those terms mean);
- (8) refer to its CFPPFM in:
- (a) any annual statements sent to its with-profits policyholders;
- (b) its key features for with-profits policies; and
- (c) any other material document produced by the firm, where such a reference would be useful or appropriate;
- (9) explain in the CFPPFM that:
- (a) readers should refer to the firm's PPFM for a fuller description of the ways in which the firm manages its with-profits business; and
- (b) copies of the firm's PPFM, or its relevant PPFM, are available on request (see COB 6.10.8 R) and how copies can be obtained.
- 31/12/2005
Principles of Financial Management
COB 6.10.10
See Notes
The with-profits principles within the PPFM must:
- (1) be enduring statements of the overarching standards the firm adopts in managing with-profits funds; and
- (2) describe the business model used by the firm in meeting its duties to with-profits policyholders and in responding to longer-term changes in the business and economic environment.
- 30/04/2004
COB 6.10.11
See Notes
- 30/04/2004
COB 6.10.12
See Notes
- 30/04/2004
COB 6.10.13
See Notes
- 30/04/2004
COB 6.10.14
See Notes
- 30/04/2004
COB 6.10.15
See Notes
- 30/04/2004
Practices of Financial Management
COB 6.10.16
See Notes
The with-profits practices within the PPFM must:
- (1) describe the firm's approach to managing with-profits funds and to responding to changes in the business and economic environment in the shorter-term; and
- (2) contain sufficient detail to enable a knowledgeable observer to understand the material risks and rewards from effecting or maintaining a with-profits policy with the firm.
- 30/04/2004
COB 6.10.17
See Notes
- 30/04/2004
COB 6.10.18
See Notes
- 30/04/2004
COB 6.10.19
See Notes
- 30/04/2004
COB 6.10.20
See Notes
- 30/04/2004
COB 6.10.21
See Notes
- 30/04/2004
Requirements on EEA insurers
COB 6.10.21A
See Notes
- 30/04/2004
COB 6.10.21B
See Notes
- 30/04/2004
COB 6.10.21C
See Notes
COB 6.10.21D
See Notes
- 30/04/2004
COB 6.10.21E
See Notes
- 30/04/2004
COB 6.10.21F
See Notes
- 30/04/2004
COB 6.10.21G
See Notes
- 30/04/2004
COB 6.10.21H
See Notes
- 30/04/2004
COB 6.10.21I
See Notes
- 30/04/2004
COB 6.10.21J
See Notes
- 30/04/2004
COB 6.10.21K
See Notes
COB 6.10.9A R, COB 6.10.9B R, COB 6.10.9D R, COB 6.10.9E R and COB 6.10.9F R apply to an EEA insurer, as if:
- (1) a reference to a firm was a reference to an EEA insurer; and
- (2) a reference to a with-profits policyholder, or a potential with-profits policyholder, was a reference to a with-profits policyholder, or a potential with-profits policyholder, who is habitually resident in the United Kingdom.
- 31/12/2005
Scope and content of the Principles and Practices of Financial Management
COB 6.10.22
See Notes
- (1) The PPFM of a firm must cover any issues that has, or it is reasonably foreseeable may have, a significant impact on the firm's management of with-profits funds.
- (2) The issues in (1) include: the amount payable under a with-profits policy, the investment strategy, business risk, charges and expenses, management of the inherited estate, volumes of new business and arrangements on stopping new business and arrangements on stopping taking new business, and equity between the with-profits fund and any shareholders.
- 30/04/2004
COB 6.10.23
See Notes
- 30/04/2004
COB 6.10.24
See Notes
- 30/04/2004
COB 6.10.24A
See Notes
- 30/06/2005
COB 6.10.25
See Notes
- 30/04/2004
The amount payable under a with-profits policy
COB 6.10.26
See Notes
The PPFM of a firm must cover the methods that the firm uses to guide its determination of the amount that it is appropriate to pay individual with-profits policyholders, including:
- (1) the aims of the methods used, and the approximations used;
- (2) how the current methods, including any relevant historical assumptions used and any systems maintained to deliver results of particular methods, are documented within the firm; and
- (3) the procedures for changing either the current method or any assumptions or parameters relevant to a particular method.
- 30/04/2004
COB 6.10.27
See Notes
- 30/04/2004
COB 6.10.28
See Notes
The firm's with-profits principles should describe:
- (1) the aims of the methods the firm uses to determine the amount payable to with-profits policyholders;
- (2) the degree of approximation that the firm is prepared to allow in the application of those methods and in the application of its with-profits principles;
- (3) how the firm controls changes to those methods; and
- (4) the circumstances under which the firm might change any historical assumptions or parameters relevant to those methods: for example, previously applied investment returns, charges, or allocations of miscellaneous surplus, that have been derived from the historical experience and actions of the firm.
- 30/04/2004
COB 6.10.29
See Notes
The firm's with-profits practices should describe, for each major class of with-profits policy:
- (1) the methods that the firm currently uses to determine the amount payable to with-profits policyholders;
- (2) the methods that the firm currently uses to determine the main assumptions or parameters that determine the output of those methods;
- (3) the degree of approximation that the firm allows when it applies assumptions or parameters across generations of with-profits policyholders or across different types or classes of with-profits policies;
- (4) the formality with which the firm documents the methods, parameters or assumptions that it uses to determine the amount payable to with-profits policyholders; and
- (5) the firm's internal procedures for changing either the current methods or the current parameters or assumptions relevant to a particular method; and
- (6) the firm's target range, or target ranges, that have been set and specified pursuant to COB 6.12.17 R; and
- (7) the factors that the firm is likely to regard as relevant under COB 6.12.59 R.
COB 6.10.30
See Notes
The firm's with-profits practices should describe how the firm brings investment return, expenses or charges and tax into account and how the firm determines the impact of those items on the amount payable under a with-profits policy. In particular, the firm's with-profits practices should describe:
- (1) any distinctions that the firm makes in recognising the investment return from a subset of the total assets of a with-profits fund;
- (2) whether the firm apportions expenses fully between all the policies in a with-profits fund or apportions expenses in some other way, for example, by meeting some expenses from the firm's inherited estate;
- (3) the relationship between the actual liability to tax of a with-profits fund and the tax that the firm imputes to determine the amount payable under a with-profits policy;
- (4) the impact on the amount payable under a with-profits policy of any liability to tax of a with-profits fund as a result of the firm making a transfer to shareholders; and
- (5) how the firm brings any other items into account, including, for example, charges made for the costs of guarantees, charges for the use of capital and charges for other risks.
- 30/04/2004
COB 6.10.31
See Notes
- 30/04/2004
COB 6.10.32
See Notes
The firm's with-profits principles should:
- (1) describe the firm's general aims in setting annual bonus rates and the constraints to which the firm may be subject in changing economic circumstances; and
- (2) indicate how the firm would determine the range of with-profits policies or generations of with-profits policies over which the firm believes a single bonus rate would be appropriate and the circumstances under which the firm believes a new bonus series would be necessary.
- 30/04/2004
COB 6.10.33
See Notes
The firm's with-profits practices should:
- (1) describe the firm's current approach to setting annual bonus rates, including the weight given to recent economic experience;
- (2) indicate the frequency at which the firm re-sets or expects to re-set annual bonus rates;
- (3) indicate the maximum amount (if any) by which annual bonuses would alter if the firm were to re-set annual bonus rates; and
- (4) describe the firm's approach to setting any interim bonus rates before the next declaration of annual bonus rates.
- 30/04/2004
COB 6.10.34
See Notes
- 30/04/2004
COB 6.10.35
See Notes
- 30/04/2004
COB 6.10.36
See Notes
The firm's with-profits practices should:
- (1) describe the firm's current approach to setting final bonus rates, including the weight given to recent economic experience. The description should include any distinctions that the firm makes between with-profits policies that remain in force until contractual dates, or dates on which no market value reduction applies (for example, maturity or retirement dates) and policies that are surrendered or transferred at other dates;
- (2) describe the relationship or interaction between final bonus rates and any market value reductions, if both can apply at the same time;
- (3) describe how final bonuses influence the value of with-profits policies that have formulaic surrender or transfer bases (for example, older conventional policies rather than unitised policies); and
- (4) indicate the frequency at which the firm sets or expects to set final bonus rates and the circumstances under which changes in the economic environment would cause the firm to change the time between re-setting.
- 30/04/2004
COB 6.10.37
See Notes
COB 6.10.38
See Notes
The firm with-profits principles should:
- (1) indicate whether and in what respect the firm takes a significantly different approach to smoothing depending on the type of claim arising from with-profits policies;
- (2) indicate whether the firm intends smoothing to be neutral over time;
- (3) indicate whether there is any total scale or cost of smoothing to the firm over the shorter-term that the firm believes should not be exceeded. The FSA takes the cost of smoothing to mean the extent to which the amount actually payable under a with-profits policy diverges from the theoretical determinant of policy value under COB 6.10.26 R, except where due to applicable guarantees; and
- (4) indicate whether the firm's applies market value reductions, or changes the surrender bases for with-profits policy that are not unitised, only to reflect changes in underlying asset values.
- 30/04/2004
COB 6.10.39
See Notes
The firm's with-profits practices should:
- (1) indicate how rapidly the firm might need to adjust the value of with-profits policies, by specifying any period over which the firm expects smoothing to be neutral;
- (2) indicate whether there is any overall limit to the accumulated cost of, or excess from, smoothing that the firm is prepared to tolerate;
- (3) indicate whether the firm applies a single smoothing strategy to all generations and types of with-profits policy, or applies different smoothing strategies to subsets of the with-profits fund, in particular whether (and in what respect) the firm applies a different smoothing strategy to new entrants to a with-profits fund when the accumulated cost or excess from smoothing is large;
- (4) describe the firm's current approach to smoothing: for example, the acceptable degree of change in the value of similar with-profits policies from one year to the next, or the formula the firm uses to recognise recent investment performance as a determinant of the value of a with-profits policy;
- (5) describe how the firm applies smoothing to classes of with-profits policies that participate in final bonuses indirectly: for example, older policies with formulaic surrender or transfer bases;
- (6) describe how accurately the firm applies market value reductions or surrender and transfer bases to give effect to smoothing; and
- (7) describe how the firm accounts for partial payments under with-profits policies to which no penalty (for example, by market value reductions) is applied, in determining the eventual total value of a with-profits policy.
- 30/04/2004
Investment strategy
COB 6.10.40
See Notes
The PPFM of a firm must cover the significant aspects of the firm's investment strategy for its with-profits business or, if different, any with-profits fund, including:
- (1) the degree of matching to be maintained between assets relevant to with-profits business and liabilities to with-profits policyholders and other creditors;
- (2) the firm's approach to assets of different credit or liquidity quality and different volatility of market values;
- (3) the presence among the assets relevant to with-profits business of any assets that would not normally be traded because of their importance to the firm, and the justification for holding such assets; and
- (4) the firm's controls on using new asset or liability instruments and the nature of any approval required before new instruments are used.
- 30/04/2004
COB 6.10.41
See Notes
The firm's with-profits principles should:
- (1) set out the firm's investment strategy in terms that allow alternative with-profits practices to be judged and where necessary rejected. The firm's with-profits principles should therefore specify the specific factors that drive the firm's investment strategy, in more detail than, for example, simply achieving the best return within the framework of the likely volatility of asset values;
- (2) if the firm relies on assets outside a with-profits fund to maintain the firm's investment strategy, state on which assets and to what degree the firm relies;
- (3) set out how the firm views the use, as part of its investment strategy, of derivatives and other instruments that may alter the economic out-turn from assets;
- (4) set out any constraints on the firm's investment strategy either with respect to parts of a with-profits fund (for example, classes of with-profits policy or bonus series) or between different generations of with-profits policyholders; and
- (5) set out any overarching constraints on the firm's exposure to any one counterparty including derivative exposures.
- 30/04/2004
COB 6.10.42
See Notes
The firm's with-profits practices should:
- (1) describe what procedures the firm follows to transfer assets to the with-profits fund under COB 6.10.41 G(2) and at what point such transfers would be recognised as irretrievable by the provider of outside assets;
- (2) set out the period between formal reviews of the firm's investment strategy;
- (3) describe the degree of matching the firm maintains between the assets of a with-profits fund and liabilities to with-profits policyholders and other creditors, and the basis of the liabilities assessed for such purposes;
- (4) explain the firm's approach to investment in different asset classes, and assets of different credit or liquidity quality. This may include, for example, the firm's guidelines as to the overall limit on the amount of a with-profits fund that may be invested in particular asset classes and the overall crediting rating of parts of the portfolio, the minimum credit quality of new and existing investments as well as the overall liquidity constraints on the with-profits fund; and
- (5) explain the approval process that the firm operates before investing in new or novel investment instruments.
- 30/04/2004
COB 6.10.43
See Notes
- 30/04/2004
COB 6.10.44
See Notes
In relation to assets that would not normally be traded because of their importance to the firm, the with-profits principles of the firm should:
- (1) describe why such assets are of use to a with-profits fund;
- (2) describe what reviews the firm carries out to ensure those assets still remain of use;
- (3) set out any limits that the firm imposes on the scale of investment in those assets;
- (4) indicate whether the out-turn from investment in those assets will impact on the amounts payable under with-profits policies; and
- (5) indicate what credit or liquidity requirements the firm applies to investments in those assets.
- 30/04/2004
COB 6.10.45
See Notes
- 30/04/2004
Business risk
COB 6.10.46
See Notes
The PPFM of a firm must cover the exposure of the firm's with-profits business to business risk, including the firm's:
- (1) procedures for deciding if the with-profits business may undertake a particular business risk;
- (2) arrangements for reviewing and setting a limit on the scale of such risks; and
- (3) procedures for reflecting the profits or losses of such business risks in the amounts payable under with-profits policies.
- 30/04/2004
COB 6.10.47
See Notes
Business risk for a with-profits fund can include a number of exposures, for example:
- (1) exposure to maintaining and acquiring with-profits policies;
- (2) exposure to maintaining and acquiring non-profit policies;
- (3) exposure to risks from other investments: for example, in investment management companies, service companies or overseas subsidiary insurance companies.
- 30/04/2004
COB 6.10.48
See Notes
- 30/04/2004
COB 6.10.49
See Notes
- 30/04/2004
COB 6.10.50
See Notes
- 30/04/2004
COB 6.10.51
See Notes
The firm's with-profits practices should:
- (1) describe the current limits that the firm applies to the taking on of business risk;
- (2) describe the firm's approach to the application of the rewards and losses from business risks as a determinant of the amount payable under a with-profits policy;
- (3) describe the degree to which the firm smoothes any profits or losses from business risks before applying them to determine the amount payable under a with-profits policy;
- (4) indicate whether profits or losses from business risks must exceed a minimum value or scale before the firm will treat them as a determinant of the amount payable under a with-profits policy; and
- (5) indicate whether and to what extent particular generations of with-profits policyholders or classes of with-profits policy bear or might bear particular business risks, including, for example, crystallised or contingent guarantees to other classes of policyholder or whether the out-turn from all business risk is pooled across all with-profits policies.
- 30/04/2004
Charges and expenses
COB 6.10.52
See Notes
- 30/04/2004
COB 6.10.53
See Notes
The firm's with-profits principles should:
- (1) describe the overall aim of the firm's approach to applying charges and apportioning expenses to with-profits policies, covering all types of charges and expenses including investment costs, commissions and charges borne from investment through collective investment schemes; and
- (2) set out the factors that would drive any change to the basis on which the firm applies charges to or apportions its actual expenses amongst with-profits policies, or exercises any discretion to apply charges to particular with-profits policies.
- 30/04/2004
COB 6.10.54
See Notes
The firm's with-profits practices should:
- (1) give a general description of the charges that the firm currently applies and the expenses that it currently apportions to major classes of with-profits policies;
- (2) describe the relationship between the firm's actual charges and expenses, as applied to determine the amounts payable under with-profits policies, and the charges and expenses borne by the with-profits fund;
- (3) state the circumstances under which the firm will charge expenses to the with-profits fund at an amount other than cost, and the reasons why the firm will do so; and
- (4) state the interval at which the firm will review any arrangements under which it obtains out-sourced services, included those provided by connected parties, and give a broad indication of the terms on which the firm would be able to terminate the agreements to provide those services.
- 30/04/2004
COB 6.10.55
See Notes
- 30/04/2004
Management of the inherited estate
COB 6.10.56
See Notes
- 30/04/2004
COB 6.10.57
See Notes
The firm's with-profits principles should:
- (1) describe how the firm will manage its inherited estate;
- (2) describe the purposes for which the firm will apply the inherited estate;
- (3) indicate the size or scale of inherited estate for which the firm is aiming, for example, by reference to the volume of the firm's existing business or the risks borne by the firm's existing business;
- (4) explain the implications of the firm's preferred size or scale of inherited estate for the value of the firm's with-profits policies;
- (5) describe any existing division of the firm's inherited estate between with-profits funds within the firm; and
- (6) describe any constraints on the firm's freedom to deal with the inherited estate as a result of previous dealings: for example, a transfer of business scheme or attribution or re-attribution of a previous inherited estate.
- 30/04/2004
COB 6.10.58
See Notes
The firm's with-profits practices should:
- (1) describe how the firm uses the inherited estate by, for example, reference to the costs the inherited estate is meeting;
- (2) state whether the firm's investment strategy for the firm's inherited estate is different to the firm's investment strategy for the rest of the with-profits fund; and
- (3) describe any current guidelines that the firm has in place as to the size or scale of the inherited estate or as to how the firm would mange the inherited estate and over what time period, if it became too large or too small.
- 30/04/2004
Volumes of new business and arrangements on stopping taking new business
COB 6.10.59
See Notes
- 30/04/2004
COB 6.10.60
See Notes
The firm's with-profits principles should:
- (1) set out the firm's approach to setting the volume of new business, both new with-profits business and non-profit business written in the with-profits fund; and
- (2) set out the firm's anticipated reaction to closure to significant amounts of new business and, in particular, what action it would take in that event as regards the distribution of any inherited estate.
- 30/04/2004
20040430
See Notes
The firm's with-profits practices should:
- (1) describe the approach the firm takes to setting any maximum volume of new business each year and any particular limits on classes of business, including non-profit business within the with-profits fund; and
- (2) describe what the firm considers should be the minimum proportion and scale of new business of a with-profits type to justify the with-profits fund staying open to new business.
- 30/04/2004
- Past version of 20040430 before 30/04/2004
Equity between the with-profits fund and any shareholders
COB 6.10.62
See Notes
- 30/04/2004
COB 6.10.63
See Notes
The firm's with-profits principles should:
- (1) describe the firm's arrangements for profit sharing between shareholders and with-profits policyholders and the scope for changes in the share of profits allotted to each; and
- (2) indicate the approach that the firm will take before any changes to the profit sharing arrangements are implemented.
- 30/04/2004
COB 6.10.64
See Notes
The firm's with-profits practices should:
- (1) indicate the current basis on which the firm divides profit between with-profits policyholders and shareholders, including the method of calculating the profit to be divided;
- (2) indicate whether the division of profit between with-profits policyholders and shareholders would change if there was a change in the underlying basis on which the shareholder share is computed (normally the valuation basis of the mathematical reserves);
- (3) indicate other factors that would have a significant impact on the balance between the shareholder share and the with-profits fund, for example:
- (a) tax or other imposts; or
- (b) distributions in anticipation of a surplus; or
- (c) the firm's approach to with-profits policies with both an entitlement to final bonus and an exposure to a market value reduction; or
- (d) the impact of guaranteed bonuses; and
- (4) state whether the pricing of any policies that the firm is writing, and particular policies open to new business, appear to be significantly and systematically reducing the firm's inherited estate if the shareholder transfer is taken into account.
- 30/04/2004
COB 6.11
Reporting to with-profits policyholders on compliance with PPFM
- 01/12/2004
Application
COB 6.11.1
See Notes
This section applies to a firm carrying on with-profits business other than:
- (1) a non-directive friendly society; or
- (2) an EEA insurer.
- 30/04/2004
COB 6.11.2
See Notes
- 30/04/2004
Purpose
COB 6.11.3
See Notes
The rules and guidance in this section are intended to secure an appropriate degree of protection for with-profits policyholders and potential with-profits policyholders and to promote confidence among such policyholders by:
- (1) giving guidance on governance arrangements relevant to the way in which with-profits firms comply with SYSC in the conduct of with-profits business; and
- (2) requiring firms to make an annual report available to with-profits policyholders.
- 30/04/2004
Governance arrangements for with-profits business
COB 6.11.4
See Notes
- 30/04/2004
COB 6.11.5
See Notes
The governance arrangements referred to in COB 6.11.4 G should:
- (1) be appropriate to the scale and complexity of a firm's with-profits business; and
- (2) involve some independent judgement in the assessment of compliance with PPFM and how any competing or conflicting rights and interests of policyholders and, if applicable, shareholders have been addressed.
- 30/04/2004
COB 6.11.6
See Notes
The independent judgement in COB 6.11.5 G(2) can be provided in different ways. These may include but are not confined to:
- (1) establishing a committee of the governing body (a With-profits Committee), including non-executive members of the governing body and possibly some external non-directors with appropriate skills and experience;
- (2) asking an independent person with appropriate skills and experience to report on these matters to the governing body or to any With-Profits Committee; or
- (3) for small firms in particular, asking a non-executive member (or members) of the governing body to report to the governing body on these matters.
- 30/04/2004
COB 6.11.7
See Notes
- 30/04/2004
COB 6.11.8
See Notes
- 30/04/2004
Annual report to with-profits policyholders
COB 6.11.9
See Notes
- 30/04/2004
COB 6.11.10
See Notes
The annual report in COB 6.11.9 R must address all significant relevant issues, including the way in which the firm has:
- (1) exercised, or failed to exercise, any discretion that it has in the conduct of its with-profits business; and
- (2) addressed any competing or conflicting rights, interests or expectations of its policyholders (or groups of policyholders) and, if applicable, shareholders (or groups of shareholders).
- 30/04/2004
COB 6.11.11
See Notes
COB 6.11.12
See Notes
- 30/04/2004
COB 6.11.13
See Notes
- 30/04/2004
COB 6.11.14
See Notes
COB 6.11.15
See Notes
- 30/04/2004
COB 6.11.16
See Notes
- 31/12/2005
COB 6.12
Treating with-profits policyholders fairly
- 30/06/2005
Application
COB 6.12.1
See Notes
- 30/06/2005
COB 6.12.2
See Notes
- 30/06/2005
COB 6.12.3
See Notes
- 30/06/2005
COB 6.12.4
See Notes
- 30/06/2005
COB 6.12.5
See Notes
COB 6.12.4 R means, for example, that this section does not affect a with-profits policyholder's right to a minimum amount guaranteed on death, retirement or maturity. Nor does it affect a firm's practice of making deductions in the calculation of surrender values for the purpose of enhancing maturity payments, if:
- (1) the firm has reasonably exercised its discretion to make those deductions;
- (2) those deductions have been made in a clear, fair, lawful and consistent way, over a period of time;
- (3) those deductions have been made in accordance with the firm's previous statements to policyholders (if any); and
- (4) (as a result of (1) to (3)), the fact of those deductions, and the firm's right to make them, now form part of the implied terms of the with-profits policies affected.
- 30/06/2005
COB 6.12.6
See Notes
- 30/06/2005
Purpose
COB 6.12.7
See Notes
- 30/06/2005
Introduction
COB 6.12.8
See Notes
- 30/06/2005
COB 6.12.9
See Notes
- 30/06/2005
COB 6.12.10
See Notes
- 30/06/2005
COB 6.12.11
See Notes
For example, if a firm proposes to act in a particular way, when it considers whether its proposals will be consistent with Principle 6 (Customers' interests), it should also consider:
- (1) whether its proposals are consistent with its contractual obligations to its with-profits policyholders and its wider bargain with them;
- (2) whether its proposals would undermine, or materially reduce the value of, a with-profits policyholder's contractual rights;
- (3) whether its proposals are consistent with its previous disclosures to its with-profits policyholders and its previous approach to the same issue;
- (4) whether it will be acting entirely within the scope of any discretion that it may exercise and whether it will be exercising that discretion for the purpose for which it was granted or reserved; and
- (5) any other material factor that may be relevant to the fair treatment of its with-profits policyholders.
- 30/06/2005
COB 6.12.12
See Notes
Other parts of the Handbook are also relevant to the fair treatment of with-profits policyholders, including:
- (1) PRIN and SYSC;
- (2) GENPRU 2 (Capital), INSPRU 3 (Market risk) and INSPRU 1 (Insurance risk);
- (3) Part I of IPRU(INS) 3 (Long-term insurance business) (Identification and application of assets and liabilities);
- (4) Part V of IPRU(FSOC) 4 (Financial prudence) (Separation between long-term insurance business assets and other assets);
- (5) COB 6.5 (Content of key features and important information: life policies, schemes, ISA and CTF cash deposit components and stakeholder pension schemes) and COB 8 (Reporting to customers); and
- (6) DISP 1 (Complaint handling procedures for firms) and DISP 3.8 (Determination by the Ombudsman); and
- (7) [deleted]
- The following Regulatory Guides are also relevant:
- (8) UNFCOG (Unfair Contract Terms Regulatory Guide).
- (9) [intentionally blank]
General approach to operating a with-profits fund
COB 6.12.13
See Notes
Subject to COB 6.12.15 R, a firm must not change its PPFM unless that change is justified, in the reasonable opinion of the firm's governing body, by the need to:
- (1) respond to changes in the business or economic environment;
- (2) protect the interests of policyholders; or
- (3) change the firm's with-profits practices better to achieve its with-profits principles.
- 30/06/2005
COB 6.12.14
See Notes
A firm should:
- (1) monitor the business and economic environment continuously; and
- (2) maintain procedures that will enable it to identify promptly, and bring to the attention of its senior managers or its governing body, all material legal, regulatory, tax and other developments that are relevant to the conduct of its with-profits business.
- 30/06/2005
COB 6.12.15
See Notes
Notwithstanding COB 6.12.13 R, a firm may change its PPFM if that change:
- 30/06/2005
Amounts payable under with-profits policies: Maturity payments
COB 6.12.16
See Notes
- 31/12/2005
COB 6.12.17
See Notes
Except where a contractual right would require a firm to make a higher maturity payment, and subject to COB 6.12.22 R, a firm must:
- (1) set a target range for the maturity payments that it will make on:
- (a) all of its with-profits policies; or
- (b) each group of its with-profits policies;
- (2) ensure that each target range:
- (a) is expressed as a percentage of unsmoothed asset share; and
- (b) includes 100% of unsmoothed asset share;
- (3) specify each target range in its PPFM;
- (4) manage its with-profits business, and the business of each with-profits fund, with the aim of making a maturity payment on each with-profits policy that falls within the relevant target range;
- (5) subject to COB 6.12.35 R, make a maturity payment on each with-profits policy that falls within the relevant target range, whenever that is possible in the reasonable opinion of the firm's governing body; and
- (6) manage its with-profits business, and each with-profits fund, with the longer term aim that it will make aggregate maturity payments, on its with-profits policies, of 100% of unsmoothed asset share.
- 31/12/2005
COB 6.12.18
See Notes
- 31/12/2005
COB 6.12.19
See Notes
If a firm uses the definition of unsmoothed asset share in COB 6.12.24 R (1)(b), it will comply with COB 6.12.17 R (5) if it:
- (1) makes a maturity payment on the specimen with-profits policy, which falls within the relevant target range; and
- (2) makes a maturity payment on each of the with-profits policy represented by the specimen with-profits policy, which, if adjusted:
- (a) in the same proportion as the level of premium on that policy to the level of premium on the specimen policy; or
- (b) (if it would be more appropriate) in some other proportion,
- would fall within the target range established in respect of the specimen policy.
- 31/12/2005
COB 6.12.20
See Notes
- 31/12/2005
COB 6.12.21
See Notes
- 31/12/2005
COB 6.12.22
See Notes
- 31/12/2005
COB 6.12.23
See Notes
- 31/12/2005
COB 6.12.24
See Notes
For the purposes of COB 6.12.17 R:
- (1) unsmoothed asset share means:
- (a) the unsmoothed asset share of the relevant with-profits policy; or
- (b) the unsmoothed asset share of one or more specimen with-profits policies, which a firm has selected to represent a group, or all, of the with-profits policies effected in the same with-profits fund.
- (2) a firm must calculate unsmoothed asset share by:
- (a) applying the methods in INSPRU 1.3.119 R to INSPRU 1.3.123 R ;
- (b) including any amounts that have been added to the policy as the result of a distribution from an inherited estate; and
- (c) subject to (d), and where the terms of the policy so provide, adding or subtracting an amount that reflects the experience of the insurance business in the relevant with-profits fund; but
- (d) if a with-profits fund has suffered adverse experience, which results from a firm's failure to comply with the rules in this section, that adverse experience may only be taken into account if, and to the extent that, in the reasonable opinion of the firm's governing body, the amount referred to in (c) cannot be met from:
- (i) the firm's inherited estate (if any); or
- (ii) any assets attributable to shareholders, whether or not they are held in the relevant with-profits fund.
COB 6.12.25
See Notes
- 31/12/2005
COB 6.12.26
See Notes
A firm may choose to use the definition of unsmoothed asset share in:
- (1) COB 6.12.24 R (1)(a) for some groups of with-profits policies; and
- (2) COB 6.12.24 R (1)(b) for other groups of with-profits policies.
- 31/12/2005
COB 6.12.27
See Notes
If a firm chooses to use:
- (1) both definitions of unsmoothed asset share, it should specify, in its PPFM, which method it will use for each group of with-profits policies;
- (2) the definition of unsmoothed asset share in COB 6.12.24 R (1)(b) for some or all of its with-profits policies, it should also:
- (a) ensure that the specimen with-profits policy, or with-profits policies, selected have the same material characteristics as the with-profits policies they will represent, taking into account, for example, their duration and their terms and conditions; and
- (b) explain, in its PPFM, that it has chosen the definition of unsmoothed asset share in COB 6.12.24 R (1)(b) for the relevant group of with-profits policies, and then describe in general terms what effect that decision might have on the relevant maturity payments (if any).
- 31/12/2005
COB 6.12.28
See Notes
- 31/12/2005
COB 6.12.29
See Notes
- 31/12/2005
COB 6.12.30
See Notes
- 31/12/2005
COB 6.12.31
See Notes
If a firm has a plan, for the purposes of COB 6.12.30 R, and it makes, or expects to make, deductions from asset share in reliance on that plan, it must also ensure that:
- (1) all actual and expected deductions are described, or allowed for, in its key features and the projections that it sends, or makes available, to actual and potential with-profits policyholders; and
- (2) its deductions do not change unless they are justified by a review that has been carried out in response to changes in the business or economic environment or changes in the nature of the firm's liabilities as a result of policyholders exercising options in their policies.
- 31/12/2005
COB 6.12.32
See Notes
Deductions for the cost of guarantees or the use of capital could materially alter asset share, circumventing the requirements of COB 6.12.17 R (6). Therefore COB 6.12.30 R and COB 6.12.31 R require that any such deductions are part of a well-formulated plan that is altered only after due consideration. The firm should therefore consider, and set out in its plan:
- (1) who will bear the risks associated with any guarantees given to with-profits policyholders; and
- (2) the level or type of any charges that may be made to asset shares to cover the cost of bearing those risks.
- 31/12/2005
COB 6.12.33
See Notes
- 31/12/2005
COB 6.12.34
See Notes
- 31/12/2005
COB 6.12.35
See Notes
- 31/12/2005
COB 6.12.36
See Notes
- 31/12/2005
COB 6.12.37
See Notes
- 31/12/2005
Amounts payable under with-profits policies : Surrender payments
COB 6.12.38
See Notes
- 31/12/2005
COB 6.12.39
See Notes
- 31/12/2005
COB 6.12.40
See Notes
- 31/12/2005
COB 6.12.41
See Notes
- 31/12/2005
COB 6.12.42
See Notes
For the purposes of COB 6.12.40 R, appropriate factors that might be included in any deduction include:
- (1) the firm's unrecovered costs, including any financing costs incurred in effecting or carrying out the surrendered with-profits policy to the date of surrender, including the costs that might have been recovered if the policy had remained in force;
- (2) costs that would fall on the with-profits fund, if the surrender value is calculated by reference to an assumed market value of assets which exceeds the true market value of those assets;
- (3) the firm's costs incurred in administering the surrender; and
- (4) a fair contribution towards the cost of any contractual benefits due on the whole, or an appropriate part, of the continuing policies in the with-profits fund which would otherwise result in higher costs falling on the continuing with-profits policies.
- 31/12/2005
COB 6.12.43
See Notes
- 31/12/2005
COB 6.12.44
See Notes
- 31/12/2005
COB 6.12.45
See Notes
A firm must not make a market value reduction to the face value of the units of an accumulating with-profits policy unless:
- (1) the market value of the with-profits assets in the relevant with-profits fund is, or is expected to be, significantly less than the assumed value of the assets on which the face value of the units of the policy has been based; or
- (2) there has been, or there is expected to be, a high volume of surrenders, relative to the liquidity of the relevant with-profits fund; and
the market value reduction is no greater than is necessary to reflect the impact of (1) or (2) on the relevant surrender payment.
- 30/06/2005
COB 6.12.46
See Notes
- 30/06/2005
Approach to smoothing
COB 6.12.47
See Notes
A firm must specify, in its PPFM, the with-profits principles and with-profits practices that it will use to smooth maturity payments and surrender payments. That specification must reflect the requirements of COB 6.12.17 R (6) and include:
- (1) the smoothing policy applied to each of the different types of with-profits policy effected by the firm, including any specimen with-profits policies used for the purposes of COB 6.12.24 R (1)(b);
- (2) the limits (if any) applied to the total cost of, or excess from, smoothing; and
- (3) any limits applied to any changes in the level of maturity payments between one period and another.
- 30/06/2005
Conditions relevant to distributions
COB 6.12.48
See Notes
A firm must:
- (1) not make a distribution from a with-profits fund, unless the whole of the cost of that distribution can be met without eliminating the regulatory surplus in that with-profits fund;
- (2) ensure that the amount distributed to policyholders from a with-profits fund is not less than the required percentage of the total amount distributed (see COB 6.12.56 R); and
- (3) if it adjusts the amounts distributed to policyholders, apply a proportionate adjustment to amounts distributed to shareholders so that the distribution to policyholders will not be less than the required percentage.
COB 6.12.49
See Notes
- 30/06/2005
COB 6.12.50
See Notes
- 30/06/2005
COB 6.12.54
See Notes
- 30/06/2005
COB 6.12.55
See Notes
Notwithstanding COB 6.12.54 R, a firm may attribute a tax liability to a with-profits fund if:
- (1) the tax liability was incurred on a transfer to shareholders;
- (2) the firm can show that attributing the tax liability to that with-profits fund is consistent with its established practice;
- (3) that established practice is explained in the firm's PPFM; and
- (4) that liability is not charged to asset shares.
- 30/06/2005
Distribution ratios
COB 6.12.56
See Notes
The required percentage referred to in COB 6.12.48 R is, for each with-profits fund:
- (1) the percentage (if any) required in respect of that fund by:
- (a) the firm's articles of association, registered rules or other equivalent instrument; or
- (b) a relevant order made by a court of competent jurisdiction;
- (2) if (1) does not apply, the percentage specified in the firm's PPFM, if that percentage reflects the firm's established practice;
- (3) if (1) and (2) do not apply, not less than 90 per cent.
Requirement relating to distribution of an excess surplus
COB 6.12.57
See Notes
- 30/06/2005
COB 6.12.58
See Notes
A firm will have an excess surplus in a with-profits fund if, and to the extent that:
- (1) the regulatory surplus in that with-profits fund;
- (2) the other financial resources of the firm that are applied to that with-profits fund; and
- (3) any other financial resources that are expected to be made available for the benefit of that with-profits fund in the event of reasonably foreseeable adverse experience;
- exceed:
- (4) the amount required to meet the higher of any relevant enhanced capital requirement or individual capital assessment; and
- (5) the amount necessary, in the reasonable opinion of the firm's governing body, to:
- (a) support the current and future insurance business of the firm or the relevant with-profits fund;
- (b) maintain the financial strength of the firm or the relevant with-profits fund; or
- (c) address any other matters relevant to policyholders' interests or security.
- 30/06/2005
COB 6.12.59
See Notes
- 30/06/2005
COB 6.12.60
See Notes
- (1) If a with-profits fund has an excess surplus, and to retain that surplus would be a breach of Principle 6 (Customers' interests), the firm should:
- (a) make a distribution from that with-profits fund (unless the conditions in COB 6.12.48 R and COB 6.12.49 R cannot be met); or
- (b) carry out a reattribution.
- (2) Compliance with (1) may be relied on as tending to establish compliance with Principle 6 (Customers' interests).
- (3) Contravention of (1) may be relied on as tending to establish a contravention of Principle 6 (Customers' interests).
- 30/06/2005
Charges to a with-profits fund
COB 6.12.61
See Notes
- 30/06/2005
COB 6.12.62
See Notes
- 30/06/2005
COB 6.12.63
See Notes
- 30/06/2005
COB 6.12.64
See Notes
- 30/06/2005
COB 6.12.65
See Notes
- 30/06/2005
COB 6.12.66
See Notes
- (1) A firm must not pay compensation or redress from a with-profits fund.
- (2) In (1), and for the purposes of COB 6.12.67 R, compensation and redress include the costs of assessing the extent of any compensation or redress due, and the costs of considering or defending compensation or redress claims.
- 30/06/2005
COB 6.12.67
See Notes
Notwithstanding COB 6.12.66 R, a firm may pay compensation or redress due to a with-profits policyholder, or former with-profits policyholder:
- (1) from its inherited estate (if any); or
- (2) from assets attributable to shareholders, whether or not they are held within a long-term insurance fund; or
- (3) from assets that would otherwise be attributable to asset shares, if, in the reasonable opinion of the firm's governing body, that compensation or redress cannot be paid from the assets in (1) or (2), or from any other source.
- 30/06/2005
COB 6.12.68
See Notes
- 30/06/2005
COB 6.12.69
See Notes
For the purposes of COB 6.12.67 R (3), a firm's governing body should assess whether compensation or redress can be paid from the firm's inherited estate, assets attributable to shareholders or any other source by reference to:
- (1) its ability to continue to meet the higher of any relevant enhanced capital requirement or individual capital assessment; and
- (2) any other factors relevant to policyholders' interests.
- 30/06/2005
COB 6.12.70
See Notes
A firm that is not a mutual must not charge to a with-profits fund any amounts paid or payable to a skilled person in connection with a report under section 166 of the Act (Reports by skilled persons) if:
- (1) the need for the report derives wholly or partly from a material failure to keep adequate records;
- (2) the principal purpose of the report is to identify what action, if any, may be necessary as a result of the firm's non-compliance with its obligations under the regulatory system;
- (3) the report indicates that the firm has, or may have, materially failed to satisfy its obligations under the regulatory system; or
- (4) it is reasonable to assume that the report may be relied upon by the FSA in connection with its enforcement functions.
- 30/06/2005
COB 6.12.71
See Notes
- 30/06/2005
COB 6.12.72
See Notes
- 30/06/2005
Tax charge to a with-profits fund
COB 6.12.72A
See Notes
- 31/12/2005
COB 6.12.72B
See Notes
- 31/12/2005
New business
COB 6.12.73
See Notes
- 30/06/2005
COB 6.12.74
See Notes
In some circumstances, it may be difficult or impossible for a firm to mitigate the risk of a material adverse affect on its existing, or new, with-profits policyholders, unless it establishes a new bonus series or with-profits fund. The factors that might cause a firm to establish a new bonus series or with-profits fund include:
- (1) that the current investment outlook is not adequately reflected in existing premium rates. For example, a new high, or low, inflation environment, greater volatility of investment returns or a materially altered investment mix, might mean that the bonus potential for new and existing with-profits policies are materially different;
- (2) high acquisition costs on the new with-profits policies, which would place an undue burden on the financial resources of the relevant with-profits fund or be detrimental to existing with-profits policyholders;
- (3) that the firm has a high level of guarantees or options in its existing with-profits policies, which might place an excessive burden on new with-profits policies, or vice versa;
- (4) the level of charges on the new with-profits policies, or the pattern of their emergence, if that might create a material risk of noncompliance with COB 6.12.76 G; or
- (5) that existing policyholders might be disadvantaged by an adjustment to the balance of the investments held within the particular with-profits fund, which would result from the decision to materially increase the number of new with-profits policies effected by the firm.
- 30/06/2005
COB 6.12.75
See Notes
- 30/06/2005
COB 6.12.76
See Notes
- 30/06/2005
COB 6.12.77
See Notes
- 30/06/2005
COB 6.12.78
See Notes
When a firm determines its strategy for new insurance business in an existing with-profits fund, it should take particular account of:
- (1) the capital support available; and
- (2) any benefits that may arise if, for example, the different types of new insurance business complement each other, for example, in direct financial terms or by the reduction of risk.
- 30/06/2005
COB 6.12.79
See Notes
- 30/06/2005
Relationship of a with-profits fund with the firm and any connected persons
COB 6.12.80
See Notes
- 30/06/2005
COB 6.12.81
See Notes
- 30/06/2005
COB 6.12.82
See Notes
- 30/06/2005
COB 6.12.83
See Notes
A firm carrying on with-profits business must not:
- (1) make a loan to a connected person using assets in a with-profits fund; or
- (2) give a guarantee to, or for the benefit of, a connected person, where the guarantee will be backed using assets in a with-profits fund;
- unless that loan or guarantee:
- (3) will be on commercial terms;
- (4) will, in the reasonable opinion of the firm's senior management, be beneficial to the with-profits policyholders in the relevant with-profits fund; and
- (5) will not, in the reasonable opinion of the firm's senior management, expose those policyholders to undue credit or group risk.
- 30/06/2005
Other guidance on the conduct of with-profits business
COB 6.12.84
See Notes
When a firm determines its investment strategy, and the acceptable level of risk within that strategy, it should take into account:
- (1) the extent of the guarantees in its with-profits policies;
- (2) any representations that it has made to its with-profits policyholders;
- (3) its established practice; and
- (4) the amount of capital support available.
- 30/06/2005
COB 6.12.85
See Notes
- 30/06/2005
COB 6.12.86
See Notes
If a firm is considering using with-profits assets to finance the purchase of another business, directly, or by or through a connected person, or if a firm is considering whether it should retain such an investment, it should consider whether the purchase or retention would be, or will remain, fair to its with-profits policyholders. When a firm makes that assessment, it should consider:
- (1) the size of the investment in relation to the with-profits fund;
- (2) the expected rate of return on the investment;
- (3) the risks associated with the investment, including liquidity risk, the capital needs of the acquired business and the difficulty of establishing fair value (if any);
- (4) any costs that would result from divestment;
- (5) whether an actuary, appointed by the firm under SUP 4 (Actuaries), would regard the investment as suitable for the with-profits fund;
- (6) whether the investment has been, or will be, disclosed to with-profits policyholders;
- (7) notwithstanding (6), whether a knowledgeable existing with-profits policyholder in that with-profits fund would regard it as an appropriate investment;
- (8) in the case of a proprietary firm, whether it would be more appropriate for the investment to be made using assets other than those in a with-profits fund; and
- (9) any other material factors.
- 30/06/2005
COB 6.12.87
See Notes
- 30/06/2005
COB 6.12.88
See Notes
- 30/06/2005
Major changes in with-profits funds
COB 6.12.89
See Notes
- 30/06/2005
COB 6.12.90
See Notes
- 30/06/2005
COB 6.12.91
See Notes
For the purposes of COB 6.12.89 R and COB 6.12.90 R, material transactions include:
- (1) a significant bulk outwards reinsurance contract;
- (2) inwards reinsurance of with-profits business from another insurance undertaking;
- (3) a financial engineering transaction that would materially change the profile of any surplus expected to emerge on the with-profits fund's existing insurance business; and
- (4) a significant restructuring of the with-profits fund, especially if it involves the creation of new sub-funds.
- 30/06/2005
COB 6.12.92
See Notes
- 30/06/2005
COB 6.12.93
See Notes
- 30/06/2005
Ceasing to effect new contracts of insurance in a with-profits fund
COB 6.12.94
See Notes
A firm must:
- (1) inform the FSA and its with-profits policyholders within 28 days; and
- (2) submit a run-off plan to the FSA as soon as reasonably practicable and, in any event, within three months,
of first ceasing to effect new contracts of insurance in a with-profits fund.
- 30/06/2005
COB 6.12.95
See Notes
For the purposes of COB 6.12.94 R, a firm will be taken to have ceased to effect new contracts of insurance in a with-profits fund:
- (1) when any decision by the governing body to cease to effect new contracts of insurance takes effect; or
- (2) where no such decision is made, when the firm is no longer:
- (a) actively seeking to effect new contracts of insurance in that fund, or
- (b) effecting new contracts of insurance in that fund, except by increment.
- 30/06/2005
COB 6.12.96
See Notes
- 30/06/2005
COB 6.12.97
See Notes
A firm should contact the FSA to discuss whether it has, or it should be taken to have, ceased to effect new contracts of insurance, for the purposes of COB 6.12.94 R if:
- (1) COB 6.12.95 R (2) may apply;
- (2) it is no longer effecting a material volume of new with-profits policies in a particular with-profits fund, other than by reinsurance;
- (3) it is effecting only new reinsurance business in a particular with-profits fund; or
- (4) it cedes by way of reinsurance most of the new with-profits policies it continues to effect.
- 30/06/2005
COB 6.12.98
See Notes
The run-off plan required by COB 6.12.94 R (2) must:
- (1) demonstrate how the firm will ensure a full and fair distribution of the closed with-profits fund, and its inherited estate (if any); and
- (2) be approved by the firm's governing body.
- 30/06/2005
COB 6.12.98A
See Notes
- 30/06/2005
COB 6.12.99
See Notes
When a firm tells its with-profits policyholders that it has ceased to effect new contracts of insurance in a with-profits fund, it should also explain:
- (1) why it has done so;
- (2) what changes it has made, or proposes to make, to the fund's investment strategy (if any);
- (3) how closure may affect with-profits policyholders (including any reasonably foreseeable effect on future bonus prospects);
- (4) the options available to with-profits policyholders and an indication of the potential costs associated with the exercise of each of those options; and
- (5) any other material factors that a policyholder may reasonably need to be aware of before deciding how to respond to this information.
- 30/06/2005
COB 6.12.100
See Notes
A firm may not be able to provide its with-profits policyholders with all of the information described in COB 6.12.99 G until it has prepared the run-off plan required by COB 6.12.94 R (2). In those circumstances, the firm should:
- (1) tell its with-profits policyholders that that is the case;
- (2) explain what is missing and give a time estimate for its supply; and
- (3) provide the missing information as soon as possible, and within the time estimate given.
- 30/06/2005
COB 6.12.103
See Notes
- 30/06/2005
COB 6.12.104
See Notes
- 30/06/2005
COB 6.12.105
See Notes
- 30/06/2005
COB 6.12.106
See Notes
- 30/06/2005
COB 6.12.107
See Notes
- 30/06/2005
Provision of information to with-profits policyholders and communicating with them fairly
COB 6.12.108
See Notes
- 30/06/2005
With-profits policyholders' understanding of the investment
COB 6.12.109
See Notes
- 30/06/2005
COB 6.12.110
See Notes
- 30/06/2005
Communications to with-profits policyholders
COB 6.12.111
See Notes
- 30/06/2005
COB 6.12.112
See Notes
To promote fairness in communications with its with-profits policyholders, a firm should:
- (1) write clearly in plain language;
- (2) use personal language (for example, 'we' and 'you') to make documents easier to understand; and
- (3) use presentation and terminology that is consistent with the information that it has already provided.
- 30/06/2005
COB 6.12.113
See Notes
COB 6.12.114
See Notes
- 30/06/2005
Information needs of a with-profits policyholder
COB 6.12.115
See Notes
- 30/06/2005
COB 6.12.116
See Notes
The information referred to in COB 6.12.115 G includes:
- (1) information about the performance of the with-profits policy;
- (2) a projection of the future value of the with-profits policy;
- (3) information about material changes in the circumstances of the with-profits fund, or the firm's approach to managing it, which might affect the with-profits policy and future bonus prospects;
- (4) information about any material changes in the firm's charges which might affect the with-profits policy; and
- (5) information about any material changes in the information already provided, for example, at the point of sale.
- 30/06/2005
COB 6.13
Process for reattribution of inherited estates
- 30/06/2005
Application
COB 6.13.1
See Notes
- (1) This section applies to a firm that carries on with-profits business and is proposing to make a reattribution of its inherited estate.
- (2) Notwithstanding (1), this section does not apply to a firm if, and to the extent that, it would require the firm to breach, or would prevent the firm from complying with, an order made by a court of competent jurisdiction.
- (3) If a firm proposes to seek an order, from a court of competent jurisdiction, that would allow or require it to act in a way that is contrary to the rules in this section (through, or because of, the exception in (2)), the firm must:
- (a) tell the FSA that that is what it proposes to do; and
- (b) seek the order at the earliest opportunity.
- (4) If a firm wishes to take a step that would be contrary to the rules in this section, in anticipation of such an order, it must secure a waiver before it does so.
- 30/06/2005
Purpose
COB 6.13.2
See Notes
The rules and guidance in this section are intended to:
- (1) help firms to understand the arrangements, or the types of arrangement, that the FSA regards as appropriate when a firm makes a reattribution of its inherited estate; and
- (2) ensure that policyholders are treated fairly during the reattribution process.
- 30/06/2005
COB 6.13.3
See Notes
- 30/06/2005
COB 6.13.4
See Notes
- 30/06/2005
COB 6.13.5
See Notes
- 30/06/2005
COB 6.13.6
See Notes
- 30/06/2005
COB 6.13.7
See Notes
- 30/06/2005
Policyholder advocate: appointment and function
COB 6.13.8
See Notes
- 30/06/2005
COB 6.13.9
See Notes
- 30/06/2005
COB 6.13.10
See Notes
- 30/06/2005
COB 6.13.11
See Notes
The FSA expects the policyholder advocate to be a natural person who:
- (1) is free from any conflict of interest that might be, or might appear to be, detrimental to the interests of policyholders; and
- (2) has the skills and knowledge necessary to act as the policyholder advocate on the proposed reattribution.
- 30/06/2005
COB 6.13.12
See Notes
- 30/06/2005
COB 6.13.13
See Notes
- 30/06/2005
COB 6.13.14
See Notes
The precise role of the policyholder advocate in any particular case will depend on the nature of the firm and the reattribution proposed. A firm will need to discuss with the FSA the precise role of the policyholder advocate in a particular case. However, the role of the policyholder advocate should include:
- (1) negotiating with the firm, on behalf of the relevant with-profits policyholders, the aggregate value of the benefits to be offered to them in exchange for the rights or interests they will be asked to give up;
- (2) commenting, to with-profits policyholders, on:
- (a) the methodology used for the allocation of benefits amongst the relevant with-profits policyholders, or groups of with-profits policyholders, and the form of those benefits;
- (b) the criteria used for determining the eligibility of the firm's various with-profits policyholders;
- (c) the terms and conditions of the proposals (to the extent that they have a material effect on the value of the benefits to be offered, or on the bonuses that may be added to with-profits policies); and
- (d) the views expressed by the independent expert or the reattribution expert (as the case may be), and the actuary appointed by the firm to perform the with-profits actuary function on the allocation of any benefits amongst the relevant with-profits policyholders; and
- (3) telling with-profits policyholders, or each group of with-profits policyholders, with reasons, whether the firm's proposals are in their interests.
- 30/06/2005
Policyholder advocate: terms of appointment
COB 6.13.15
See Notes
- 30/06/2005
COB 6.13.16
See Notes
A firm should include with its notification:
- (1) a copy of its proposed contract with the policyholder advocate;
- (2) a copy of its proposed terms of reference for the policyholder advocate;
- (3) details of the proposed negotiation timetable and the policyholder advocate's budget;
- (4) the policyholder advocate's confirmation that he is content with the proposed contract, terms of reference, plan and budget, if he is, or with a summary of his reservations, if he is not; and
- (5) any other information that the FSA may reasonably require when it considers the proposed terms of appointment for the policyholder advocate.
- 30/06/2005
COB 6.13.17
See Notes
- 30/06/2005
COB 6.13.18
See Notes
A firm must ensure that the terms of appointment for the policyholder advocate:
- (1) stress the independent nature of the policyholder advocate's appointment and function, and are consistent with it;
- (2) define the relationship of the policyholder advocate to the firm and its policyholders respectively;
- (3) set out the arrangements under which the policyholder advocate is to communicate with policyholders;
- (4) make provision for the resolution of any disputes between the firm and the policyholder advocate; and
- (5) specify when and how the policyholder advocate's appointment may be terminated.
- 30/06/2005
COB 6.13.19
See Notes
- 30/06/2005
COB 6.13.20
See Notes
- 30/06/2005
COB 6.13.21
See Notes
- 30/06/2005
Reattribution expert
COB 6.13.22
See Notes
Where a firm is not otherwise required to appoint an independent expert to assess its reattribution proposals, it must appoint an expert (referred to as the 'reattribution expert') to undertake an objective assessment of them, taking into account:
- (1) the nature and extent of any restructuring of the firm's with-profits fund;
- (2) the benefits that will be allocated to relevant with-profits policyholders in exchange for the rights and interests they are being asked to give up; and
- (3) any other factors that may be regarded as material by the FSA or the expert.
- 30/06/2005
COB 6.13.23
See Notes
- 30/06/2005
COB 6.13.24
See Notes
- 30/06/2005
COB 6.13.25
See Notes
- 30/06/2005
COB 6.13.26
See Notes
The FSA expects a reattribution expert to be a natural person who:
- (1) is free from any conflict of interest that might, or might appear to, undermine his independence or the quality of his report;
- (2) has relevant knowledge, both practical and theoretical, and experience of the types of insurance business transacted by the firm; and
- (3) is an actuary familiar with the role and responsibilities of an actuary appointed under SUP 4 (Actuaries).
- 30/06/2005
COB 6.13.27
See Notes
- 30/06/2005
COB 6.13.28
See Notes
- 30/06/2005
COB 6.13.29
See Notes
- (1) A firm that appoints a reattribution expert must require him to prepare a report.
- (2) The report required by COB 6.13.29 R (1) must be made available to the FSA, the policyholder advocate and the court (if it is relevant to any court proceedings).
- (3) An adequate summary of the report required by COB 6.13.29 R (1) must also be made available to the firm with-profits and other policyholders.
- 30/06/2005
COB 6.13.30
See Notes
A reattribution expert's report, required by COB 6.13.29 R (1), should comply with the applicable rules on expert evidence and contain the following information:
- (1) the information detailed in SUP 18.2.33 G (1) to (10), (12) and (13), and SUP 18.2.39 G; and
- (2) his opinion of the likely effect of the proposals on with-profits policyholders or, where relevant, each relevant group of with-profits policyholders, having particular regard, where relevant, to the matters set out in SUP 18.2.36 G, as if in each case, a reference to:
- (a) the 'scheme report' was a reference to the 'reattribution expert's report';
- (b) the 'independent expert' was a reference to the 'reattribution expert'; and
- (c) the 'scheme' was a reference to the proposal for a 'reattribution'.
- 30/06/2005
COB 6.13.31
See Notes
- 30/06/2005
COB 6.13.32
See Notes
- 30/06/2005
Negotiation timetable
COB 6.13.33
See Notes
- 30/06/2005
COB 6.13.34
See Notes
- 30/06/2005
COB 6.13.35
See Notes
- 30/06/2005
Information to policyholders: the policyholder advocate and the negotiations
COB 6.13.36
See Notes
- 30/06/2005
COB 6.13.37
See Notes
- 30/06/2005
COB 6.13.38
See Notes
- 30/06/2005
COB 6.13.39
See Notes
- 30/06/2005
COB 6.13.40
See Notes
- 30/06/2005
COB 6.13.41
See Notes
- 30/06/2005
COB 6.13.42
See Notes
- 30/06/2005
Notification to policyholders: conclusion of negotiations and consent
COB 6.13.43
See Notes
When a firm and a policyholder advocate complete their negotiations about the benefits that will be offered to relevant with-profits policyholders, in exchange for the rights and interests they will be asked to give up, the firm must:
- (1) tell relevant policyholders that the firm and the policyholder advocate have completed their negotiations;
- (2) explain the outcome of the negotiations and, if appropriate, the firm's final proposals for the reattribution; and
- (3) give relevant with-profits policyholders the chance to:
- (a) individually accept or reject those proposals; or
- (b) (if the legal process to be followed allows the majority of policyholders to bind the minority) vote on whether the firm should go ahead with those proposals.
- 30/06/2005
COB 6.13.44
See Notes
A firm should also:
- (1) explain the essence of its proposals, including details of:
- (a) the context or background to the proposals and how the final version has been arrived at; and
- (b) any material changes or departures from the information that it has already supplied;
- (2) explain the effect of the negotiations on policyholders, including a description of any benefits they are likely to receive and the rights and interests that they are likely to be asked to give up;
- (3) include a report from the policyholder advocate, which explains the basis of his negotiations with the firm, whether he considers that the firm proposals are in the interests of relevant with-profits policyholders, or groups of with-profits policyholders, and gives reasons for the conclusions that he has reached; and
- (4) include information about the report by the independent expert or the reattribution expert, as the case may be, including a summary of the report and details of how policyholders can obtain a copy of the full report, if they wish to do so (see COB 6.13.29 R).
- 30/06/2005
COB 6.13.45
See Notes
- 30/06/2005
COB 6.13.46
See Notes
- 30/06/2005
COB 6.13.47
See Notes
- 30/06/2005
COB 6.13.48
See Notes
Where a proposal is put to the vote of policyholders in accordance with COB 6.13.43 R (3)(b):
- (1) the voting arrangements should allow relevant with-profits policyholders the opportunity to vote by post or, if the vote is to take place at a meeting, for those policyholder to be able to appoint proxies to represent their views; and
- (2) the notice period, the closing date for votes submitted by post or, as the case may be, the time for appointing proxies should normally be at least eight weeks after the prospective deal has been announced.
- 30/06/2005
COB 6.13.49
See Notes
- 30/06/2005
Notification to policyholders: final outcome
COB 6.13.50
See Notes
- 30/06/2005
COB 6.13.51
See Notes
- 30/06/2005
Limits on the need to provide information
COB 6.13.52
See Notes
- 30/06/2005
COB 6.13.53
See Notes
- 30/06/2005
General costs
COB 6.13.54
See Notes
- 30/06/2005
Policyholder advocate costs
COB 6.13.55
See Notes
- 30/06/2005
COB 6.13.56
See Notes
The FSA recognises that the treatment of costs will almost certainly affect the value of the benefits offered. The FSA will not normally seek to restrict the way in which policyholder advocate costs are divided between shareholders and policyholders, provided that:
- (1) the shareholder pays a reasonable proportion of them;
- (2) the arrangements are fair; and
- (3) the policyholder advocate confirms that he is satisfied with them.
- 30/06/2005
COB 6.13.57
See Notes
- 30/06/2005
COB 6.13.58
See Notes
- 30/06/2005
COB 6.13.59
See Notes
- 30/06/2005
COB 6 Annex 1
Decision trees for stakeholder pension schemes (as required in COB 6.5.8R): text, content and format (R)
- 01/12/2004
See Notes
This annex consists only of one or more forms. Forms are to be found through the 'Forms' link at www.fsahandbook.info or through the Handbook section of the CD-ROM under Forms. |
COB 6 Annex 2
Total expense ratio calculation
- 01/05/2005
See Notes
This
Annex belongs to COB 6.2.37 R (Contents
of the simplified prospectus). Notes: | |
1. | This Annex sets out the requirements in relation to the TER. It reproduces, and adapts where appropriate for the purposes of COB 6, Annex 1 to Commission Recommendation (2004/384/EC), amplifying Schedule C (Contents of the simplified prospectus) to the Management Company Directive (2004/107/EC). |
2. | The non-exhaustive typology of calculation bases referred to in paragraph 2(b) below reflects the diversity of recent commercial practice across Member States (at the end of 2003) and should not be interpreted as a general validation of the compliance of any individual agreement or commission with the provisions of the Handbook. |
- 01/05/2005
See Notes
Total expense ratio (TER) | |||
1. | Definition of the TER | ||
The total expense ratio (TER) of a simplified prospectus scheme is the ratio of the scheme's total operating costs to its average net assets calculated according to paragraph 3. | |||
2. | Included/excluded costs | ||
(a) | The total operating costs are all the expenses which come in deduction of a simplified prospectus scheme's assets. These costs are usually shown in a scheme's statement of operation for the relevant fiscal period. They are assessed on an 'all taxes included' basis, which means that the gross value of expenses should be used. | ||
(b) | Total operating costs include any legitimate expenses of the simplified prospectus scheme, whatever their basis of calculation (e.g. flat-fee, asset-based, transaction-based - see note 2 above), such as: | ||
- | management costs including performance fees; | ||
- | administration costs; | ||
- | fees linked to depositary duties; | ||
- | audit fees; | ||
- | payments to shareholder services providers including payments to the simplified prospectus scheme's transfer agent and payments to broker-dealers that are record owners of the scheme's shares and that provide sub-accounting services for the beneficial owners of the scheme's shares; | ||
- | payments to lawyers; | ||
- | any distribution or unit cancellation costs charged to the scheme; | ||
- | registration fees, regulatory fees and similar charges; | ||
- | any additional remuneration of the management company (or any other party) corresponding to certain fee-sharing agreements in accordance with paragraph 4 below. | ||
(c) | The total operating costs do not include: | ||
- | transaction costs which are costs incurred by a simplified prospectus scheme in connection with transactions on its portfolio. They include brokerage fees, taxes and linked charges and the market impact of the transaction taking into account the remuneration of the broker and the liquidity of the concerned assets; | ||
- | interest on borrowing; | ||
- | payments incurred because of financial derivative instruments; | ||
- | entry/exit commissions or any other fees paid directly by the investor; | ||
- | soft commissions in accordance with paragraph 4. | ||
3. | Calculation method and disclosure | ||
(a) | The TER is calculated at least once a year on an ex post basis, generally with reference to the fiscal year of the simplified prospectus scheme . For specific purposes it may also be calculated for other time periods. The simplified prospectus should in any case include a clear reference to an information source (e.g. the scheme's website) where the investor may obtain previous years'/periods' TER figures. | ||
(b) | The average net assets must be calculated using figures that are based on the scheme's net assets at each calculation of the net asset value (NAV), e.g. daily NAVs where this is the normal frequency of NAV calculation as approved by the simplified prospectus scheme's competent authorities. Further circumstances or events which could lead to misleading figures have equally to be taken into consideration. | ||
Tax relief should not be taken into account. | |||
The calculation method of the TER must be validated by the simplified prospectus scheme's auditors and/or competent authorities. | |||
4. | Fee-sharing agreements and soft commissions | ||
It regularly results from fee-sharing agreements on expenses that are generally not included in the TER, that the management company or another party is actually meeting, in all or in part, operating costs that should normally be included in the TER. They should therefore be taken into account when calculating the TER, by adding to the total operating costs any remuneration of the management company (or another party) that derives from such fee-sharing agreements. | |||
There is no need to take into account fee-sharing arrangements on expenses that are already in the scope of the TER. Soft commissions should also be left outside the scope of the TER. | |||
Thus: | |||
- | the remuneration of a management company through a fee-sharing agreement with a broker on transaction costs and with other fund management companies in the case of funds of funds (if this remuneration has not already been taken into account in the synthetic TER (see paragraph 6 below) or through other costs already charged to the fund and therefore directly included into the TER) should anyway be taken into account in the TER, | ||
- | conversely, the remuneration of a management company through a fee-sharing agreement with a scheme (except when this remuneration falls under the scope of the specific fund-of-fund case covered in the previous indent) should not be taken into account. | ||
5. | Performance fees: | ||
Performance fees should be included in the TER and should also be disclosed separately as a percentage of the average net asset value. | |||
6. | Simplified prospectus scheme investing in UCITS scheme or in non-UCITS scheme: | ||
When a simplified prospectus scheme invests at least 10% of its net asset value in UCITS schemes or in schemes that are not UCITS schemes which publish a TER in accordance with this Annex, a synthetic TER corresponding to that investment should be disclosed. | |||
The synthetic TER is equal to the ratio of: | |||
- | the simplified prospectus scheme's total operating costs expressed by its TER and all the costs borne by the scheme through holdings in underlying funds (i.e. those expressed by the TER of the underlying funds weighted on the basis of the simplified prospectus scheme's investment proportion), plus the subscription and redemption fees of these underlying funds, divided by | ||
- | the average net assets of the scheme. | ||
As mentioned in the previous subparagraph, subscription fees and redemption fees of the underlying funds should be included in the TER. Subscription and redemption fees may not be charged when the underlying funds belong to the same group in accordance with Article 24 (3) of the UCITS Directive. | |||
When any of the underlying schemes that are not UCITS schemes does not publish a TER in accordance with this Annex, disclosure of costs should be adapted in the following way: | |||
- | the impossibility of calculating the synthetic TER for that fraction of the investment must be disclosed, | ||
- | the maximum proportion of management fees charged to the underlying fund(s) must be disclosed in the simplified prospectus, | ||
- | a synthetic figure of total expected costs must be disclosed, by calculating: | ||
- | a truncated synthetic TER incorporating the TER of each of those underlying funds for which the TER is calculated according to this Annex, weighted on the basis of the simplified prospectus scheme's investment proportion, and | ||
- | by adding, for each of the other underlying funds, the subscription and redemption fees plus the best available maximum estimate of TER-eligible costs. This should include the maximum management fee and the last available performance fee for that fund, weighted on the basis of the simplified prospectus scheme's investment proportion. | ||
7. | Umbrella funds/multiclass funds: | ||
In the case of umbrella funds, the TER should be calculated for each sub-fund. If, in the case of multiclass funds, the TER differs between different share classes, a separate TER should be calculated and disclosed for each share class. Furthermore, in keeping with the principle of equality among investors, where there are differences in fees and expenses across classes, these different fees/expenses should be disclosed separately in the simplified prospectus . An additional statement should indicate that the objective criteria (e.g. the amount of subscription), on which these differences are based, are available in the full prospectus. |
- 01/05/2005
COB 6 Annex 3
Portfolio turnover calculation
- 01/05/2005
See Notes
This Annex belongs to COB 6.2.37 R (Contents of the simplified prospectus). | |
Note: | This Annex sets out the requirements
in relation to the portfolio turnover rate. It reproduces Annex II to Commission
Recommendation (2004/384/EC), amplifying Schedule C (Contents of the simplified
prospectus) to the Management Company Directive (2004/107/EC). This table also includes other material which the FSA considers should be included. |
Portfolio turnover rate | |
A simplified prospectus scheme's or, where relevant, a compartment's (sub-fund's) portfolio turnover rate must be calculated in the following way: | |
Purchases of securities = X | |
Sales of securities = Y | |
Total 1 = total of transactions in securities = X + Y | |
Issues/Subscriptions of units of the scheme = S | |
Cancellations/Redemptions of units of the scheme = T | |
Total 2 = Total transactions in units of the scheme = S + T | |
Reference average of total net assets = M | |
Turnover = [(Total 1 - Total 2)/M]*100 | |
The reference average of total net assets corresponds to the average of net asset values calculated with the same frequency as under COB 6 Annex 2R. The portfolio turnover rate disclosed should correspond to the period(s) for which a TER is disclosed. The simplified prospectus should in any case include a clear reference to an information source (e.g. the scheme's website) where the investor may obtain previous periods' performance. | |
Note | |
Firms should note that inclusion of the portfolio turnover rate in the simplified prospectus is mandatory. The rate must be calculated according to the formula which is prescribed above. However, because the rate includes both purchases and sales of securities, readers may find it difficult to understand. Consequently firms should consider including an explanation of the formula, such as: | |
- 01/05/2005
See Notes
- 01/05/2005
COB 7
Dealing
and managing
COB 7.1
Conflict of interest and material interest
- 01/12/2004
Application
COB 7.1.1
See Notes
- (1) This section applies to a firm when it is conducting designated investment business with or for a customer.
- (2) COB 7.1.4 E (1) do not apply in relation to investment research (see COB 7.3 (Dealing ahead of investment research)).
- (3) This section does not apply to a common platform firm if SYSC 10.1 (conflicts of interest) applies to the firm.
- 01/01/2007
- Past version of COB 7.1.1 before 01/01/2007
Purpose
COB 7.1.2
See Notes
- 01/12/2004
Fair treatment
COB 7.1.3
See Notes
If a firm has or may have:
- (1) a material interest in a transaction to be entered into with or for a customer; or
- (2) a relationship that gives or may give rise to a conflict of interest in relation to a transaction in (1); or
- (3) an interest in a transaction that is, or may be, in conflict with the interest of any of the firm's customers; or
- (4) customers with conflicting interests in relation to a transaction;
the firm must not knowingly advise, or deal in the exercise of discretion, in relation to that transaction unless it takes reasonable steps to ensure fair treatment for the customer (see COB 2.4.7 G (Attribution of knowledge)).
- 01/12/2004
COB 7.1.4
See Notes
- (1) For the purposes of COB 7.1.3 R, a firm should manage a conflict of interest by taking reasonable steps in one or more of the following ways:
- (a) disclosing an interest to a customer; or
- (b) relying on a policy of independence; or
- (c) establishing internal arrangements (Chinese walls); or
- (d) declining to act for a customer.
- (2) Contravention of (1) may be relied on as tending to establish contravention of COB 7.1.3 R.
- (3) Compliance of (1) may be relied on as tending to establish compliance with COB 7.1.3 R.
- 01/12/2004
Disclosing an interest to a customer
COB 7.1.5
See Notes
The following are examples of material interest or conflicts of interest that a firm should disclose under COB 7.1.4 E (1):
- (1) dealing in investments as principal (unless the firm is acting as a market maker);
- (2) dealing in investments as agent for more than one party;
- (3) a recommendation to buy or sell a designated investment in which one of the firm's customers has given instructions to buy or sell;
- (4) a recommendation to buy or sell a designated investment in which the firm has respectively a long or short position;
- (5) acting as a broker fund adviser.
- 01/12/2004
COB 7.1.6
See Notes
- (1) In disclosing an interest to a customer, a firm should:
- (a) disclose to the customer, either orally or in writing, any material interest or conflict of interest it has, or may have, whether generally or in relation to a specific transaction, before it advises the customer about the transaction or before it deals on behalf of the customer in the exercise of discretion in relation to the transaction; and
- (b) be able to demonstrate that it has taken reasonable steps to ensure that the customer does not object to that material interest or conflict of interest.
- (2) Contravention of (1) may be relied on as tending to establish contravention of COB 7.1.3 R.
- (3) Compliance of (1) may be relied on as tending to establish compliance with COB 7.1.3 R.
- 01/12/2004
Relying on a policy of independence
COB 7.1.7
See Notes
COB 7.1.4 E (1)(b) recognises that a firm may demonstrate that it has taken reasonable steps to ensure fair treatment for its customers by relying on a policy of independence. If a firm relies on a policy of independence, that policy should:
- (1) require the relevant employee to disregard any material interest or conflict of interest when advising a customer or dealing for a customer in the exercise of discretion;
- (2) be recorded in writing by the firm and made known to the relevant employee;
- (3) be disclosed to a private customer stating that the firm may have a material interest or conflict of interest relating to the transaction or service concerned.
- 01/12/2004
Establishing internal arrangements
COB 7.1.8
See Notes
- 01/12/2001
Declining to act for a customer
COB 7.1.9
See Notes
- 01/12/2001
Broker fund advisers
COB 7.1.10
See Notes
- 01/12/2004
COB 7.1.11
See Notes
- 01/12/2004
COB 7.1.12
See Notes
- (1) A broker fund adviser must ensure that it does not effect, personally recommend or arrange (bring about) the issue to a customer of a life policy by a relevant insurance undertaking, under which contributions will be made to the adviser's broker fund, unless the relevant insurance undertaking is contractually responsible to that customer in writing for the acts and omissions of the broker fund adviser or its associate in its role as an adviser to that fund as if they were the acts or omissions of the relevant insurance undertaking and will remain responsible until the earlier of:
- (a) the broker fund adviser or its associate ceasing to be the adviser to the fund; and
- (b) the termination of the policy.
- (2) In (1), a relevant insurance undertaking is an insurance undertaking which does not have permission to effect or carry on long-term insurance business but which is authorised to carry on long-term insurance business in the Bailiwick of Guernsey, the Isle of Man, the Commonwealth of Pennsylvania, the State of Iowa or the Bailiwick of Jersey.
- (3) In (1), associate has the extended meaning given to it in the definition of broker fund adviser.
- (4) A firm must comply with the requirements in (1) where it effects, personally recommends or arranges (brings about) switching in relation to a broker fund for the customer.
- 01/12/2004
Product providers with broker funds
COB 7.1.13
See Notes
- 01/03/2003
UCITS management company
COB 7.1.14
See Notes
- 13/02/2004
COB 7.2
Churning and switching
- 01/12/2004
Application
COB 7.2.1
See Notes
- 01/12/2001
Purpose
COB 7.2.2
See Notes
- 01/12/2001
Restrictions on dealing and switching
COB 7.2.3
See Notes
A firm must not:
- (1) deal, or arrange a deal, in the exercise of discretion for any customer; or
- (2) make a personal recommendation to a private customer to deal, or arrange a deal that gives effect to such a recommendation; or
- (3) make or arrange a switch within a packaged product or between packaged products, in the exercise of discretion for a private customer; or
- (4) make a personal recommendation to a private customer to switch within a packaged product or between packaged products, or make or arrange a switch that gives effect to such a recommendation;
unless the firm has taken reasonable steps to ensure that the deal or switch is in the customer's best interests, both when viewed in isolation and when viewed in the context of earlier transactions.
- 01/12/2001
COB 7.3
Dealing ahead of investment research
- 01/12/2004
Application
COB 7.3.1
See Notes
- 01/05/2004
Purpose
COB 7.3.2
See Notes
- 01/05/2004
COB 7.3.2A
See Notes
- 01/05/2004
COB 7.3.2B
See Notes
- 01/05/2004
Requirement not to undertake own account transactions
COB 7.3.3
See Notes
If a firm or its associate intends to publish or distribute investment research to clients or prepares investment research for publication or distribution to its clients, unless COB 7.3.4 R applies, the firm must:
- (1) not knowingly undertake an own account transaction in the designated investment concerned or any related designated investment; and
- (2) (when the intention to publish is that of, or is known to, the firm) take all reasonable steps to ensure that its associates do not knowingly undertake any own account transaction in that designated investment, or any related designated investment;
until the clients for whom the publication was principally intended have had (or are likely to have had) a reasonable opportunity to act upon it.
- 01/05/2004
COB 7.3.3A
See Notes
- 01/09/2002
Exceptions
COB 7.3.4
See Notes
COB 7.3.3 R does not apply if:
- (1) [deleted]
- (2) the firm or its associate is a market maker in the designated investment concerned or in a related designated investment and it undertakes the transaction in good faith and in the normal course of market making; or
- (3) the firm or its associate deals in order to fulfil an unsolicited customer order.
- (4) [deleted]
- (5) [deleted]
- 01/05/2004
COB 7.3.5
See Notes
- 01/05/2004
COB 7.4
Customer order priority
- 01/12/2004
Application
COB 7.4.1
See Notes
- 01/12/2001
Purpose
COB 7.4.2
See Notes
- 01/12/2001
Dealing fairly and in due turn
COB 7.4.3
See Notes
- 01/12/2001
COB 7.4.4
See Notes
COB 7.4.3 R does not preclude a firm from, for example:
- (1) executing:
- (a) a prior own account order ahead of a subsequent current customer order in the same designated investment or a related designated investment; or
- (b) a current customer order when the person dealing for the customer neither knew nor ought reasonably to have known of an earlier unexecuted current customer order;
- (2) postponing execution of a current customer order when the firm has taken reasonable steps to ensure that execution of another customer order ahead of that customer order is likely to improve the terms on which the current customer order is executed (in which case the firm should ensure that the customer whose customer order is being executed ahead of that other customer order is also being treated fairly);
- (3) treating the life fund as if it were a customer to the extent that the firm is an insurance company dealing for the account of its life fund;
- (4) treating the investment trust or scheme as if it were a customer to the extent that the firm is dealing for the account of an investment trust or a collective investment scheme that is a body corporate, which in either case is in the same group as the firm;
- (5) treating an employee (or close relative) of the firm or of its associate, or a trustee acting on his behalf, as if he were a customer; or
- (6) treating the firm's occupational pension scheme as a customer to the extent that the firm is dealing for the account of its occupational pension scheme.
- 01/12/2001
COB 7.4.5
See Notes
- 01/12/2001
COB 7.5
Best execution
- 01/12/2004
Application
COB 7.5.1
See Notes
- 01/12/2001
Purpose
COB 7.5.2
See Notes
- 01/12/2001
When best execution is owed
COB 7.5.3
See Notes
- 01/12/2001
Exceptions
COB 7.5.4
See Notes
COB 7.5.3 R does not apply in any of the following circumstances:
- (1) the customer order is for:
- (a) the purchase of a life policy;
- (b) the purchase of or sale of units in a regulated collective investment scheme from or to the operator of that scheme; or
- (c) an asset to be held within a personal pension scheme, unless that asset is itself a designated investment;
- (2) the firm has agreed with an intermediate customer that it need not owe a duty of best execution to him, unless that customer is:
- (a) the trustee of an occupational pension scheme or an OPS collective investment scheme; or
- (b) the trustee of any other trust for whom, and to the extent that, the firm acts as a permitted third party under COB 11.6 (Delegation to a permitted third party); or
- (3) the firm relies on another person to whom it passes a customer order for execution to provide best execution, but only if it has taken reasonable care to ensure that he will do so.
- 06/04/2007
- Past version of COB 7.5.4 before 06/04/2007
Providing best execution
COB 7.5.5
See Notes
To provide best execution, a firm must:
- (1) take reasonable care to ascertain the price which is the best available for the customer order in the relevant market at the time for transactions of the kind and size concerned; and
- (2) execute the customer order at a price which is no less advantageous to the customer, unless the firm has taken reasonable steps to ensure that it would be in the customer's best interests not to do so.
- 01/12/2001
COB 7.5.6
See Notes
- (1) In order to take reasonable care under COB 7.5.5 R (1) , a firm:
- (a) should disregard any charges and commission made by it or its agents that are disclosed to the customer under COB 5.7 (Disclosure of charges, remuneration and commission);
- (b) need not have access to competing exchanges, or to all, or a minimum number of, available price sources; but if a firm can access prices displayed by different exchanges and trading platforms and make a direct and immediate comparison, it should execute the customer order at the best price available to the firm on such exchanges or trading platforms, if this is in the best interests of the customer;
- (c) should pass on to the customer the price at which it executes the transaction to meet the customer order;
- (d) should not take a mark-up or mark-down from the price at which it executes the customer order; and
- (e) that is engaged in programme trading should ensure that it applies the duty of care in COB 7.5.5 R to each individual transaction.
- (2) In relation to a customer order for euro priced securities traded on the London Stock Exchange, if the firm has decided to execute in sterling, the firm should take reasonable care to ascertain the best price available in sterling and to deal at a price no less advantageous to the customer.
- (3) In relation to a customer order for shares that are traded on SETS, a firm's obligations under COB 7.5.5 R will be satisfied if, subject to COB 7.5.6 E (1)(b), a firm executes the customer order through SETS.
- (4) If, in relation to a customer order for securities that are traded on SETS, a firm does not execute the customer order through SETS, the firm should ensure that:
- (a) when a customer order is for normal settlement and is within the size currently displayed on SETS, the price obtained at least matches the best bid or offer price available on SETS;
- (b) when a customer order is larger than the total of limit orders displayed on the best bid or offer on SETS, but there is sufficient depth overall, the price obtained at least matches the weighted average price of all orders for that security displayed on SETS;
- (c) when a customer order is larger than the totality of orders currently displayed on the best bid or offer on SETS, and execution at the weighted average price would be impracticable, it uses due skill and care to ascertain the best available price, having regard to the price of recently executed transactions of a similar size, any prices or quotes available to it, and to prevailing market conditions;
- (d) when there are no current bid or offer prices displayed on SETS, it refers to the previous best bid or offer prices, and to the latest published trades in the relevant security, and uses due skill and care to determine the best price in the light of the information available; and
- (e) when a customer order is subject to a special condition (for example, non-standard settlement), the price should at least match the price available on SETS, and that any charge and commission in respect of the non-standard element is separately and appropriately disclosed to the customer.
- (5) Compliance with (1), (2) and (3) may be relied on as tending to establish compliance with COB 7.5.5 R (1).
- (6) Contravention of (1) or (2) may be relied on as tending to establish contravention of COB 7.5.5 R (1).
- (7) Compliance with (3) or (4) may be relied upon as tending to establish compliance with COB 7.5.5 R (2).
- (8) Contravention of (4) may be relied upon as tending to establish contravention of COB 7.5.5 R (2).
- 01/12/2001
COB 7.5.7
See Notes
- 01/12/2001
COB 7.5.8
See Notes
- 01/12/2001
COB 7.5.9
See Notes
- 01/09/2002
COB 7.5.10
See Notes
- 01/09/2002
COB 7.6
Timely execution
- 01/12/2004
Application
COB 7.6.1
See Notes
- 01/12/2001
Purpose
COB 7.6.2
See Notes
- 01/12/2001
COB 7.6.3
See Notes
- 01/12/2001
Achieving timely execution
COB 7.6.4
See Notes
- 01/12/2001
COB 7.6.5
See Notes
- 01/12/2001
COB 7.6.6
See Notes
Examples of situations in which a firm should take particular care to assess the timing of execution of all or part of a current customer order include when:
- (1) a firm receives a customer order outside the normal trading hours of the relevant market or trading platform and intends executing that customer order on that market or other trading platform;
- (2) a foreseeable improvement in the level of liquidity in the relevant designated investment is likely to enhance the terms on which the firm executes the customer order;
- (3) executing the customer order as a series of partial executions over a period of time is likely to improve the terms on which the customer order as a whole is executed.
- 01/12/2001
COB 7.6.7
See Notes
A firm may have reasonable grounds for postponing execution of a current customer order in the best interests of the customer. Examples of this may include when the deal is part of an aggregated transaction (see COB 7.7 (Aggregation and allocation)) for:
and the firm has taken reasonable steps to ensure that the deal will not operate to the disadvantage of any of the customers concerned.
- 01/12/2001
COB 7.6.8
See Notes
- 01/12/2001
COB 7.7
Aggregation and allocation
- 01/12/2004
Application
COB 7.7.1
See Notes
- 01/12/2001
Purpose
COB 7.7.2
See Notes
- 01/12/2001
Requirement for recorded standards and procedures
COB 7.7.3
See Notes
- 01/12/2001
Aggregation
COB 7.7.4
See Notes
A firm may not aggregate a customer order with an own account order, or with an order from a market counterparty, or with another customer order, unless:
- (1) it is likely that the aggregation will not work to the disadvantage of each of the customers concerned; and
- (2) it has disclosed either orally or in writing to each customer concerned, either specifically or in the terms of business, that the effect of aggregation may work on some occasions to its disadvantage.
- 01/12/2001
Requirement for timely allocation
COB 7.7.5
See Notes
- 01/12/2001
COB 7.7.6
See Notes
- (1) To allocate promptly, a firm that has aggregated an order under COB 7.7.4 R should complete the allocation of the designated investments concerned within one business day of the transaction, subject to (2), (3), (4) and (5).
- (2) The period in (1) is within five business days if:
- (a) only intermediate customers are concerned; and
- (b) each of them has agreed to such an extension.
- (3) The period in (1) is within three business days if:
- (a) the aggregated order relates to one or more ISAs or PEPs; and
- (b) the firm can show that it is necessary to execute those transactions in that way in order to serve its customer's best interests.
- (4) All transactions in a series of transactions, all of which are executed within the one business day, may be treated as having been executed at the time of the last transaction, so long as a record of the time that each individual transaction was executed is made, such as by means of a time stamp.
- (5) If transactions in a series of transactions occur over more than one business day, then the requirement for timely allocation in COB 7.7.5 R (and (1), (2) or (3) as appropriate) will apply separately in relation to each business day in which any such transaction is executed.
- (6) Compliance with (1) may be relied on as tending to establish compliance with COB 7.7.5 R.
- (7) Contravention of (1) may be relied on as tending to establish contravention of COB 7.7.5 R.
- 01/12/2001
COB 7.7.7
See Notes
- 01/12/2001
COB 7.7.8
See Notes
- 01/12/2001
Requirement for fair allocation
COB 7.7.9
See Notes
When a firm executes an aggregated order that combines:
- (1) a customer order and an own account order; or
- (2) a customer order and an order from a market counterparty (other than an associate of the firm); or
- (3) a customer order and another customer order;
- (4) not give unfair preference to the firm or to any of those for whom it dealt; and
- (5) where (1) applies, give priority to satisfying customer orders, if the aggregate total of all orders cannot be satisfied, unless it can demonstrate on reasonable grounds that without its own participation it would not have been able to execute those orders on such favourable terms, or at all.
- 01/12/2001
COB 7.7.10
See Notes
A firm may treat the following as a customer order:
- (1) a transaction on the account of the life fund of an insurance company, when the insurance company is in the same group as the firm (or is the firm);
- (2) a transaction for the account of an investment trust or a collective investment scheme that is a body corporate in the same group as the firm;
- (3) a transaction for the account of an employee (or a close relative) of the firm or of its associate, or a trustee acting on his behalf, but only when the transaction is undertaken on a pre-established and recorded basis;
- (4) a transaction for the firm's occupational pension scheme.
- 01/12/2001
Re-allocation
COB 7.7.11
See Notes
A firm may undertake a revised allocation of an aggregated order if:
- (1) an error is identified in either the intended basis of allocation or the actual allocation, provided that the firm makes a record of the reason for the re-allocation and completes it within one business day of the error being identified; or
- (2) the order is only partially executed resulting in an uneconomic allocation to some customers; in such a case the firm must take reasonable steps to ensure that a re-allocation is in the best interests of the customers for whom it has dealt; and
- (3) the revised allocation is carried out in accordance with COB 7.7.12 R.
- 01/12/2001
Price of allocation
COB 7.7.12
See Notes
When a firm has executed an aggregated order or is undertaking a revised allocation as described in COB 7.7.11 R, then it must allocate that order either at:
- (1) the price paid for each designated investment concerned (net of all relevant fees and commissions); or
- (2) a volume-weighted average of the prices of a series of transactions.
- 01/12/2001
COB 7.7.13
See Notes
- 01/12/2001
Record keeping requirements
COB 7.7.14
See Notes
- (1) A firm must, on executing an aggregated transaction that includes one or more customer orders, make a record of:
- (a) the identity of each client concerned;
- (b) whether the transaction is to be transacted in whole or in part for a discretionary managed investment portfolio and, if in part, the relevant proportions.
- (2) If a firm aggregates a number of client orders that include one or more customer orders, the firm must make a record of the intended basis of allocation as soon as is practicable.
- (3) If a firm aggregates an order for one or more customers and itself, the firm must make a record of the intended basis of allocation before the transaction is executed.
- 01/12/2001
COB 7.7.15
See Notes
- 01/12/2001
COB 7.7.16
See Notes
When allocating an aggregated transaction that includes the execution of one or more customer orders, a firm must make a record of:
- (1) the date and time of the allocation;
- (2) the relevant designated investment;
- (3) the identity of each customer and market counterparty concerned;
- (4) the amount allocated to each respective customer, market counterparty and to the firm; and
- (5) the agreement with each intermediate customer to extend the allocation period under COB 7.7.6 E (2)(b).
- 01/12/2001
COB 7.7.17
See Notes
- 01/12/2001
COB 7.7.18
See Notes
- 01/12/2001
COB 7.8
Realisation of a private customer's assets
- 01/12/2004
Application
COB 7.8.1
See Notes
This section applies to a firm when it:
- (1) seeks a right; or
- (2) seeks to exercise a right;
to realise a private customer's assets in order to discharge an obligation of that private customer which arises from designated investment business conducted by the firm.
- 01/12/2001
Purpose
COB 7.8.2
See Notes
- 01/12/2001
Contractual rights to realise a private customer's assets
COB 7.8.3
See Notes
A firm must not realise a private customer's assets unless it is legally entitled to do so, and it has either:
- (1) set out in the terms of business provided to the private customer in accordance with COB 4.2.5 R (Requirement to provide terms of business to a customer) (or a client agreement entered into in accordance with COB 4.2.7 R (Requirement to enter into a client agreement with a private customer)):
- (a) the action it may take to realise any assets of the private customer;
- (b) the circumstances in which it may do so; and
- (c) each asset (if relevant) or type or class of asset over which it may exercise the right; or
- (2) given the private customer notice (oral or written) of its intention to exercise its rights at least three business days before it does so.
- 01/12/2001
COB 7.9
Lending to private customers
- 01/12/2004
Application
COB 7.9.1
See Notes
- 01/12/2001
Purpose
COB 7.9.2
See Notes
- 01/12/2001
Restrictions on lending to private customers
COB 7.9.3
See Notes
A firm, subject to the exceptions in COB 7.9.5 R, must not lend money or grant credit to a private customer (or arrange for any other person to do so) in the course of, or in connection with, its designated investment business unless:
- (1) the firm has made and recorded an assessment of the private customer's financial standing, based on information disclosed by the private customer;
- (2) the firm has taken reasonable steps to ensure that the arrangements for the loan or credit and the amount concerned are suitable, based on the information disclosed by the private customer, for the type of investment agreement proposed or which the private customer is likely to enter into; and
- (3) the private customer has given his prior written consent to both the maximum amount of the loan or credit and the amount or basis of any interest or fees to be levied in connection with the loan or credit.
- 01/12/2001
COB 7.9.4
See Notes
- 01/12/2001
Exceptions
COB 7.9.5
See Notes
COB 7.9.3 R does not apply when:
- (1) a firm settles a securities transaction of the private customer because he has failed to pay or has paid late; or
- (2) a firm covers a margin call made on a private customer for a period of no longer than five business days; or
- (3) a long-term insurer lends money or grants credit to a private customer, or arranges for any other person to do so, in connection with a life policy.
- 20/09/2001
COB 7.9.6
See Notes
- 01/12/2001
Record keeping requirements
COB 7.9.7
See Notes
- 01/12/2001
COB 7.10
Margin requirements
- 01/12/2004
Application
COB 7.10.1
See Notes
- 01/12/2001
Purpose
COB 7.10.2
See Notes
- 01/12/2001
Provision of margin by a private customer
COB 7.10.3
See Notes
- (1) A firm must obtain from a private customer any margin payable, whether at the outset or subsequently, by or to the firm, for a transaction in a contingent liability investment.
- (2) The minimum margin to be obtained from a private customer in accordance with (1) for an on-exchange transaction in a contingent liability investment is an amount or value equal to the margin requirements of the relevant exchange or clearing house.
- 01/12/2001
COB 7.10.4
See Notes
Before conducting a transaction with or for a private customer, a firm should notify the customer of:
- (1) the circumstances in which the customer may be required to provide any margin;
- (2) the form in which the margin may be provided;
- (3) the steps the firm may be required or entitled to take if the customer fails to provide the required margin, in accordance with COB 7.10.5 R, including:
- (a) the fact that the customer's failure to provide margin may lead to the firm closing out his position after a time limit specified by the firm;
- (b) the circumstances in which the firm will have the right or duty to close out the customer's position; and
- (4) the circumstances, other than failure to provide the required margin, that may lead to the firm closing out the customer's position without prior reference to him.
- 01/12/2001
Failure to meet a margin call
COB 7.10.5
See Notes
A firm must close out a private customer's open position if that customer fails to meet a margin call made for that position for five business days following the date on which the obligation to meet the call accrues, unless:
- (1)
- (a) the firm has received confirmation from a relevant third party that the private customer has given instructions to pay in full; and
- (b) the firm has taken reasonable care to establish that the delay in its receipt is owing to circumstances beyond the private customer's control; or
- (2) the firm makes a loan or grants credit to the private customer to enable that customer to pay the full amount of the margin call in accordance with the requirements of COB 7.9.3 R (Restrictions on lending to private customers).
- 01/12/2001
COB 7.10.6
See Notes
- 01/12/2001
COB 7.11
Non-exchange traded securities
- 01/12/2004
Application
COB 7.11.1
See Notes
This section applies to a firm that conducts designated investment business with or for a private customer and:
- (1) sells to the customer any security that is not traded on a recognised investment exchange, a designated investment exchange or any regulated market; and
- (2) holds itself out as a market maker in that security.
- 01/12/2001
Purpose
COB 7.11.2
See Notes
- 01/12/2001
Requirement for selling non-exchange traded securities to private customers
COB 7.11.3
See Notes
A firm must:
- (1) give written notice to a private customer, no later than the time of sale, that:
- (a) a reasonable price for repurchase of the security will be available to the private customer for a period, specified in that notice, that must not be less than three months from the date the notice is given; and
- (b) sale by the private customer of the security after the end of that period may be difficult due to the nature and possible illiquidity of the security; and
- (2) ensure that a reasonable price is available to the private customer for the duration of the period specified in the notice.
- 01/12/2001
COB 7.11.4
See Notes
- 01/12/2001
COB 7.11.5
See Notes
- 01/12/2001
COB 7.12
Customer order and execution records
- 01/12/2004
Application
COB 7.12.1
See Notes
This section applies to a firm that:
- (1) receives (or, in the exercise of its discretion, decides upon) a customer order;
- (2) executes a customer order;
- (3) passes a customer order to another person for execution; or
- (4) in addition to (1), (2) or (3), also executes own account transactions;
in any designated investment other than a life policy.
- 01/12/2001
Purpose
COB 7.12.2
See Notes
- 01/12/2001
Record keeping requirement
COB 7.12.3
See Notes
- 01/12/2001
COB 7.12.4
See Notes
- (1) When an event in the left-hand column of COB 7.12.6 E occurs, a firm should make a record of the matters set out in the right-hand column that relate to that event.
- (2) Compliance with (1) may be relied on as tending to establish compliance with COB 7.12.3 R.
- (3) Contravention of (1) may be relied on as tending to establish contravention of COB 7.12.3 R.
- 01/12/2001
COB 7.12.5
See Notes
- 01/09/2002
COB 7.12.6
See Notes
Minimum contents of customer order and execution records
This table belongs to COB 7.12.3 R
When: | The firm should record: | ||
(1) | a customer order arises | ||
(b) | the date and time of: | ||
(i) | receipt by the firm of the customer order; or | ||
(ii) | the decision by the firm to deal; | ||
(c) | the identity of the employee who received the customer order or made the decision in (b)(i) and (ii); | ||
(d) | (i) | the designated investment concerned; and | |
(ii) | the number of, or total value of, the designated investment (including any price limit); | ||
(e) | whether the customer order is for a purchase or sale; and | ||
(f) | any other instruction received by the firm from the customer with regard to the execution of the customer order. | ||
(2) | the firm executes a transaction | ||
(a) | the name or other designation and account number of the client (if any) for whom the transaction was executed (unless the transaction was an own account transaction); | ||
(b) | the name of the counterparty, if known to the firm; | ||
(c) | the date and if available, the time of the transaction; | ||
(d) | the identity of the employee executing the transaction; | ||
(e) | (i) | the designated investment concerned; and | |
(ii) | the number of, or total value of, the designated investment; | ||
(f) | the price and other significant terms (including exchange rate details if relevant); and | ||
(g) | whether the transaction was a purchase or a sale. | ||
(h) | [deleted] | ||
(3) | the firm passes a customer order to another person for execution | ||
(a) | the name of the person instructed; | ||
(b) | the terms of the instruction; and | ||
(c) | the date and time that the instruction was given. |
- 01/09/2002
COB 7.12.7
See Notes
- 01/12/2001
COB 7.12.8
See Notes
- 01/12/2001
Orders received over the Internet
COB 7.12.9
See Notes
- 01/12/2001
COB 7.12.10
See Notes
- 01/12/2001
Period of retention
COB 7.12.11
See Notes
- 01/12/2001
COB 7.13
Personal account dealing
- 01/12/2004
Application
COB 7.13.1
See Notes
- 01/12/2001
COB 7.13.2
See Notes
- 01/12/2001
Purpose
COB 7.13.3
See Notes
- 01/12/2001
Restrictions on personal account dealing
COB 7.13.4
See Notes
A firm must take reasonable steps to ensure that:
- (1) a personal account transaction in a designated investment undertaken by any of its employees does not conflict with the firm's duties to its customers under the regulatory system, unless COB 7.13.6 R applies; and
- (2) when it permits an employee to undertake a personal account transaction in a designated investment in relation to which the firm conducts designated investment business, or in any related investment, it receives prompt notification of, or is otherwise able to identify, that transaction.
- 01/03/2003
COB 7.13.5
See Notes
Firms should note that an employee is defined in the Glossary (for the purposes of this section) as meaning not just an individual who is employed or appointed by a firm but also an individual who is:
- (1) an appointed representative of a firm; or
- (2) employed or appointed by an appointed representative of a firm, whether under a contract of service or services or otherwise.
So, where a firm has one or more appointed representatives, COB 7.13.4 R will apply to the firm in relation to, for example, employees of its appointed representative in exactly the same way as it would were those individuals employed by the firm itself.
- 01/12/2001
Exceptions
COB 7.13.6
See Notes
COB 7.13.4 R does not apply to:
- (1) an employee who is a sole trader whose regulated activities consist only of own account transactions; or
- (2) an employee, if the firm has taken reasonable steps to determine that the employee will not be involved to any material extent in, or have access to information about, the firm's designated investment business. Firms are reminded that there are further provisions relating to the management and activities of investment analysts in COB 7.16.
- 01/12/2001
COB 7.13.6A
See Notes
- 01/05/2004
Reasonable steps
COB 7.13.7
See Notes
- (1) For the purposes of COB 7.13.4 R, a firm's "reasonable steps" should ensure that:
- (a) the restrictions, and the basis, if any, upon which its employees may undertake personal account transactions, are set out in a written notice drawn explicitly to the attention of each employee, and that the contents of such a notice are made a term of his contract of employment or contract for services;
- (a)A an investment analyst may not undertake a personal account transaction in a designated investment if the investment analyst prepares investment research which is published or distributed to clients:
- (i) on that designated investment or its issuer; or
- (ii) on a related investment, or its issuer; unless the personal account transaction is:
- (iii) not contrary to any published or distributed recommendation for which he is responsible as an employee of the firm, which has not been withdrawn; or
- (iv) to realise the cash value of a holding or position, is undertaken in order to meet an obligation of the investment analyst which is not related to any designated investment within (i) or (ii), and is one to which the firm has given its permission in writing;
- (b) the written notice in (1)(a) states that, if an employee is precluded from entering into a transaction for his own account, he must not (except in the proper course of his employment):
- (i) procure any other person to enter into such a transaction; or
- (ii) communicate any information or opinion to any other person if he knows, or ought to know, that the person will, as a result, enter into such a transaction, or counsel or procure some other person to do so; and
- (c) procedures are established and maintained by the firm that are appropriate to its business, and that are designed with a view to ensuring that:
- (i) each of its employees does not undertake a personal account transaction in a designated investment in relation to which the firm conducts designated investment business, or in any related investment, unless the firm has given its permission in writing to that transaction, or to transactions generally in designated investments of that kind;
- (ii) when the firm gives such permission, the requirements in COB 7.13.4 R (1) are complied with.
- (2) Compliance with (1) may be relied upon as tending to establish compliance with COB 7.13.4 R.
- (3) Contravention of (1) may be relied on as tending to establish contravention of COB 7.13.4 R.
- 01/05/2004
COB 7.13.8
See Notes
- 01/12/2001
COB 7.13.9
See Notes
- 01/12/2001
COB 7.13.10
See Notes
- 01/05/2004
COB 7.13.10A
See Notes
- (1) Because of the nature of the conflicts of interest that arise, a firm may decide:
- (a) that an investment analyst should be prohibited from carrying out any personal account transactions at all; or
- (b) that an investment analyst should be prohibited from undertaking a personal account transaction in a designated investment if the investment analyst prepares investment research:
- (i) on that designated investment or its issuer; or
- (ii) on a related investment, or its issuer; or
- (iii) on a designated investment or an issuer which belongs to the same industry or business sector as that designated investment; or
- (c) that there should be a prohibition on personal account transactions by investment analysts for a limited time covering a period before and after the intended publication date for investment research.
- (2) If a firm does impose a prohibition, it may wish to make clear to the employee whether or not the prohibition extends to the sorts of transaction which the Glossary excludes from the definition of personal account transaction (for example, transactions in units in regulated collective investment schemes, and certain discretionary transactions).
- 01/12/2004
Record keeping requirements
COB 7.13.11
See Notes
- (1) A firm must make a record of:
- (a) the restrictions upon personal account dealing and the basis upon which any permission to deal is made;
- (b) each permission given by it under COB 7.13.4 R (2) ;
- (c) each notification made to it under COB 7.13.4 R (2) ;
- (d) in respect of COB 7.13.6 R (2), the basis upon which the firm has determined that an employee will not be involved in, or have access to information about, the firm's designated investment business; and
- retain these records for the minimum period specified in (2), (3) or (4), as the case may be.
- (2) In relation to a record under (1)(a), the period is three years from the date that the restrictions or basis were communicated to the employee.
- (3) In relation to each permission and notification in (1)(b) and (c), the period is three years from the date that the permission or notification was made.
- (4) In relation to a record under (1)(d), the period is three years after the date on which the individual ceases to be an employee.
- 01/12/2001
COB 7.13.12
See Notes
- 01/12/2001
COB 7.14
Programme trading
- 01/12/2004
Application
COB 7.14.1
See Notes
- 01/12/2001
Purpose
COB 7.14.2
See Notes
- 01/12/2001
Programme trading
COB 7.14.3
See Notes
- 01/12/2001
COB 7.14.4
See Notes
- 01/12/2001
COB 7.14.5
See Notes
- 01/12/2001
COB 7.15
Non-market-price transactions
- 01/12/2004
Application
COB 7.15.1
See Notes
- 01/12/2001
Purpose
COB 7.15.2
See Notes
- 01/12/2001
Non-market-price transactions
COB 7.15.3
See Notes
- 01/12/2001
COB 7.15.4
See Notes
COB 7.15.3 R does not apply to:
- (1) a transaction in an asset in a personal pension scheme, unless that asset is itself a designated investment; or
- (2) a non-market-price transaction if it is subject to the rules of a recognised investment exchange.
- 06/04/2007
- Past version of COB 7.15.4 before 06/04/2007
COB 7.15.5
See Notes
- 01/12/2001
COB 7.16
Investment research
- 01/12/2004
Application
COB 7.16.1
See Notes
- 01/07/2004
Purpose
COB 7.16.2
See Notes
- 01/07/2004
Conflicts of interest in investment research: general
COB 7.16.3
See Notes
- 01/07/2004
COB 7.16.4
See Notes
- 01/07/2004
Policies for managing conflicts of interest: impartial investment research
COB 7.16.5
See Notes
- (1) This rule applies to a firm that publishes or distributes investment research and where either:
- (a) the firm holds it out (in whatever terms) as being an impartial assessment of the value or prospects of its subject matter; or
- (b) it is reasonable for those to whom the firm has published or distributed it to rely on it as an impartial assessment of the value or the prospects of its subject matter.
- (2) If this rule applies, a firm must:
- (a) establish and implement a policy, appropriate to the firm, for managing effectively the conflicts of interest which might affect the impartiality of investment research of the type described in (1);
- (b) make a record of the policy and retain it until at least three years after it ceases to have effect;
- (c) take reasonable steps to ensure that it and its employees comply with the policy;
- (d) make available to any person in writing, on request, a copy of the policy (for example, by including it on an appropriate website); and
- (e) take reasonable steps to ensure that the policy remains appropriate and effective.
- (3) The policy must identify the types of investment research to which it applies, and must make provision for systems, controls and procedures (making clear the extent to which the firm's policy relies on Chinese walls or other information barriers within the firm):
- (a) to identify conflicts of interest which might affect the impartiality of the investment research to which the policy relates; and
- (b) to manage effectively conflicts of interest, to the extent that they arise or might arise within the firm, in relation to at least the following:
- (i) the supervision and management of investment analysts;
- (ii) the remuneration structure for investment analysts;
- (iii) the extent to which investment analysts may become involved in activities other than the preparation of the investment research;
- (iv) the extent to which (if at all) inducements offered by issuers, or others with material interest in the subject matter of investment research, may be accepted by investment analysts or senior employees of the firm;
- (v) who may comment on draft investment research before publication, and the process for taking account of their comments;
- (vi) the timing and manner of publication and distribution of investment research and of the communication of its substance; and
- (vii) what information or disclosures are appropriate to include in the investment research (taking due account of matters required by law).
- 01/07/2004
COB 7.16.6
See Notes
- (1) Investment research may be held out as impartial in various ways, for example if it is labelled with that term or similar terms like 'independent' or 'objective'. Even without this kind of labelling on the investment research itself, it may still be held out as impartial if, for example, the firm's representatives state that it is so (in writing or orally), or behave in a way that reasonably gives that impression.
- (2) The policy a firm makes available under COB 7.16.5 R(2) is likely to be implemented by detailed procedures and operational arrangements. Those detailed procedures and operational arrangements need not be published.
- 01/07/2004
Policy content: general
COB 7.16.7
See Notes
- 01/07/2004
COB 7.16.8
See Notes
A firm's policy under COB 7.16.5 R should be appropriate for its own structure and business. The policy will therefore need to take account of the following factors (further guidance on what an appropriate policy might cover is set out in COB 7.16.9 G to COB 7.16.15 G, not all of which will be relevant to every firm):
- (1) the firm's size and organisational structure;
- (2) the classification under COB 4.1 of its clients, to whom the investment research is published or distributed, and their experience and expertise;
- (3) the nature of the investments in relation to which (or in relation to the issuers of which) the firm publishes or distributes investment research; and
- (4) the nature of the business which it conducts with or for its clients and on its own account.
- 01/12/2004
- Past version of COB 7.16.8 before 01/12/2004
Policy content: supervision and remuneration of analysts
COB 7.16.9
See Notes
If an individual (such as someone involved in raising capital for a corporate client) has responsibilities that might reasonably be considered to conflict with the interests of the clients to whom the investment research is published or distributed, it will not usually be appropriate for him to be responsible for:
- (1) the day to day supervision or control of an investment analyst;
- (2) decisions on the subject matter or content of investment research or the timing of its publication (though it may be appropriate for him to have an opportunity to check the accuracy of the facts relied on in the investment research);
- (3) determining the remuneration of an investment analyst.
- 01/07/2004
COB 7.16.10
See Notes
- (1) An investment analyst's remuneration should be structured so as not to create (or reasonably suggest the creation of) an incentive which is inconsistent with the provision of an impartial assessment of the subject matter of investment research by the analyst.
- (2) An investment analyst's remuneration should not be linked to a specific transaction, or to recommendations contained in investment research, but it may be linked to the general profits of the firm.
- 01/07/2004
Policy content: involvement of analysts in other activities
COB 7.16.11
See Notes
- (1) An investment analyst should not be involved in activities in a way which suggests that he is representing the interests of the firm or a client if this is likely reasonably to appear to be inconsistent with providing an impartial assessment of the value or prospects of the relevant investments.
- (2) A firm's policy may allow it to use an investment analyst's knowledge and information to assist it to research corporate finance business opportunities, to provide ideas to sales or trading staff, or to provide information and advice to the firm's investment clients.
- (3) It is likely to be inappropriate for the policy to allow the firm to:
- (a) use an investment analyst in a marketing capacity (for example in pitches to solicit or obtain corporate finance business from the issuer of a relevant investment), if this would give a reasonable perception of lack of impartiality in his investment research; or
- (b) allow an investment analyst to act in a way which reasonably appears to be representing the issuer of a relevant investment, for example, in roadshows relating to issues or allocations of relevant investments.
- 01/07/2004
Policy content: avoiding inappropriate influences
COB 7.16.12
See Notes
Firms should put in place arrangements so that investment research sets out impartial views about the value or prospects of the relevant investment or the relevant issuer of the investment analyst or analysts responsible for its content. For example:
- (1) the firm should prohibit any of its investment analysts or other employees, from offering or accepting an inducement to provide favourable investment research (COB 2.2.3 R requires the firm itself to take reasonable steps to ensure that such inducements are not offered, given, solicited or accepted);
- (2) the firm should not give effective editorial control to someone whose role or commercial interests might reasonably be considered to conflict with the interests of the clients to whom the investment research is to be published or distributed; accordingly, a firm should:
- (a) not allow anyone other than an investment analyst (such as a relevant issuer) to approve the content of investment research before publication; and
- (b) only allow a person outside the firm (such as a relevant issuer), or any employee other than the investment analyst, to view it before its publication for verification of factual information in the investment research.
- 01/07/2004
Policy content: means and timing of publication
COB 7.16.13
See Notes
A firm's policy and procedures should provide for investment research to be published or distributed to its clients in an appropriate manner. For example it will be:
- (1) appropriate for a firm to take reasonable steps to ensure that its investment research is published or distributed only through its usual channels, as set out in the policy;
- (2) inappropriate for an employee (whether or not an investment analyst) to communicate the substance of any investment research, except as set out in the policy.
- 01/07/2004
COB 7.16.14
See Notes
- 01/07/2004
Policy content: disclosures
COB 7.16.15
See Notes
- 01/07/2004
COB 7.17
Investment research recommendations: required disclosures
- 01/07/2005
Application
COB 7.17.1
See Notes
- (1) This section applies to a firm that prepares or disseminates research recommendations.
- (2) This section does not apply to the extent that the Investment Recommendation (Media) Regulations 2005 apply to a firm.
- (3) If a firm is a media firm subject to equivalent appropriate regulation only COB 7.17.2 G, COB 7.17.3 G, COB 7.17.5 R, COB 7.17.16 R and COB 7.17.17 R apply.
[Note: Articles 2(4), 3(4), 5(5) 2003/125/EC]
- 01/07/2005
COB 7.17.2
See Notes
- 01/07/2005
Purpose
COB 7.17.3
See Notes
- 01/07/2005
Use of Chinese walls
COB 7.17.4
See Notes
[Note: Recital 7 2003/125/EC]
- 01/07/2005
Fair presentation and disclosure
COB 7.17.5
See Notes
A firm must take reasonable care:
- (1) to ensure that a research recommendation produced or disseminated by it is fairly presented; and
- (2) to disclose its interests or indicate conflicts of interest concerning relevant investments.
[Note: Article 6(5) Market Abuse Directive]
- 01/07/2005
Identity of producers of recommendations
COB 7.17.6
See Notes
- (1) A firm must, in a research recommendation produced by it:
- (a) disclose clearly and prominently the identity of the person responsible for its production, and in particular:
- (i) the name and job title of the individual who prepared the research recommendation; and
- (ii) the name of the firm; and
- (b) include the relevant status disclosure specified in GEN 4 Annex 1 RR.
- (2) The requirements in (1) may be met for non-written research recommendations by referring to a place where the disclosures can be directly and easily accessed by the public, such as an appropriate internet site of the firm.
[Note: Article 2 2003/125/EC]
- 01/07/2005
General standard for fair presentation of recommendations
COB 7.17.7
See Notes
- (1) A firm must take reasonable care to ensure that:
- (a) facts in a research recommendation are clearly distinguished from interpretations, estimates, opinions and other types of non-factual information;
- (b) its sources for a research recommendation are reliable or if there is any doubt as to whether a source is reliable, this is clearly indicated;
- (c) all projections, forecasts and price targets in a research recommendation are clearly labelled as such and the material assumptions made in producing or using them are indicated; and
- (d) the substance of its research recommendations can be substantiated as reasonable, upon request by the FSA.
- (2) The requirements in (1) do not apply, in the case of non-written research recommendations, to the extent that they would be disproportionate.
- (3) A firm must make and retain sufficient records to disclose the basis of the substantiation required in (1)(d).
[Note: Article 3 2003/125/EC]
- 01/07/2005
Additional obligations in relation to fair presentation of recommendations
COB 7.17.8
See Notes
- (1) In addition a firm must take reasonable care to ensure that, in a research recommendation, at least:
- (a) all substantially material sources are indicated, including, if appropriate, the issuer, and in particular the research recommendation indicates whether the research recommendation has been disclosed to that issuer and amended following this disclosure before its dissemination;
- (b) any basis of valuation or methodology used to evaluate a security, a derivative or an issuer, or to set a price target for a security or a derivative, is adequately summarised;
- (c) the meaning of any recommendation made, such as "buy", "sell" or "hold", which may include the time horizon of the security or derivative to which the research recommendation relates, is adequately explained and any appropriate risk warning, including a sensitivity analysis of the relevant assumptions, indicated;
- (d) reference is made to the planned frequency, if any, of updates of the research recommendation and to any major changes in the coverage policy previously announced;
- (e) the date at which the research recommendation was first released for distribution is indicated clearly and prominently, as well as the relevant date and time for any security or derivative price mentioned; and
- (f) if the substance of a research recommendation differs from the substance of an earlier research recommendation, concerning the same security, derivative or issuer issued during the 12-month period immediately preceding its release, this change and the date of the earlier research recommendation are indicated clearly and prominently.
- (2) If the requirements in (1)(a), (b) or (c) would be disproportionate in relation to the length of the research recommendation, a firm may, instead, make clear and prominent reference in the research recommendation to the place where the required information can be directly and easily accessed by the public (such as a hyperlink to that information on an appropriate internet site of the firm) provided that there has been no change in the methodology or basis of valuation used.
- (3) In the case of a non-written research recommendation, the requirements of (1) do not apply to the extent that they would be disproportionate.
[Note: Article 4 2003/125/EC]
- 01/07/2005
COB 7.17.9
See Notes
- 01/07/2005
General standard for disclosure of interests and conflicts of interest
COB 7.17.10
See Notes
- (1) A firm must disclose, in a research recommendation:
- (a) all of its relationships and circumstances that may reasonably be expected to impair the objectivity of the research recommendation, in particular a significant financial interest in any relevant investment which is the subject of the research recommendation, or a significant conflict of interest with respect to a relevant issuer; and
- (b) relationships and circumstances, of the sort referred to in (a), of each legal or natural person working for the firm who was involved in preparing the substance of the research recommendation, including, in particular, for a firm which is an investment firm, disclosure of whether his remuneration is tied to investment banking transactions performed by the firm or any affiliated company.
- (2) If the firm is a legal person, the information to be disclosed in accordance with (1) must at least include the following:
- (a) any interests or conflicts of interest of the firm or of an affiliated company that are accessible, or reasonably expected to be accessible, to the persons involved in the preparation of the substance of the research recommendation; and
- (b) any interests or conflicts of interest of the firm or of affiliated companies known to persons who, although not involved in the preparation of the substance of the research recommendation, had or could reasonably be expected to have access to the substance of the research recommendation prior to its dissemination, other than persons whose only access to the research recommendation is to ensure compliance with relevant regulatory or statutory obligations, including the disclosures required under COB 7.17.
- (3) If the disclosures required under (1) and (2) would be disproportionate in relation to the length of the research recommendation distributed, a firm may, instead, make clear and prominent reference in the research recommendation to the place where such disclosures can be directly and easily accessed by the public (such as a hyperlink to the disclosure on an appropriate internet site of the firm).
- (4) The requirements in (1) do not apply, in the case of non-written research recommendations, to the extent that they are disproportionate.
[Note: Article 5 2003/125/EC]
- 01/07/2005
Additional obligations for producers of research recommendations in relation to disclosure of interests or conflicts of interest
COB 7.17.11
See Notes
- (1) A research recommendation produced by a firm must disclose clearly and prominently the following information on its interests and conflicts of interest:
- (a) major shareholdings that exist between it or any affiliated company on the one hand and the relevant issuer on the other hand, including at least:
- (i) shareholdings exceeding 5 % of the total issued share capital in the relevant issuer held by the firm or any affiliated company, or
- (ii) shareholdings exceeding 5 % of the total issued share capital of the firm or any affiliated company held by the relevant issuer;
- (b) any other financial interests held by the firm or any affiliated company in relation to the relevant issuer which are significant in relation to the research recommendation;
- (c) if applicable, a statement that the firm or any affiliated company is a market maker or liquidity provider in the securities of the relevant issuer or in any related derivatives;
- (d) if applicable, a statement that the firm or any affiliated company has been lead manager or co-lead manager over the previous 12 months of any publicly disclosed offer of securities of the relevant issuer or in any related derivatives;
- (e) if applicable, a statement that the firm or any affiliated company is party to any other agreement with the relevant issuer relating to the provision of investment banking services, provided that:
- (i) this would not entail the disclosure of any confidential commercial information; and
- (ii) the agreement has been in effect over the previous 12 months or has given rise during the same period to a payment or to the promise of payment; and
- (f) if applicable, a statement that the firm or any affiliated company is party to an agreement with the relevant issuer relating to the production of the research recommendation.
- (2) A firm must disclose, in general terms, in the research recommendation the effective organisational and administrative arrangements set up within the firm for the prevention and avoidance of conflicts of interest with respect to research recommendations, including information barriers.
- (3) In the case of an investment firm or a credit institution, if a legal or natural person working for the firm who is involved in the preparation of a research recommendation, receives or purchases shares of the relevant issuer prior to a public offering of those shares, the price at which the shares were acquired and the date of acquisition must also be disclosed in the research recommendation.
- (4) A firm, which is an investment firm or a credit institution, must publish the following information on a quarterly basis, and must disclose it in its research recommendations:
- (a) the proportion of all research recommendations published during the relevant quarter that are "buy", "hold", "sell" or equivalent terms; and
- (b) the proportion of relevant investments in each of these categories, issued by issuers to which the firm supplied material investment banking services during the previous 12 months.
- (5) If the requirements under (1) to (4) would be disproportionate in relation to the length of the research recommendation, a firm may, instead, make clear and prominent reference in the research recommendation to the place where such disclosure can be directly and easily accessed by the public (such as a hyperlink to the disclosure on an appropriate internet site of the firm, or, if relevant, to the document published under COB 7.16.5 R (2)).
- (6) In the case of non-written research recommendations, the requirements of (1) do not apply to the extent that they are disproportionate.
[Note: Article 6 2003/125/EC]
- 01/07/2005
COB 7.17.12
See Notes
- 01/07/2005
COB 7.17.13
See Notes
- 01/07/2005
COB 7.17.14
See Notes
COB 7.17.15
See Notes
- 01/07/2005
Identity of disseminators of recommendations
COB 7.17.16
See Notes
[Note: Article 7 2003/125/EC]
- 01/07/2005
General standard for dissemination of third party recommendations
COB 7.17.17
See Notes
- (1) If a research recommendation produced by a third party is substantially altered before dissemination by a firm:
- (a) the disseminated material must clearly describe that alteration in detail; and
- (b) if the substantial alteration consists of a change of the direction of the recommendation (such as changing a "buy" recommendation into a "hold" or "sell" recommendation or vice versa), the requirements laid down in COB 7.17.6 R to COB 7.17.12 G on producers must be met by the firm, to the extent of the substantial alteration.
- (2) A firm which disseminates a substantially altered research recommendation must have a formal written policy so that the persons receiving the information may be directed to where they can have access to the identity of the producer of the research recommendation, the research recommendation itself and the disclosure of the producer's interests or conflicts of interest, provided that these elements are publicly available.
- (3) If a firm disseminates a summary of a research recommendation produced by a third party, it must:
- (a) ensure that the summary is fair, clear and not misleading;
- (b) identify the source research recommendation; and
- (c) identify where (to the extent that they are publicly available) the third party's disclosures relating to the source research recommendation can be directly and easily accessed by the public.
- (4) Paragraphs (1) and (2) do not apply to news reporting on research recommendations produced by a third party where the substance of the research recommendation is not altered.
[Note: Article 8 2003/125/EC]
- 01/07/2005
Additional obligations for investment firms and credit institutions disseminating third party recommendations
COB 7.17.18
See Notes
If a firm, which is an investment firm or a credit institution, disseminates a research recommendation produced by a third party:
- (1) the relevant status disclosure specified in GEN 4 Annex 1 R for the firm must be clearly and prominently indicated on the disseminated material;
- (2) if the producer of the research recommendation has not already disseminated it, the requirements in COB 7.17.11 R must be met by the firm as if it had produced the research recommendation itself; and
- (3) if the firm has substantially altered the research recommendation, the requirements laid down in COB 7.17.5 R to COB 7.17.11 R must be met by the firm as if it had produced the research recommendation itself.
[Note: Article 9 2003/125/EC]
- 01/07/2005
COB 7.18
Use of dealing commission
- 01/01/2006
Application
COB 7.18.1
See Notes
- (1) This section applies to a firm that acts as an investment manager when it executes customer orders that relate to the designated investments specified in (2).
- (2) The designated investments for the purposes of (1) are:
- (a) shares; and
- (b)
- (i) warrants;
- (ii) certificates representing certain securities;
- (iii) options; and
- (iv) rights to or interests in investments of the nature referred to in (i) to (iii);
- to the extent that they relate to shares.
- 01/01/2006
Purpose
COB 7.18.2
See Notes
- 01/01/2006
Use of dealing commission to purchase goods or services
COB 7.18.3
See Notes
- (1) An investment manager must not execute customer orders under arrangements coming within (2), unless the conditions in (3) are satisfied.
- (2) The arrangements referred to in (1) are that the investment manager:
- (a) executes its customer orders through a broker or another person;
- (b) passes on the brokers or other person's charges (whether commission or otherwise) to its customers; and
- (c) in return for the charges referred to in (b), receives goods or services in addition to the execution of its customer orders.
- (3) The conditions referred to in (1) are that the investment manager has reasonable grounds to be satisfied that the goods or services in (2)(c):
- (a)
- (i) are related to the execution of trades on behalf of the investment manager's customers; or
- (ii) comprise the provision of research; and
- (b) will reasonably assist the investment manager in the provision of its services to its customers on whose behalf the orders are being executed and do not, and are not likely to, impair compliance with the duty of the investment manager to act in the best interests of its customers.
- 01/01/2006
COB 7.18.4
See Notes
- (1) Where the goods or services relate to the execution of trades, an investment manager should have reasonable grounds to be satisfied that the requirements of COB 7.18.3 R are met if the goods or services are:
- (a) linked to the arranging and conclusion of a specific investment transaction (or series of related transactions); and
- (b) provided between the point at which the investment manager makes an investment or trading decision and the point at which the investment transaction (or series of related transactions) is concluded.
- (2) Compliance with (1) may be relied upon as tending to establish compliance with COB 7.18.3 R.
- 01/01/2006
COB 7.18.5
See Notes
- (1) Where the goods or services relate to the provision of research, an investment manager will have reasonable grounds to be satisfied that the requirements of COB 7.18.3 R are met if the research:
- (a) is capable of adding value to the investment or trading decisions by providing new insights that inform the investment manager when making such decisions about its customers' portfolios;
- (b) whatever form its output takes, represents original thought, in the critical and careful consideration and assessment of new and existing facts, and does not merely repeat or repackage what has been presented before;
- (c) has intellectual rigour and does not merely state what is commonplace or self-evident; and
- (d) involves analysis or manipulation of data to reach meaningful conclusions.
- (2) Compliance with (1) may be relied upon as tending to establish compliance with COB 7.18.3 R.
- 01/01/2006
COB 7.18.6
See Notes
- 01/01/2006
COB 7.18.7
See Notes
- 01/01/2006
COB 7.18.8
See Notes
(a) | services relating to the valuation or performance measurement of portfolios; |
(b) | computer hardware; |
(c) | connectivity services such as electronic networks and dedicated telephone lines; |
(d) | seminar fees; |
(e) | subscriptions for publications; |
(f) | travel, accommodation or entertainment costs; |
(g) | order and execution management systems; |
(ga) | office administrative computer software, such as word processing or accounting programmes; |
(h) | membership fees to professional associations; |
(i) | purchase or rental of standard office equipment or ancillary facilities; |
(j) | employees salaries; |
(k) | direct money payments; |
(l) | publicly available information; and |
(m) | custody services relating to designated investments belonging to, or managed for, customers other than those services that are incidental to the execution of trades. |
- 06/04/2007
- Past version of COB 7.18.8 before 06/04/2007
COB 7.18.9
See Notes
- 01/01/2006
COB 7.18.10
See Notes
- 01/01/2006
COB 7.18.11
See Notes
- 01/01/2006
Prior and periodic disclosure
COB 7.18.12
See Notes
- (1) If an investment manager enters into arrangements for the receipt of goods or services that relate to the execution of trades or the provision of research in accordance with COB 7.18.3 R (Use of dealing commission to purchase goods or services), it must in a timely manner make adequate:
- (a) prior disclosure; and
- (b) periodic disclosure;
- to its customers of the arrangements entered into.
- (2) The adequate disclosure in (1) must include details of the goods or services that relate to the execution of trades and, wherever appropriate, separately identify the details of the goods or services that are attributable to the provision of research.
- 01/01/2006
Making prior and periodic disclosure in a timely manner
COB 7.18.13
See Notes
- (1) For the purposes of COB 7.18.12 R, a firm should make prior and periodic disclosure to its customers in accordance with the requirements of this rule.
- (2) For a new customer, the firm should make the prior disclosure before it conducts any designated investment business for him.
- (3) For an existing customer, the firm should make the prior disclosure by the earlier of:
- (a) 1 July 2006; and
- (b) the date that the firm makes its first periodic disclosure to its customers in accordance with COB 7.18.12 R.
- (4) A firm will make periodic disclosure to its customers in a timely manner if it is made at least once a year.
- (5) Compliance with (1) to (4) may be relied upon as tending to establish compliance with COB 7.18.12 R (1).
- 01/01/2006
COB 7.18.14
See Notes
- (1) The prior disclosure required by COB 7.18.12 R (1) should include an adequate disclosure of the firm's policy relating to the receipt of goods or services that relate to the execution of trades or the provision of research in accordance with COB 7.18.3 R (Use of dealing commission to purchase goods or services). The prior disclosure should explain generally why the firm might find it necessary or desirable to use dealing commission to purchase goods or services, bearing in mind the practices in the markets in which it does business on behalf of its customers. While the appropriate method of making such a disclosure is for the firm to decide, this could, for example, be achieved by a change to its terms of business.
- (2) In assessing the adequacy of disclosures made by an investment manager under COB 7.18.12 R, the FSA will have regard to the extent to which investment managers adopt disclosure standards developed by industry associations such as the Investment Management Association, the National Association of Pension Funds and the London Investment Banking Association.
- 01/01/2006
Prohibition of inducements
COB 7.18.15
See Notes
- 01/01/2006
Record keeping
COB 7.18.16
See Notes
- 01/01/2006
COB 8
Reporting
to customers
COB 8.1
Confirmation of transactions
- 01/12/2004
Application
COB 8.1.1
See Notes
- 01/12/2001
Purpose
COB 8.1.2
See Notes
- 01/12/2001
Requirement to confirm a transaction
COB 8.1.3
See Notes
- (1) A firm must, subject to COB 8.1.6 R, despatch to the customer a written confirmation recording the essential details of the transaction, and must do so promptly.
- (2) For the purposes of (1), a firm may despatch a confirmation to an agent, other than the firm or an associate of the firm, nominated by the customer in writing.
- 01/12/2001
COB 8.1.4
See Notes
- (1) Regarding the electronic provision of a confirmation, see COB 1.8 (Application to electronic media).
- (2) A firm may comply with COB 8.1.3 R (1) by posting a confirmation on its website, provided that the confirmation is only accessible to the party that placed the order. If the firm does this for a private customer, it should regularly review the website to ensure that the customer has reviewed his confirmations. If the private customer has not accessed his confirmation within five days of it being posted on the website, the firm should send the confirmation to him either in hard copy or electronically.
- 01/12/2001
Essential details and prompt despatch
COB 8.1.5
See Notes
- (1) A firm should provide the following essential details of a transaction, to the extent they are relevant:
- (a) the information specified in:
- (i) COB 8.1.15 E for all transactions;
- (ii) COB 8.1.16 E in particular circumstances;
- (iii) COB 8.1.17 E for transactions in units in a regulated collective investment scheme;
- (iv) COB 8.1.18 E for transactions in derivatives;
- (v) COB 8.1.19 E upon the exercise of an option; or
- (b) such information as the customer has agreed with the firm (in the case of a private customer, agreed in writing with his informed consent), or is in accordance with the custom of a non-UK market in which the transaction was arranged; or
- (c) a copy of a confirmation received by the firm from a third party together with any other information provided by the firm which, when taken together, satisfies (1)(a).
- (2) To despatch a confirmation promptly, a firm should:
- (a) despatch it no later than the business day following the day the transaction was executed (as specified in COB 8.1.12 R) or within any period agreed with the customer (in the case of a private customer, agreed in writing with his informed consent); or
- (b) despatch a copy of a confirmation received from a third party together with additional information, if any, to the customer as soon as practicable, but in any event no later than the business day following receipt; or
- (c) when the firm has issued or redeemed units in a regulated collective investment scheme, despatch it at the latest on the business day following the day the issue or redemption price was determined, unless (b) applies; or
- (d) when a firm executes a transaction in:
- (i) an OTC derivative; or
- (ii) stock lending or borrowing; or
- (iii) a repo; or
- (iv) rights to or interests in OTC derivatives;
- despatch a confirmation as soon as practicable in accordance with proper standards of market practice for the investment concerned.
- (3) Compliance with (1) and (2) may be relied upon as tending to establish compliance with COB 8.1.3 R.
- (4) Contravention of (1) or (2) may be relied upon as tending to establish contravention of COB 8.1.3 R.
- 01/01/2003
Exceptions to the requirement to despatch a confirmation
COB 8.1.6
See Notes
A firm need not despatch a confirmation when:
- (1) the designated investment is a life policy or a personal pension contract; or
- (1A) the designated investment is held within a CTF and the annual statement provided under the CTF Regulations includes the information that would have been contained in a confirmation despatched in accordance with COB 8.1.3 relating to the transactions executed during the relevant period (but information which has since become irrelevant may be excluded); or
- (2) an arrangement is in place for the customer to make a series of payments for the purchase of units in a regulated collective investment scheme or of shares in an investment trust (including one-off payments made in addition to those in the series); or
- (3) the firm has agreed with the customer (or, in the case of a private customer, agreed in writing with his informed consent) that confirmations need not be supplied, either generally or in specified circumstances (but see COB 8.1.7 R and COB 8.1.8 R); or
- (4) the firm is acting as an investment manager, or as an ISA manager or plan manager, and:
- (a) the designated investment is not a contingent liability investment;
- (b) the firm has taken reasonable steps to determine that the customer does not wish to receive confirmations, either generally or in specified circumstances; and
- (c) the firm complies with COB 8.1.7 R or COB 8.1.8 R; or
- (5) it would duplicate a confirmation containing the essential details of the transaction (other than those that are firm-specific) which is to be promptly despatched by someone else.
- 01/12/2004
COB 8.1.7
See Notes
- 01/01/2003
COB 8.1.8
See Notes
- 01/12/2001
COB 8.1.9
See Notes
- 01/12/2001
COB 8.1.10
See Notes
- 01/12/2001
When a confirmation may omit certain information
COB 8.1.11
See Notes
If:
the firm may omit this information from the confirmation, provided the fact of its omission is stated with an indication that it is to be supplied later (or that it cannot be supplied at all if that is the case). The relevant information must then be supplied to the customer promptly after receipt.
- 01/12/2001
When a transaction is treated as executed
COB 8.1.12
See Notes
- (1) When a firm executes a transaction outside normal market hours, the transaction must be treated as executed on the following business day.
- (2) When a firm executes a series of transactions, all the transactions may be treated as executed at the time of the last transaction so long as a record of the time that each individual transaction was executed is made, for example, by means of a time stamp.
- (3) When a firm aggregates and then subsequently allocates a customer order with an own account order or with another customer order, the transaction must be treated as executed at the time of allocation under COB 7.7.5 R (Requirement for timely allocation).
- 01/12/2001
COB 8.1.13
See Notes
- 01/12/2001
Record keeping requirements
COB 8.1.14
See Notes
- 01/12/2001
COB 8.1.15
See Notes
Content of a confirmation of transaction - general requirements
This table belongs to COB 8.1.5 E
Content of a confirmation of transaction - general requirements | |||
1. | The firm's name and address. | ||
2. | The firm's statutory status in accordance with GEN 4 Annex 1 (Statutory status disclosure). | ||
3. | If the firm (other than the operator of a regulated collective investment scheme) executed a transaction in a security as principal, that fact. | ||
4. | The customer's name or other designation and account number. | ||
5. | A description of the designated investment, including the amount invested. | ||
6. | Whether the transaction is a sale or purchase. | ||
7. | The unit price at which the transaction was executed, and, if the unit price is averaged including any price set in accordance with COB 7.7.12 R (Price of allocation), a statement of that fact. | ||
8. | The date of the transaction. | ||
9. | Either: | ||
(a) | the time of the transaction; or | ||
(b) | a statement that information about the time of the transaction will be supplied on request. | ||
10. | The total consideration payable and the date on which it is due. | ||
11. | Except if the firm is the operator of a collective investment scheme (subject to COB 8.1.17), the remuneration of the firm and that of any associate (unless that associate is not obliged to disclose it to the firm under this provision, as a result of the firm being its customer, or otherwise) in connection with the transaction, distinguishing: | ||
(a) | the amount of any commission charged; and | ||
(b) | the basis on which the commission has been determined, unless: | ||
(i) | all commission charged to the customer has already been disclosed to him; or | ||
(ii) | the basis has already been disclosed to him elsewhere; and | ||
(c) | if the firm or an associate acted as principal in executing the transaction, and the firm owes a duty of best execution to its customer, the amount of any mark-up or mark-down imposed by the firm or its associate. | ||
12. | The amount of any fees, taxes or duties, unless included in remuneration mentioned in 11. | ||
Note: If the transaction was for an intermediate customer, the firm need not identify separately the unit price and the remuneration of the firm and that of any associate in connection with the transaction, if the intermediate customer has requested a confirmation combining both of these items. Where the firm or its associate has executed the customer order against its own book, the firm need not, when disclosing remuneration under COB 8.1.15, disclose in the confirmation any trading or dealing profit which is not a commission or mark-up or mark-down. |
- 01/12/2004
- Past version of COB 8.1.15 before 01/12/2004
COB 8.1.16
See Notes
Content of a confirmation of transaction - additional content in particular circumstances
This table belongs to COB 8.1.5 E
Content of a confirmation of transaction - additional content in particular circumstances | |||
If the transaction involves: | The confirmation should state: | ||
1. | a conversion of currency; | the rate of exchange obtained; | |
2. | a firm receiving any payment or reward from another person in connection with the transaction; | unless a prior written statement to this effect has been made to the customer, the amount or basis of any payment or reward or the fact that this will be made available on request; | |
3. | the firm being remunerated for acting as an agent for the market counterparty to the transaction as well as acting as agent for the customer; | that fact; | |
4. | a right to receive interest on an investment (for example, in relation to a government or public security); | the number of days or amount of interest which the purchaser is required to pay for (or the vendor is entitled to receive) as part of the total consideration. | |
5. | charges shared with another person (except employees); | unless a prior written statement to this effect has been made to the customer, the amount or basis of any shared charges, or the fact that this will be made available on request; | |
6. | a security which is not a packaged product or a readily realisable security and | how the unit price of the transaction was arrived at or a statement that such information is available upon request | |
(a) | the firm acted as a principal in executing the transaction with the customer; | ||
(b) | there is no calculable mark-up or mark-down; and | ||
(c) | the firm owes duty of best execution; | ||
7. | units in an unregulated collective investment scheme of which the firm or one of its associates is the operator; | the amount or percentage of the operator's initial charges included in the price of those units; | |
8. | the firm's or an associate's remuneration being passed on by the firm to a third party as a reward for introducing the business; | the identity of the third party and the amounts passed on or the fact that details of such arrangements will be made available on request; | |
9. | any dividend or capitalisation or other right which has been declared, but which has not been paid, allotted or otherwise become effective in respect of the investment, and under the terms of the transaction the benefit of which will not pass to the purchaser. | that fact. |
- 01/12/2004
- Past version of COB 8.1.16 before 01/12/2004
COB 8.1.17
See Notes
Content of a confirmation of a transaction - additional content relating to transactions in units in a regulated collective investment scheme
This table belongs to COB 8.1.5 E
Content of a confirmation of transaction - additional content relating to transactions in units in a regulated collective investment scheme | ||
1. | If the firm is not the operator and the transaction was executed with the customer by the firm as principal, that fact. | |
2. | The name of the scheme and the type and number of units involved. | |
3. | The amount of: | |
(a) | the operator's initial charges (in cash or percentage terms), if any; and | |
(b) | any charges (other than the initial charges) made by the firm to the customer in respect of the transaction and, unless such charges to the customer are made on the same basis, the basis on which the amount of the charges was determined. | |
4. | A statement that the price at which the transaction has been executed is on an historic price or forward price basis, as the case may be. |
- 01/12/2004
- Past version of COB 8.1.17 before 01/12/2004
COB 8.1.18
See Notes
Content of a confirmation of a transaction - additional content relating to transactions in derivatives
This table belongs to COB 8.1.5 E
Content of a confirmation of transaction - additional content relating to transactions in derivatives | |
1. | The maturity, delivery or expiry date of the derivative. |
2. | In the case of an option, a reference to the last exercise date, whether it can be exercised before maturity and the strike price. |
3. | If the transaction involved, or will involve, the purchase of one currency with another, the rate of exchange involved or a statement that the rate will be supplied when the currency has been purchased, including the maturity or expiry date of any currency hedge, unless the currency hedge is separately reportable under COB 8.1.3. |
4. | If the transaction closes out an open futures position, all essential details required in respect of each contract comprised in the open position and each contract by which it was closed out and the profit or loss to the customer arising out of closing out that position (a difference account). |
- 01/12/2004
- Past version of COB 8.1.18 before 01/12/2004
COB 8.1.19
See Notes
Content of a confirmation of transaction - additional content on exercise of an option
This table belongs to COB 8.1.5 E
Content of a confirmation of transaction - additional content on exercise of an option (exercise confirmations) | |
1. | The date of exercise, and either the time of exercise or that the customer will be notified of that time on request. |
2. | Whether the exercise creates a sale or purchase in the underlying asset. |
3. | The strike price of the option (for a currency option, the rate of exchange will be the same as the strike price) and, if applicable, the total consideration from or to the customer. |
- 01/12/2004
- Past version of COB 8.1.19 before 01/12/2004
COB 8.2
Periodic statements
- 01/12/2004
Application
COB 8.2.1
See Notes
This section applies to a firm when it:
- (1) acts as an investment manager, or administers any other account or portfolio which includes designated investments, for a customer; or
- (2) operates a customer's account containing uncovered open positions in a contingent liability investment.
- (3)
- (a) sells a structured capital-at-risk product to a private customer; or
- (b) advises a private customer on a structured capital-at-risk product; or
- (c) communicates or approves a financial promotion relating to a structured capital-at-risk product to a person who is a private customer; or
- (d) manages the relevant assets of the issuer of a structured capital-at-risk product.
- 01/12/2001
COB 8.2.2
See Notes
Examples of uncovered open positions include:
- (1) selling a call option on an investment not held in the portfolio;
- (2) unsettled sales of call options on currency in amounts greater than the portfolio's holding of that currency in cash or in readily realisable securities denominated in that currency; and
- (3) transactions having the effect of "selling" an index to an amount greater than the portfolio's holdings of designated investments included in that index.
- 01/12/2001
Purpose
COB 8.2.3
See Notes
- 01/12/2001
Requirement for a periodic statement
COB 8.2.4
See Notes
- (1) A firm to which COB 8.2.1 R or (2)(2) applies must, promptly and at suitable intervals, provide the customer with a written statement containing adequate information on the value and composition of the customer's account or portfolio with the firm, as at the end of the period covered by the statement, unless COB 8.2.6 R applies.
- (2) A firm must not carry out any activity in COB 8.2.1 R (3) unless it:
- (a) provides; or
- (b) takes reasonable steps to ensure that there are arrangements for providing;
- promptly, and at suitable intervals, investors in a structured capital-at-risk product with a written statement containing adequate information on the value and composition of the investor's structured capital-at-risk product, as at the end of the period covered by the statement.
- (3) A firm need not comply with (2) if COB 8.2.6 R (Exceptions from the requirement to provide a periodic statement) applies.
- 01/12/2001
COB 8.2.5
See Notes
- 01/12/2001
Exceptions from the requirement to provide a periodic statement
COB 8.2.6
See Notes
A firm need not:
- (1) provide a periodic statement:
- (a) to a private customer habitually resident outside the United Kingdom;
- (b) to an intermediate customer, if the firm is not an OPS firm;
- (c) to an intermediate customer habitually resident outside the United Kingdom, if the firm is an OPS firm;
- if the customer concerned has so requested or the firm has taken reasonable steps to establish that he does not wish to receive it; or
- (2) provide a periodic statement if it would duplicate a statement to be provided by someone else; or
- (3) provide a periodic statement in respect of a CTF if the annual statement provided under the CTF Regulations contains the information that would be required to comply with COB 8.2.4 R.
- 01/12/2004
COB 8.2.6A
See Notes
- 01/12/2004
Promptness, suitable intervals and adequate information
COB 8.2.7
See Notes
- (1) In order to comply with COB 8.2.4 R, a firm, other than an OPS firm conducting OPS activity, should take the steps set out in COB 8.2.10 E.
- (2) Compliance with (1) may be relied on as tending to establish compliance with COB 8.2.4 R.
- (3) Contravention of (1) may be relied on as tending to establish contravention of COB 8.2.4 R.
- 01/12/2001
OPS firms
COB 8.2.8
See Notes
- (1) In order to comply with COB 8.2.4 R, an OPS firm conducting OPS activity should:
- (a) comply with COB 8.2.10 E (1) and (2)and COB 8.2.15 E in all circumstances;
- (b) comply with COB 8.2.10 E and (b) if the customer is a private customer; and
- (c) comply with COB 8.2.10 E if the customer is an intermediate customer and the firm relies on the exception in COB 8.1.6 R (3) or COB 8.1.6 R (4) from the requirement to provide confirmations.
- (2) Compliance with (1)(a) and, where applicable, (b) and (c) may be relied on as tending to establish compliance with COB 8.2.4 R.
- (3) Contravention of (1)(a) or, where applicable, (b) or (c) may be relied on as tending to establish contravention of COB 8.2.4 R.
- 01/12/2001
Record keeping requirements
COB 8.2.9
See Notes
- 01/12/2001
COB 8.2.10
See Notes
Periodic statements - timing and content
This table belongs to COB 8.2.7 E
Periodic statements: timing and content | |||||
Promptness | (1) | (a) | A periodic statement should be provided to a private customer within 25 business days after the end of the period to which the statement relates. | ||
(b) | A periodic statement should be provided to a private customer within 10 business days after the end of the period to which the statement relates if, at the end of that period, the portfolio includes any uncovered open positions in contingent liability investments. | ||||
(c) | A firm whose sole permitted activity is venture capital business should (instead of (a) or (b)) provide a periodic statement to a private customer within 50 business days after the end of the period to which the statement relates. | ||||
(d) | Any periodic statement provided to an intermediate customer should be provided within such period as the intermediate customer has on his own initiative agreed with the firm as adequate. | ||||
Suitable intervals | (2) | A periodic statement should be provided: | |||
(a) | six-monthly, to a private customer or an intermediate customer not subject to (2)(d), unless the customer's account or portfolio consists entirely of structured capital-at-risk products, in which case the periodic statement may be provided once in any period not exceeding 12 months; | ||||
(b) | once in any other period not exceeding 12 months if the private customer has advised the firm in writing that he wishes to receive less frequent periodic statements than required by (a); | ||||
(c) | monthly if the customer's portfolio includes an uncovered open position in a contingent liability investment; | ||||
(d) | at such intervals as an intermediate customer has on his own initiative agreed with the firm as adequate. | ||||
Adequate information | (3) | A periodic statement should contain: | |||
(a) | (i) | the information set out in COB 8.2.11 E; | |||
(ii) | if applicable the additional information in COB 8.2.12 E, COB 8.2.13 E, COB 8.2.14 E, COB 8.2.15 E and COB 8.2.17 E (but the information set out in COB 8.2.17 E need only be provided once in any period not exceeding 12 months); and | ||||
(iii) | if a firm relies upon the exceptions in COB 8.1.6 to the requirement to provide confirmations, the information that would have been contained in confirmations complying with COB 8.1.3; or | ||||
(b) | information that a private customer habitually resident outside the United Kingdom, or an intermediate customer, has agreed that the firm should provide; or | ||||
(c) | in the case of an OPS firm subject to COB 8.2.8 (3): | ||||
(i) | the information that would have been contained in a confirmation complying with COB 8.1.3, relating to the following classes of asset: | ||||
(a) | securities which are not readily realisable securities; | ||||
(b) | derivatives; | ||||
(c) | warrants; | ||||
(d) | land and buildings; and | ||||
(ii) | in relation to all other transactions not included in (i), a summary of the information that would have been contained in a confirmation complying with COB 8.1.3; this summary should contain sufficient information about the relevant transactions to enable an OPS trustee to determine whether it will be necessary to obtain more detailed information about the relevant transactions. | ||||
For example, the summary might disclose, for each asset class: | |||||
(a) | the number and value of transactions entered into for the portfolio; | ||||
(b) | any material portfolio changes; | ||||
(c) | whether a material number of changes were entered into in relation to a single entity and, if so, which ones; | ||||
(d) | the information required by item 11 and 12 of COB 8.1.15 E. |
- 01/01/2005
- Past version of COB 8.2.10 before 01/01/2005
COB 8.2.11
See Notes
Periodic statements - general information
This table belongs to COB 8.2.10 E
Periodic statements: general information | |
1 | Contents and value As at the end of the period covered: the number, description and value of each designated investment held; the amount of cash held; and the total value of the portfolio. |
2 | Basis of valuation A statement of the basis on which the value of each designated investment has been calculated and, if applicable, a statement that the basis for valuing a particular designated investment has changed since the previous periodic statement. If any designated investments are shown in a currency other than the usual one used for valuation of the portfolio, the relevant currency exchange rates must be shown. |
- 01/12/2004
- Past version of COB 8.2.11 before 01/12/2004
COB 8.2.12
See Notes
Periodic statements - additional information required for a discretionary managed portfolio
This table belongs to COB 8.2.10 E
Periodic statements: additional information required for a discretionary managed portfolio* * (except OPS firms conducting OPS activity - see COB 8.2.15 ) | ||
1 | Details of any assets loaned or charged A statement of which investments (if any) were at the closing date loaned to any third party and which investments (if any) were at that date charged to secure borrowings made on behalf of the portfolio; and the aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during that period. |
|
2 | Transactions and changes in composition Particulars of each transaction entered into for the portfolio during the period; and the aggregate of money and particulars of all investments transferred into and out of the portfolio during the period; and the aggregate of any interest payments (and, in the case of a cash deposit ISA, the interest rates applied during the period of account), together with the dates of their application and dividends or other benefits received by the firm for the portfolio during that period. The particulars required may be disclosed in separate statements (excluding confirmations of transactions) issued to the customer during the period. |
|
3 | Charges and remuneration If not previously advised in writing: |
|
(a) | a statement of the aggregate charges of the firm and its associates; and | |
(b) | a statement of the amount (or, if provision of this information is not practicable, the basis) of any remuneration received by the firm or its associates or both from a third party in respect of the transactions entered into, or any other services provided, for the portfolio. (Firms should also note the requirements of COB 2.2.18 R (Periodic disclosure)). | |
4 | CAT standards If the periodic statement relates to an ISA intended to be managed in accordance with CAT standards, a statement whether the relevant CAT standards have been adhered to throughout the period of account. |
- 01/11/2002
COB 8.2.13
See Notes
Periodic statements - additional information required for a contingent liability investment
This table belongs to COB 8.2.10 E
Periodic statements: additional information required for a contingent liability investment | ||
1 | Changes in value The aggregate of money transferred into and out of the portfolio during the valuation period. |
|
2 | Open positions In relation to each open position in the account at the end of the account period, the unrealised profit or loss to the customer (before deducting or adding any commission which would be payable on closing out). |
|
3 | Closed positions In relation to each transaction executed during the account period to close out a customer's position, the resulting profit or loss to the customer after deducting or adding any commission. |
|
Note: Instead of the specific detail required by item 2 and 3, the statement may show the net profit or loss in respect of the customer's overall position in each contract. |
||
4 | Aggregate of contents The aggregate of each of the following in, or relating to, the customer's portfolio at the close of business on the valuation date: |
|
(a) | cash; | |
(b) | collateral value; | |
(c) | management fees; and | |
(d) | commissions attributable to transactions during the period or a statement that this information has been separately disclosed in writing in earlier statements or confirmations to the customer. | |
5 | Option account valuations in respect of each open option contained in the account on the valuation date stating: | |
(a) | the share, future, index or other investment involved; | |
(b) | the trade price and date for the opening transaction, unless the valuation statement follows the statement for the period in which the option was opened; | |
(c) | the market price of the contract; and | |
(d) | the exercise price of the contract. | |
Option account valuations may show an average trade price and market price in respect of an option series if the customer buys a number of contracts within the same series. |
- 01/12/2004
- Past version of COB 8.2.13 before 01/12/2004
COB 8.2.14
See Notes
Periodic statements - additional information required for a broker fund
This table belongs to COB 8.2.10 E
Periodic statements: additional information required for a broker fund (to the extent that the firm can reasonably be expected to obtain the information) | ||
1 | Significant holdings If any asset is worth more than 5% of the value of the fund, it must be described and its percentage in value stated. |
|
2 | Unit-linked life policies (except where a firm is managing a broker fund on behalf of a single customer) If the fund consists of unit-linked life policies, a comparison, over the account period and over the whole life of the fund, of the percentage change in the price of the units in the fund: |
|
(a) | with the prices of units in the managed unit-linked pension fund of the long-term insurer (if the fund is dedicated to pension policies); or | |
(b) | with the prices of units in the managed unit-linked life fund of the long-term insurer (in any other case). | |
3 | Price comparison Unless the firm is managing a broker fund on behalf of a single customer, a comparison of the price of units in the fund or scheme with the published index or sector average stated in the product particulars. |
|
4 | Investment objectives and strategies The current investment objectives and strategies including an indication as to whether or not either of these have changed since the previous report. |
|
5 | Benefits and rewards The cash value of the benefits and rewards which the broker fund adviser and any associate have received directly or indirectly during the reporting period by way of remuneration which may be shown in aggregate or as applicable to each customer or both. |
- 01/12/2004
- Past version of COB 8.2.14 before 01/12/2004
COB 8.2.15
See Notes
Periodic statements - minimum content required where an OPS firm conducts OPS activity
This table belongs to COB 8.2.10 E
Periodic statements: information required when an OPS firm conducts OPS activity | ||
1 | Investment objectives | |
A statement of any investment objectives governing the mandate of the portfolio of the occupational pension scheme as at the closing and starting date. | ||
2 | Details of any assets loaned or charged | |
(a) | a summary of any investments that were, at the closing date, lent to a third party and any investments that were at that date charged to secure borrowings made on behalf of the portfolio; and | |
(b) | the aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during that period and a comparison with the previous period. | |
3 | Transactions and changes in composition | |
(a) | a summary of the transactions entered into for the portfolio during the period and a comparison with the previous period; | |
(b) | the aggregate of money and a summary of all investments transferred into and out of the portfolio during the period; and | |
(c) | the aggregate of any interest payments, dividends and other benefits received by the firm for the portfolio during that period and a comparison with the previous period. | |
4 | Charges and remuneration If not previously advised in writing, a statement for the period of account: |
|
(a) | of the aggregate charges of the firm and its associates; and | |
(b) | of any remuneration received by the firm or its associates or both from a third party in respect of the transactions entered into, or any other services provided, for the portfolio. | |
5 | Movement in value of portfolio A statement of the difference between the value of the portfolio at the closing date of the period of account and its value at the starting date, having regard, during the period of account, to: |
|
(a) | the aggregate of assets received from the occupational pension scheme and added to the portfolio; | |
(b) | the aggregate of the value of assets transferred, or of amounts paid, to the customer; | |
(c) | the aggregate income received on behalf of the customer in respect of the portfolio; and | |
(d) | the aggregate of realised and unrealised profits or gains and losses attributable to the assets comprised in the portfolio. |
- 01/12/2004
- Past version of COB 8.2.15 before 01/12/2004
COB 8.2.16
See Notes
- (1) The items in COB 8.2.15 should contain sufficient information about the relevant transactions to enable an OPS trustee to determine whether it will be necessary to obtain more detailed information about the relevant transactions.
- (2) A firm may wish to provide more information than is required by COB 8.2.15, by distinguishing capital and income. If the statement includes some measure of performance, the basis of measurement should be stated.
- 01/12/2001
COB 8.2.17
See Notes
Periodic statements - additional information required for a structured capital-at-risk product
This table belongs to COB 8.2.10 E
Additional information required when a firm sells, advises on or communicates or approves a financial promotion relating to a structured capital-at-risk product to a person who is a private customer, or manages the relevant assets of the issuer of a structured capital-at-risk product, or acts as an investment manager where the investments managed include structured capital-at-risk products | |
1 | Statement of 'snap shot' maturity value A statement of the maturity value of the investment, on the assumption that the relevant index, indices, 'basket' of selected stocks, or other factor remained at the level they were on the closing date of the period covered. |
2 | Changes in maturity value A statement of the levels of the relevant index, indices, 'basket' of selected stocks, or other factor, at which the maturity value of the investment would be less than the amount of the initial capital invested, and an indication of by how much less the maturity value would be. |
3 | Risk warning A warning that the value of the relevant index, indices, 'basket' of selected stocks, or other factor can go up or down. |
- 01/01/2005
- Past version of COB 8.2.17 before 01/01/2005
COB 8A
Claims
handling
COB 8A.1
Application and purpose
- 01/12/2004
Who and what ?
COB 8A.1.1
See Notes
This chapter applies in respect of claims handling under long-term care insurance contracts to:
- (1) an insurer;
- (2) a firm acting on behalf of a policyholder; and
- (3) a managing agent.
- 01/12/2004
COB 8A.1.2
See Notes
- 01/12/2004
COB 8A.1.3
See Notes
- 01/12/2004
COB 8A.1.4
See Notes
- 01/12/2004
COB 8A.1.5
See Notes
- 01/12/2004
Purpose
COB 8A.1.6
See Notes
- (1) The purpose of this chapter is to ensure that:
- (a) claims are handled fairly;
- (b) claims are settled promptly;
- (c) policyholders are provided with information on the claims handling process and with an explanation of why a claim is rejected or not settled in full, where relevant; and
- (d) firms acting on behalf of policyholders disclose and manage any conflicts of interest that may exist.
- (2) This chapter reinforces:
- (a) Principle 3 (Management and control), which requires a firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems;
- (b) Principle 6 (Customers' interests), which requires a firm to pay due regard to the interests of its policyholders and treat them fairly; and
- (c) Principle 8 (Conflicts of interest), which requires a firm to manage conflicts of interest fairly, both between itself and its policyholders and between a policyholder and another client.
- 01/12/2004
COB 8A.2
Claims handling: general
- 01/12/2004
Requirements to handle claims promptly and fairly
COB 8A.2.1
See Notes
- 01/12/2004
COB 8A.2.2
See Notes
- 01/12/2004
COB 8A.2.3
See Notes
- 01/12/2004
COB 8A.2.4
See Notes
- 01/12/2004
Giving policyholders guidance on claiming
COB 8A.2.5
See Notes
- 01/12/2004
Rejecting or refusing claims
COB 8A.2.6
See Notes
An insurer must not:
- (1) unreasonably reject a claim made by a policyholder;
- (2) except where there is evidence of fraud, refuse to meet a claim made by a policyholder on the grounds:
- (a) of non-disclosure of a fact material to the risk which the policyholder could not reasonably be expected to have disclosed;
- (b) of misrepresentation of a fact material to the risk unless the misrepresentation is negligent; or
- (c) of breach of warranty, unless the circumstances of the claim are connected with the breach and unless:
- (i) under a 'life of another' contract, the warranty relates to a statement of fact concerning the life to be assured and that statement would have constituted grounds for rejection of a claim by the insurer under COB 8A.2.6R (2)(a) or COB 8A.2.6R (2)(b) if it had been made by the life to be assured under an 'own life' contract; or
- (ii) the warranty is material to the risk and was drawn to the attention of the policyholder before the conclusion of the contract.
- 01/12/2004
COB 8A.3
Duties of firms acting on behalf of policyholders
- 01/12/2004
COB 8A.3.2
See Notes
- 01/12/2004
A firm's duty of care, skill and diligence
COB 8A.3.3
See Notes
- 01/12/2004
COB 8A.3.4
See Notes
- 01/12/2004
A firm's duty to avoid conflicts of interest
COB 8A.3.5
See Notes
- (1) A firm must not, in connection with any claim, put itself in a position where its own interest, or its duty to any person for whom it acts, conflicts with its duty to any policyholder for whom it acts, unless:
- (a) it made proper disclosure to that policyholder of all information needed to put the policyholder in a position where he can give informed consent to the arrangement; and
- (b) it has obtained the prior informed consent of the policyholder.
- (2) A firm must decline to act for the person or policyholder referred to in (1), or any of them, unless in the particular circumstances of the case disclosure and informed consent are sufficient to enable it to reconcile the conflict.
- 01/12/2004
COB 8A.3.6
See Notes
- 01/12/2004
COB 8A.3.7
See Notes
- 01/12/2004
COB 8A.3.8
See Notes
- 01/12/2004
COB 8A.3.9
See Notes
- 01/12/2004
COB 8A.3.10
See Notes
If a firm is notified of a claim in relation to a policy which it has arranged, and the insurer has not given it the authority to deal with that claim, it must:
- (1) forward the notification to the insurer promptly; or
- (2) inform the policyholder immediately that it cannot deal with the notification.
- 01/12/2004
COB 8A.4
Policyholders: performance standards for handling claims
- 01/12/2004
Responding to notification of the claim
COB 8A.4.1
See Notes
- 01/12/2004
COB 8A.4.2
See Notes
- 01/12/2004
COB 8A.4.3
See Notes
- 01/12/2004
COB 8A.4.4
See Notes
The response referred to in COB 8A.4.1 R must:
- (1) provide the information set out in COB 8A.4.5 R;
- (2) be in a durable medium, unless the notification by the policyholder is made orally and the insurer does not require the policyholder to complete a claim form; and
- (3) provide the policyholder with a claim form, if the insurer requires one to be completed.
- 01/12/2004
COB 8A.4.5
See Notes
The information referred to in COB 8A.4.4R (1) is:
- (1) that the claim relates to a risk that is clearly outside the scope of the policy, if that is the case (in which case no further information need be provided);
- (2) the action that will be taken by the insurer and when that action will be taken;
- (3) if the insurer is appointing any other parties to contact the policyholder on the insurer's behalf, in respect of each other party appointed the following information, if known (but, if the purpose of the appointment is to investigate the validity of a claim, the information need not be given if it would limit or prevent the effective investigation of the claim or any part of it):
- 01/12/2004
COB 8A.4.6
See Notes
- 01/12/2004
COB 8A.4.7
See Notes
- 01/12/2004
Investigation and processing of the claim
COB 8A.4.8
See Notes
- 01/12/2004
COB 8A.4.9
See Notes
- 01/12/2004
Determining the claim
COB 8A.4.10
See Notes
An insurer must notify the policyholder as soon as practicable whether it:
- 01/12/2004
COB 8A.4.11
See Notes
- 01/12/2004
COB 8A.4.12
See Notes
If the insurer accepts all or part of the policyholder's claim, it must notify the policyholder as soon as practicable whether:
- (1) as to the parts it accepts, it agrees to provide the money, property or service claimed by the policyholder in full; or
- (2) it makes some other offer in compromise. In that event, it must notify the policyholder of the terms of its offer.
- 01/12/2004
COB 8A.4.13
See Notes
- (1) Unless the insurer accepts the policyholder's claim in full, the insurer must explain why it rejects all or part of the policyholder's claim or accepts his claim or makes a compromise offer, specifying any relevant term of the policy.
- (2) The insurer must offer the policyholder the choice of receiving the information at COB 8A.4.13R (1) in a durable medium.
- 01/12/2004
COB 8A.4.14
See Notes
- 01/12/2004
Settling a claim
COB 8A.4.15
See Notes
- 01/12/2004
COB 8A.4.16
See Notes
- (1) Settlement terms are agreed when:
- (a) the insurer accepts the policyholder's claim; and
- (b) the policyholder accepts the insurer's offer of settlement.
- (2) When the insurer settles the claim by paying the policyholder, the insurer should aim to make payment within five business days after the insurer and the policyholder have agreed settlement terms, subject to any pre-conditions laid down by the insurer or in law being met by the policyholder. This does not prevent the insurer paying a claim before the policyholder has finally agreed settlement terms.
- (3) The guidance in (2) will not apply if the insurer settles the claim by:
- (a) payment against a liability due on a future date;
- (b) the provision of goods or services;
- (c) making payments on a date specified by the policyholder;
- (d) payment of the claim through another party (eg a care home) on a monthly or some other basis;
- and in the case of (a) or (b) the insurer should make prompt payment or arrange for prompt provision of the goods or services after the insurer and the policyholder have agreed settlement terms.
- 01/12/2004
COB 8A.4.17
See Notes
- 01/12/2004
COB 8A.4.18
See Notes
- 01/12/2004
Pre-Action Protocols
COB 8A.4.19
See Notes
- 01/12/2004
COB 8A.5
Record keeping
- 01/12/2004
COB 8A.5.1
See Notes
An insurer must make and retain, for the duration of the claim and for a minimum of six years after the insurer's obligations to the policyholder under the long-term care insurance contract have ceased, the following information in relation to each claim made against a policy issued by it or handled by it:
- (1) details of the claim;
- (2) a record of each communication with the policyholder including the date on which it was made; and
- (3) the date the claim was settled or rejected and details of settlement or rejection including information relevant to the basis for the settlement or rejection.
- 01/12/2004
COB 9
Client assets
COB 9.1
These provisions have been moved to the Client Assets sourcebook (CASS)
- 01/12/2004
COB 9.1.1
See Notes
- 01/12/2001
COB 9.2
These provisions have been moved to the Client Assets sourcebook (CASS)
- 01/12/2004
COB 9.2.1
See Notes
- 01/12/2001
COB 9.3
These provisions have been moved to the Client Assets sourcebook (CASS)
- 01/12/2004
COB 9.3.1
See Notes
- 01/12/2001
COB 9.4
These provisions have been moved to the Client Assets sourcebook (CASS)
- 01/12/2004
COB 9.4.1
See Notes
- 20/09/2001
COB 9.5
These provisions have been moved to the Client Assets sourcebook (CASS)
- 01/12/2004
COB 9.5.1
See Notes
- 01/12/2001
COB 10
Operators of collective investment schemes
COB 10.1
Application
- 01/12/2004
COB 10.1.1
See Notes
- (1) COB 10 applies to a firm which is an operator of a collective investment scheme in accordance with COB 10.1.2 R.
- (2) The right hand column of the table in COB 10.1.2 R specifies the sections in COB 10 which apply to the operator specified in the left hand column of the table.
- 01/12/2001
COB 10.1.2
See Notes
Application
This table belongs to COB 10.1.1 R
Application | |
Type of firm | Section |
Operator of a regulated collective investment scheme in so far as the firm is undertaking scheme management activity. | COB 10.1, COB 10.2 and COB 10.3 |
Operator of an unregulated collective investment scheme in so far as the firm is undertaking scheme management activity. | COB 10.1, COB 10.2, COB 10.3, COB 10.4 and COB 10.5 |
Operator of an unregulated collective investment scheme. | COB 10.1, COB 10.6 and COB 10.7 |
- 01/12/2001
COB 10.1.3
See Notes
- 01/12/2001
COB 10.1.4
See Notes
Operators are also required to comply with the other relevant provisions of the Handbook. For example:
- (1) The Principles for Business (PRIN);
- (2) Senior Management Arrangements, Systems and Controls (SYSC);
- (3) an operator that communicates or approves a financial promotion relating to a scheme is also required to comply with COB 3;
- (4) an operator that holds clients' money otherwise than as trustee of an unregulated collective investment scheme is also required to comply with CASS 4;
- (5) an operator that is also the trustee of an unregulated collective investment scheme is also required to comply with COB 11 in relation to its activity as a trustee firm;
- (6) an operator of an authorised unit trust scheme is also required to comply with the Collective Investment Schemes sourcebook (CIS); and
- (7) an operator of an ICVC is also required to comply with the Collective Investment Schemes sourcebook (CIS).
- (8) [deleted]
- 01/03/2006
- Past version of COB 10.1.4 before 01/03/2006
Purpose
COB 10.1.5
See Notes
The purpose of this chapter is:
- (1) to take into account the existence of other legislation and rules that may apply to operators (for example, the Collective Investment Schemes sourcebook); to adopt or disapply rules from other chapters in COB; in this way, conflicts between rules and duplication of rules are avoided;
- (2) to make a number of general modifications to the operation of the applied rules in COB in the operator context; in general, the ordinary definition of a customer is modified to mean the scheme; however, in certain circumstances, such as an obligation to provide certain kinds of information about the scheme and its investments, the ordinary definition of a customer is modified to mean a participant in the scheme; and
- (3) to apply a number of rules that have been specifically designed to apply to operators when undertaking scheme management activity.
- 01/12/2001
COB 10.2
Application of general COB rules
- 01/12/2004
Application or modification of general COB rules for operators
COB 10.2.1
See Notes
An operator when it is undertaking scheme management activity:
- (1) must comply with the rules specified in COB 10.2.5 R as modified by COB 10.2.3 R and in COB 10.2.5 R; and
- (2) need not comply with any other rule in COB.
- 20/09/2001
COB 10.2.2
See Notes
[deleted]
- (1) [deleted]
- (2) [deleted]
- 01/09/2003
General modifications
COB 10.2.3
See Notes
The rules specified in COB 10.2.5 R apply to an operator when it is undertaking scheme management activity (unless otherwise expressly provided in this chapter) with the following modifications:
- (1) subject to (3), references to customer are to be construed as references to any scheme in respect of which the operator is acting or intends to act, and with or for the benefit of which the relevant activity is to be carried on;
- (2) In the case of an unregulated collective investment scheme, references to terms of business or a client agreement are to be construed as references to the scheme documents of an unregulated collective investment scheme required by COB 10.6.2 R; and
- (3) in the case of an unregulated collective investment scheme, when an operator is required by the rules in COB to provide information to, or obtain consent from, a customer, the operator must ensure that the information is provided to, or consent obtained from, a participant or a potential participant in the scheme as the case may be.
- 01/12/2001
COB 10.2.4
See Notes
- 01/12/2001
COB 10.2.5
See Notes
Application of conduct of business rules
This table belongs to COB 10.2.1 R
Application of conduct of business rules | ||
Chapter, Section or Rule | Description | Modifications |
1 | Application and general provisions | |
2.1 | Clear, fair and not misleading communication | |
2.2 | Inducements | |
2.3 | Reliance on others | |
2.4 | Chinese Walls | |
5.3 | Suitability | COB 10.4 applies instead of COB 5.3. |
7.1 | Conflict of interest and material interest | |
7.2 | Churning and switching | |
7.4 | Customer order priority | |
7.5 | Best execution | In the case of a regulated collective investment scheme, COB 7.5 applies as if the scheme was a private customer. In the case of an unregulated collective investment scheme, COB 10.5.3 R applies instead of COB 7.5.4 R in the circumstances set out in COB 10.5.3 R. |
7.6 | Timely execution | |
7.7 | Aggregation and allocation | COB 10.3.3 E applies instead of COB 7.7.6 E. COB 10.3.5 R applies instead of COB 7.7.14 R. |
7.12 | Customer order and execution records | |
7.18 | Use of dealing commission | |
10 | Operators of collective investment schemes |
- 01/07/2006
- Past version of COB 10.2.5 before 01/07/2006
COB 10.3
Modification of the allocation rule
- 01/12/2004
COB 10.3.1
See Notes
- 01/12/2001
COB 10.3.2
See Notes
- 20/09/2001
COB 10.3.3
See Notes
- (1) To allocate promptly, an operator which has aggregated an order under COB 7.7.4 R should complete the allocation of the designated investments concerned within one business day of the transaction, subject to (2), (3) and (4).
- (2) The period in (1) is within five business days if:
- (a) the scheme is one in which no participant is a private customer; or
- (b) the scheme is an unregulated collective investment scheme and no current participant in the scheme was a private customer on joining the scheme as a participant.
- (3) For the purposes of COB 10.3.3 E, all transactions in a series of transactions all of which are executed within one business day, may be treated as having been executed at the time of the last transaction, so long as a record of the time that each individual transaction was executed is made, such as by means of a time stamp.
- (4) If transactions in a series of transactions occur over more than one business day, then the requirement in COB 7.7.5 R (and (1) or (2) as appropriate) will apply separately in relation to each business day in which any transaction is executed.
- (5) Compliance with (1) may be relied on as tending to establish compliance with COB 7.7.5 R.
- (6) Contravention of (1) may be relied on as tending to establish contravention of COB 7.7.5 R.
- 01/12/2001
COB 10.3.4
See Notes
- 01/12/2001
COB 10.3.5
See Notes
- (1) An operator must, on executing an aggregated transaction on behalf of a number of schemes under its management, make a record of:
- (a) the identity of the schemes concerned; and
- (b) whether the transaction was executed proportionally for these schemes under its management generally or that a stated proportion was executed for some schemes under its management.
- (2) If an operator aggregates a number of customer orders on behalf of a number of schemes under its management, the operator must make a record of the intended basis of allocation as soon as is practicable.
- (3) If an operator aggregates an order for one or more schemes under its management and itself, the operator must make a record of the intended basis of allocation before the transaction is executed.
- 01/12/2001
COB 10.4
Suitability of the portfolio of an unregulated collective investment scheme
- 01/12/2004
COB 10.4.1
See Notes
- 01/12/2001
COB 10.4.2
See Notes
- 01/12/2001
COB 10.4.3
See Notes
An operator of an unregulated collective investment scheme when it is undertaking scheme management activity must take reasonable steps to ensure that:
- (1) each transaction undertaken with or for an unregulated collective investment scheme under its management; and
- (2) the portfolio for an unregulated collective investment scheme under its management;
is suitable for the scheme.
- 01/12/2001
COB 10.4.4
See Notes
- 01/12/2001
COB 10.5
Modification of the best execution rule
- 01/12/2004
COB 10.5.1
See Notes
- 01/12/2001
COB 10.5.2
See Notes
- 01/12/2001
COB 10.5.3
See Notes
COB 7.5.3 R does not apply:
- (1) in any of the circumstances specified in COB 7.5.4 R; or
- (2) in relation to an unregulated collective investment scheme whose scheme documents include a statement that best execution does not apply in relation to the scheme and in which:
- (a) no participant is a private customer; or
- (b) no current participant in the scheme was a private customer on joining the scheme as a participant.
- 01/12/2001
COB 10.6
Scheme documents for an unregulated collective investment scheme
- 01/12/2004
COB 10.6.1
See Notes
- 01/12/2001
Provision of scheme documents to private customers
COB 10.6.2
See Notes
- 01/12/2001
Format and content of scheme documents
COB 10.6.3
See Notes
- 01/12/2001
COB 10.6.4
See Notes
- 01/12/2001
COB 10.6.5
See Notes
Where the scheme is an unregulated collective investment scheme where no current participant in the scheme was a private customer on joining the scheme as a participant, the scheme documents must include a statement that:
- (1) explains that if a participant is reclassified as a private customer subsequent to joining the scheme as a participant, then the operator may continue to treat all participants in the scheme as though they were not private customers; and
- (2) explains that, in respect of an order aggregated under COB 7.7.4 R, the operator may allocate the designated investments concerned within five business days of the transaction;
- (3) explains that if a participant is reclassified as a private customer subsequent to joining the scheme as a participant, then COB 10.5.3 R will continue to apply to that scheme; and
- (4) explains that, in the event of a reclassification described in (3), the operator will not be required to provide best execution under COB 7.5.3 R in relation to the scheme.
- 01/12/2001
COB 10.6.6
See Notes
- 01/12/2001
Adequate Information
COB 10.6.7
See Notes
- (1) In order to provide adequate information in scheme documents under COB 10.6.2 R, an operator should include in the scheme documents required by COB 10.6.2 R a provision about each of the items of relevant information set out in COB 10.6.8 E.
- (2) Compliance with (1) may be relied on as tending to establish compliance with COB 10.6.2 R.
- (3) Contravention of (1) may be relied on as tending to establish contravention of COB 10.6.2 R.
- 01/12/2001
COB 10.6.8
See Notes
Content of scheme documents
This table belongs to COB 10.6.7 E
Content of scheme documents | |||
The scheme documents should include provision about: | |||
(1) | Regulator | ||
The firm statutory status in accordance with GEN 4 Annex 1 (Statutory status disclosure); | |||
(2) | Services | ||
the nature of the services that the operator will provide in relation to the scheme; | |||
(3) | Payments for services | ||
details of any payment for services payable by the scheme or from the property of the scheme or participants in the scheme to the operator, including where appropriate: | |||
(a) | the basis of calculation; | ||
(b) | how it is to be paid and collected; | ||
(c) | how frequently it is to be paid; and | ||
(d) | whether or not any other payment is receivable by the operator (or to its knowledge by any of its associates) in connection with any transactions effected by the operator with or for the scheme, in addition to or in lieu of any fees; | ||
(4) | Commencement | ||
when and how the operator is appointed; | |||
(5) | Accounting | ||
the arrangements for accounting to the scheme or participants in the scheme for any transaction effected; | |||
(6) | Termination method | ||
how the appointment of the operator may be terminated; | |||
(7) | Complaints procedure | ||
how to complain to the operator and a statement that the participants in the scheme may subsequently complain direct to the Financial Ombudsman Service; | |||
(8) | Compensation | ||
whether or not compensation may be available from the compensation scheme should the operator be unable to meet its liabilities, and information about any other applicable compensation scheme; and, for each applicable scheme, the extent and level of cover and how further information can be obtained (see the example in COB 5.5.11 G (Example of compensation information for a UK domestic investment firm operating from the United Kingdom); | |||
(9) | Investment objectives | ||
the investment objectives for the portfolio of the scheme; | |||
(10) | Restrictions | ||
(a) | any restrictions on: | ||
(i) | the types of investments or property which may be included in the portfolio of the scheme; and | ||
(ii) | markets on which investments or property may be acquired for the portfolio of the scheme; | ||
(iii) | the amount or value of any one investment or asset, or on the proportion of the portfolio of the scheme which any one investment or asset or any particular kind of investment or asset may constitute; or | ||
(b) | that there are no such restrictions; | ||
(11) | Holding of scheme assets | ||
(a) | if it is the case, that the operator will: | ||
(i) | hold money on behalf of the scheme or be the custodian of investments or other property of the scheme; or | ||
(ii) | arrange for some other person to act in either capacity and, if so, whether that person is an associate of the operator identifying that person and describing the nature of any association; and | ||
(b) | in either case: | ||
(i) | how any money is to be deposited; | ||
(ii) | the arrangements for recording and separately identifying registrable investments of the scheme and, where the registered holder is the operator's own nominee, that the operator will be responsible for the acts and omissions of that person; | ||
(iii) | the extent to which the operator accepts liability for any loss of the investment of the scheme; | ||
(iv) | the extent to which the operator or any other person mentioned in (11)(a)(ii), may hold a lien or security interest over investments of the scheme; | ||
(v) | where investments of the scheme will be registered collectively in the same name, a statement that the entitlements of the scheme may not be identifiable by separate certificates or other physical documents of title, and that, should the operator default, any shortfall in investments of the scheme registered in that name may be shared proportionately among all schemes and any other customers of the operator whose investments are so registered; | ||
(vi) | whether or not investments or other property of the scheme can be lent to, or deposited by way of collateral with, a third party and whether or not money can be borrowed on the behalf of the scheme against the security of those investments or property and, if so, the terms upon which they may be lent or deposited; | ||
(vii) | the arrangements for accounting to the scheme for investments of the scheme; for income received (including any interest on money and any income earned by lending investments or other property) of the scheme; and for rights conferred in respect of investments or other property of the scheme; | ||
(viii) | the arrangements for determining the exercise of any voting rights conferred by investments of the scheme; and | ||
(ix) | where investments of the scheme may be held by an eligible custodian outside the United Kingdom, a general statement that different settlement, legal and regulatory requirements, and different practices relating to the segregation of those investments, may apply; | ||
(12) | Clients' money outside the United Kingdom | ||
if it is the case, that the operator may hold the money of the scheme in a client bank account outside the United Kingdom; | |||
(13) | Exchange rates | ||
if a liability of the scheme in one currency is to be matched by an asset in a different currency, or if the services to be provided to the operator for the scheme may relate to an investment denominated in a currency other than the currency in which the investments of the scheme are valued, a warning that a movement of exchange rates may have a separate effect, unfavourable or favourable, on the gain or loss otherwise made on the investments of the scheme; | |||
(14) | Stabilised investments | ||
if it is the case, that the operator is to have the right under the scheme documents to effect transactions in investments the prices of which may be the subject of stabilisation; | |||
(15) | Conflict of interest and material interest | ||
if it is the case, that the operator is to have the right under the agreement or instrument constituting the scheme to effect transactions on behalf of the scheme in which the operator has directly or indirectly a material interest (except for an interest arising solely from the participation of the operator as agent for the scheme), or a relationship of any description with another party which may involve a conflict with the operator's duty to the scheme, together with a disclosure of the nature of the interest or relationship; | |||
(16) | Use of dealing commission | ||
if the operator receives goods or services in addition to the execution of its customer orders in accordance with COB 7.18 (Use of dealing commission), the prior disclosure required by COB 7.18.12 R (Prior and periodic disclosure). |
|||
(17) | Acting as principal | ||
if it is the case, that the operator may act as principal in a transaction with the scheme; | |||
(18) | Stock lending | ||
if it is the case, that the operator may undertake stock lending activity with or for the scheme specifying the type of assets of the scheme to be lent, the type and value of relevant collateral from the borrower and the method and amount of payment due to the scheme in respect of the lending; | |||
(19) | Transactions involving contingent liability investments | ||
(a) | if it is the case, that the agreement or instrument constituting the scheme allows the operator to effect transactions involving contingent liability investments for the account of the portfolio of the scheme; | ||
(b) | if applicable, whether there are any limits on the amount to be committed by way of margin and, if so, what those limits are; and | ||
(c) | if applicable, that the operator has the authority to effect transactions involving contingent liability investments otherwise than under the rules of a recognised investment exchange or designated investment exchange and in a contract traded thereon; | ||
(20) | Periodic statements | ||
(a) | the frequency of any periodic statement (this should not be less than once every 12 months under COB 10.7.3 E) except where a periodic statement is not required by COB 10.7.5 R (Exceptions from the requirement to provide a periodic statement); and | ||
(b) | whether those statements will include some measure of performance, and, if so, what the basis of that measurement will be; | ||
(21) | Valuation | ||
the bases on which assets comprised in the portfolio of the scheme are to be valued; | |||
(22) | Borrowings | ||
if it is the case, that the operator may supplement the funds in the portfolio of the scheme and, if it may do so: | |||
(a) | the circumstances in which the operator may do so; | ||
(b) | whether there are any limits on the extent to which the operator may do so and, if so, what those limits are; and | ||
(c) | any circumstances in which such limits may be exceeded; | ||
(23) | Underwriting commitments | ||
if it is the case, that the operator may for the account of the portfolio of the scheme underwrite or sub-underwrite any issue or offer for sale of securities, and: | |||
(a) | whether there are any restrictions on the categories of securities which may be underwritten and, if so, what these restrictions are; and | ||
(b) | whether there are any financial limits on the extent of the underwriting and, if so, what these limits are; | ||
(24) | Investments in other collective investment schemes | ||
whether or not the portfolio may contain units in a collective investment scheme either operated or advised by the operator or by an associate of the operator or in a collective investment scheme which is not a regulated collective investment scheme; | |||
(25) | Investments in securities underwritten by the operator | ||
whether or not the portfolio may contain securities of which any issue or offer for sale was underwritten, managed or arranged by the operator or by an associate of the operator during the preceding 12 months. |
- 01/07/2006
- Past version of COB 10.6.8 before 01/07/2006
COB 10.7
Periodic statements for an unregulated collective investment scheme
- 01/12/2004
COB 10.7.1
See Notes
- 01/12/2001
The requirement to prepare and issue periodic statements
COB 10.7.2
See Notes
- 01/12/2001
Promptness, suitable intervals and adequate information
COB 10.7.3
See Notes
- (1) An operator should act in accordance with the provisions in the right hand column of COB 10.7.7 E to fulfil the requirement of COB 10.7.2 R indicated in the left hand column against these provisions.
- (2) Compliance with (1) may be relied on as tending to establish compliance with COB 10.7.2 R.
- (3) Contravention of (1) may be relied on as tending to establish contravention of COB 10.7.2 R.
- 01/12/2001
COB 10.7.4
See Notes
- 01/12/2001
Exceptions from the requirement to provide a periodic statement
COB 10.7.5
See Notes
- (1) An operator of an unregulated collective investment scheme need not provide a periodic statement:
- (a)
- (i) to a participant in the scheme who is a private customer ordinarily resident outside the United Kingdom; or
- (ii) to a participant in the scheme who is an intermediate customer;
- if the participant has so requested or the operator has taken reasonable steps to establish that the participant does not wish to receive it; or
- (b) if it would duplicate a statement to be provided by someone else.
- (2) For a firm acting as an outgoing ECA provider, the exemption in (1)(a)(i) applies only to a participant in the scheme who is a private customer ordinarily resident outside the EEA.
- 21/08/2002
Record keeping requirements
COB 10.7.6
See Notes
- 01/12/2001
COB 10.7.7
See Notes
Periodic statements
This table belongs to COB 10.7.3 E
Periodic statements | |||||
Promptness | (1) | (a) | A periodic statement should be provided within 25 business days after the end of the period to which the statement relates. | ||
(b) | In the case of: | ||||
(i) | a scheme the portfolio of which is comprised exclusively of investment in equity that is not traded or listed on an exchange; or | ||||
(ii) | a scheme which is a property enterprise trust; or | ||||
(iii) | a scheme the portfolio of which is comprised exclusively of investment in equity that is not traded or listed on an exchange and assets which are land and buildings; | ||||
the operator should provide a periodic statement within 50 business days after the end of the period to which the statement relates. | |||||
Suitable intervals | (2) | A periodic statement should be provided at least: | |||
(a) | six-monthly; or | ||||
(b) | once in any other period, not exceeding 12 months, which has been mutually agreed between the operator and the participant in the scheme. | ||||
Adequate information | (3) | (a) | A periodic statement should contain: | ||
(i) | (A) | the information set out in COB 10.7.9 E; and | |||
(B) | where the portfolio of the scheme includes uncovered open positions in contingent liability investments, the additional information in COB 10.7.10 E; or | ||||
(ii) | such information as a participant who is a private customer ordinarily resident outside the United Kingdom, or an intermediate customer, has on his own initiative agreed with the operator as adequate. | ||||
(b) | For a firm acting as an outgoing ECA provider, (3)(a)(ii) should be read as though the words 'United Kingdom' were replaced by 'EEA'. |
- 21/08/2002
COB 10.7.8
See Notes
Examples of uncovered open positions include:
- (1) selling a call option on an investment not held in the portfolio;
- (2) unsettled sales of call options on currency in amounts greater than the portfolio's holding of that currency in cash or in readily realisable investments denominated in that currency; and
- (3) transactions having the effect of selling an index to an amount greater than the portfolio's holdings of investments included in that index.
- 01/12/2001
COB 10.7.9
See Notes
General contents of a periodic statement
This table belongs to COB 10.7.7 E
General contents of a periodic statement | |||
1 | Contents and value | ||
(a) | As at the beginning of the account period, the total value of the portfolio of the scheme, being either: | ||
(i) | the value of the assets comprised in the portfolio on the date as at which the statement provided for the immediately preceding period of account is made up; or | ||
(ii) | in the case of the first periodic statement, the value of the assets comprised in the portfolio on the date on which the operator assumed responsibility for the management of the portfolio. | ||
(b) | As at the end of the account period: | ||
(i) | the number, description and value of each investment held on behalf of the scheme; | ||
(ii) | the amount of cash held on behalf of the scheme; and | ||
(iii) | the total value of the portfolio of the scheme. | ||
2 | Basis of valuation | ||
A statement of the basis on which the value of each investment has been calculated and, if applicable, a statement that the basis for valuing a particular investment has changed since the previous periodic statement. Where any investments are shown in a currency other than the usual one used for valuation of the portfolio of the scheme, the relevant currency exchange rates must be shown. | |||
3 | Details of any assets loaned or charged | ||
(a) | A summary of those investments (if any) which were, at the closing date, loaned to any third party and those investments (if any) that were at that date charged to secure borrowings made on behalf of the portfolio of the scheme; and | ||
(b) | the aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during the period. | ||
4 | Transactions and changes in composition | ||
Except in the case of a portfolio which aims to track the performance of an external index: | |||
(a) | a statement that summarises the transactions entered into for the portfolio of the scheme during the period; and | ||
(b) | the aggregate of money and a summary of all investments transferred into and out of the portfolio of the scheme during the period; and | ||
(c) | the aggregate of any interest payments, dividends and other benefits received by the operator for the portfolio of the scheme during that period. | ||
5 | Charges and remuneration | ||
If not previously advised in writing, a statement for the account period: | |||
(a) | of the aggregate charges of the operator and its associates; and | ||
(b) | of any remuneration received by the operator or its associates or both from a third party in respect of the transactions entered into, or any other services provided, for the portfolio of the scheme. | ||
6 | Movement in value of portfolio | ||
A statement of the difference between the value of the portfolio at the closing date and its value at the starting date of the account period, having regard at least, during the account period, to the following: | |||
(a) | the aggregate of assets received from participants of the scheme and added to the portfolio of the scheme; | ||
(b) | the aggregate of the value of assets transferred, or of amounts paid, to the scheme; | ||
(c) | the aggregate income received on behalf of the scheme in respect of the portfolio; and | ||
(d) | the aggregate of realised and unrealised profits or gains and losses attributable to the assets comprised in the portfolio of the scheme. | ||
Notes: | |||
For the purposes of Item 1, where the scheme is a property enterprise trust, it will be sufficient for the periodic statement to disclose the number of properties held in successive valuation bands where this is appropriate to the size and composition of the scheme, rather than the value of each asset in the portfolio. The valuation bands of over £10m, £5-£10m, £2.5-£5m, £1-£2.5m and under £1m would be appropriate, unless an operator could show that different bands were justifiable in the circumstances. | |||
The statement to be provided under Item 6 is not intended to be an indicator of the performance of the portfolio of the scheme. | |||
An operator may wish to distinguish capital and income, and thereby provide more information than referred to in this table. If the statement includes some measure of performance, the basis of measurement should be stated. |
- 01/12/2001
COB 10.7.10
See Notes
Contents of a periodic statement in respect of contingent liability investments
This table belongs to COB 10.7.7 E
Contents of a periodic statement in respect of contingent liability investments | ||
1 | Changes in value | |
The aggregate of money transferred into and out of the portfolio of the scheme during the account period. | ||
2 | Open positions | |
In relation to each open position in the portfolio of the scheme at the end of the account period, the unrealised profit or loss to the portfolio of the scheme (before deducting or adding any commission which would be payable on closing out). | ||
3 | Closed positions | |
In relation to each transaction effected during the account period to close out a position of the scheme, the resulting profit or loss to the portfolio of the scheme after deducting or adding any commission. (Instead of the specific detail required by Items 2 or 3, the statement may show the net profit or loss in respect of the overall position of the scheme in each contract) |
||
4 | Aggregate of contents | |
The aggregate of each of the following in, or relating to, the portfolio of the scheme at the close of business on the valuation date: | ||
(a) | cash; | |
(b) | collateral value; | |
(c) | management fees; and | |
(d) | commissions attributable to transactions during the period or a statement that this information has been separately disclosed in writing on earlier statements or confirmations to the participant. | |
5 | Option account valuations | |
In respect of each open option comprising the portfolio of the scheme on the valuation date: | ||
(a) | the share, future, index or other investment or asset involved; | |
(b) | (unless the valuation statement follows the statement for the period in which the option was opened) the trade price and date for the opening transaction; | |
(c) | the market price of the contract; and | |
(d) | the exercise price of the contract. | |
Options account valuations may show an average trade price and market price in respect of an option series where a number of contracts within the same series have been purchased on behalf of the scheme. |
- 01/12/2001
COB 11
Trustee and depositary activities
COB 11.1
Application
- 01/12/2004
COB 11.1.1
See Notes
This chapter:
- (1) applies to depositaries and trustee firms when acting as such;
- (2) does not apply to trustee firms when acting as the trustee of a personal pension scheme or stakeholder pension scheme.
- 06/04/2007
- Past version of COB 11.1.1 before 06/04/2007
COB 11.1.2
See Notes
- 01/12/2001
COB 11.1.3
See Notes
- 01/12/2001
COB 11.1.4
See Notes
- 01/12/2001
COB 11.1.5
See Notes
- 01/12/2001
COB 11.1.6
See Notes
- 01/12/2001
COB 11.1.7
See Notes
- 01/12/2001
COB 11.1.8
See Notes
In respect of trustee firms, the rules:
- (1) apply in addition to any duties or powers imposed or conferred upon a trustee by the general law;
- (2) do not qualify or restrict the duties or powers that the general law imposes or confers upon a trustee; trustee firms will be under a duty to observe the provisions of their trust instrument; if its provisions conflict with any applicable rule, trustees will need to take advice in resolving the conflict.
- 01/12/2001
COB 11.1.9
See Notes
- 01/12/2001
COB 11.1.10
See Notes
- 01/12/2001
COB 11.1.11
See Notes
Purpose
COB 11.1.12
See Notes
The purpose of this chapter is to select rules to apply to the activities of trustee firms and depositaries. COB is modified by this chapter for that purpose. The rules in this chapter:
- (1) redefine customer so that it applies meaningfully in the trustee firm/depositary context. A trustee firm, for example, may be both the customer and the firm. A requirement to make a disclosure to a customer may therefore not be clear when applied to a trustee firm - the requirement may be taken to apply to the trustees as a body, or to the trust beneficiaries. In the context of collective investment schemes disclosure may appropriately be effected through reports and documentation sent to the participants;
- (2) recognise that some trustee firms may not be experts in investment; in consequence they should be allowed to delegate regulatory responsibility for compliance with COB to other suitable firms.
- (3) apply appropriate rules to different types of trustee; for example the rules in COB 11.5.3 R are not applied to personal representatives because this would amongst other things require such a firm to send out periodic statements.
- (4) apply rules specifically devised for trustee firms or depositaries; for example, COB 11.8 (Proper advice) applies only to trustee firms.
- 01/12/2001
COB 11.2
Relationship with the scheme
- 01/12/2004
COB 11.2.1
See Notes
[deleted]
- (1) [deleted]
- (2) [deleted]
- 01/09/2003
COB 11.2.2
See Notes
- 01/12/2001
COB 11.3
Packaged products
- 01/12/2004
COB 11.3.1
See Notes
- 01/12/2004
COB 11.4
Depositaries
- 01/12/2004
COB 11.4.1
See Notes
A depositary when acting as such:
- (1) must comply with the rules in COB specified in COB 11.4.3 R, as modified;
- (2) need not comply with any other rule in COB.
- 01/12/2001
COB 11.4.2
See Notes
- 01/12/2001
COB 11.4.3
See Notes
Rules applicable to depositaries
This table belongs to COB 11.4.1 R
Chapter | Description | Modifications |
1 | Application and general provisions | 'Customer' means 'trustee' or 'trust', as appropriate. COB 1.5 and COB 1.6 do not apply. |
2.1 to 2.4 | Rules which apply to all firms | COB 2.2.20 R does not apply. For the depositary of a unit trust scheme, 'customer' means 'trustee' or 'trust', as appropriate. For the depositary of an ICVC, 'customer' means the ICVC. For the depositary of any other collective investment scheme, 'customer' means the scheme. |
2.5 | Exclusion of liability | For the depositary of a unit trust scheme, 'customer' and 'private customer' mean 'trustee' or 'trust', as appropriate. For the depositary of an ICVC, 'customer' means the ICVC. For the depositary of any other collective investment scheme, 'customer' means the scheme. |
3 | Financial promotion | |
5.5 | Information about the firm | 'Customer' and 'private customer' mean 'trustee' or the operator of the collective investment scheme, as appropriate. |
7.1 | Conflict of interest and material interest | 'Customer' and 'private customer' mean 'trustee' or 'trust', as appropriate. |
7.13 | Personal account dealing | 'Client' and 'customer' mean 'collective investment scheme'. |
[deleted] 10 | [deleted] Operators of collective investment schemes |
[deleted] The chapter does not apply to a depositary of an ICVC. It applies to the trustee of a unit trust scheme only where there is no separate operator, or where and to the extent that the separate operator does not take all day-to-day investment decisions in relation to the scheme. |
11 | Trustee and depositary activities |
- 01/07/2006
- Past version of COB 11.4.3 before 01/07/2006
COB 11.5
Trustee firms which are not depositaries
- 01/12/2004
COB 11.5.1
See Notes
The only rules in COB which apply to a trustee firm which is not a depositary and when acting as such are as follows:
- (1) where the firm is:
- (a) a bare trustee (or, in Scotland, a nominee) holding investments for another person and acting on that person's instructions;
- (b) a personal representative;
- (c) a trustee acting as trustee of an issue of debentures or government and public securities:
- (i) where the issue is made by a company listed on a recognised investment exchange or on a designated investment exchange (or by a wholly-owned subsidiary of such a company); or
- (ii) where the issue is made by a government, local authority or public authority; or
- (iii) where the aggregate amounts issued (under the trust deed or any deed supplemental to it and ignoring any amounts redeemed, repurchased or converted) exceed the sum of £10,000,000, or its equivalent in a foreign currency;
- the rules in COB 11.5.2 R, as modified
- (2) where the firm does not fall within (1), the rules in COB 11.5.3 R as modified.
- 01/12/2001
COB 11.5.2
See Notes
Rules applicable to trustee firms which are not depositaries and to which COB 11.5.1R (1) applies
This table belongs to COB 11.5.1 R (1).
Chapter | Description | Modifications |
1 | Application and general provisions | 'Customer' means 'trustee' or 'trust', as appropriate. COB 1.5 and COB 1.6 do not apply. |
2.1 | Clear, fair and not misleading communication | 'Customer' means 'trustee' |
2.2 | Inducements | 'Customer' means 'trustee' or 'trust', as appropriate. |
2.3 | Reliance on others | 'Customer' means 'trustee'. |
2.4 | Chinese walls | 'Customer' and 'client' mean 'trustee' or 'trust', as appropriate. |
2.5 | Exclusion of liability | 'Customer' and 'private customer' mean 'trustee', as appropriate. |
3 | Financial promotion | |
4.1 | Client classification | 'Client' and 'customer' mean 'trustee' or 'trust', as appropriate. |
5.5 | Information about the firm | 'Customer' and 'private customer' means 'trustee' or 'trust', as appropriate. |
7.1 | Conflict of interest and material interest | 'Customer' means 'trustee' or 'trust', as appropriate. |
7.2 | Churning and switching | 'Customer' means 'trustee' or 'trust', as appropriate. |
[deleted] | [deleted] | [deleted] |
7.18 | Use of dealing commission | 'Customer' means 'trustee' or 'trust' as appropriate. |
11 | Trustee and depositary activities |
- 01/07/2006
- Past version of COB 11.5.2 before 01/07/2006
COB 11.5.3
See Notes
Rules applicable to trustee firms which are not depositaries and to which COB 11.5.1R (2) applies
This table belongs to COB 11.5.1 R (2).
Chapter | Description | Modifications |
1 | Application and general provisions | 'Customer' means 'trustee' or 'trust', as appropriate. COB 1.5 and COB 1.6 do not apply. |
2.1 | Clear, fair and not misleading communication | 'Customer' means 'trustee' |
2.2 | Inducements and soft commission | 'Customer' means 'trustee' or 'trust', as appropriate. |
2.3 | Reliance on others | 'Customer' means 'trustee'. |
2.4 | Chinese walls | 'Customer' and 'client' mean 'trustee' or 'trust', as appropriate. |
2.5 | Exclusion of liability | 'Customer' and 'private customer' mean 'trustee' or 'trust', as appropriate. |
3 | Financial promotion | |
4.1 | Client classification | 'Client' and 'customer' mean 'trustee' or 'trust', as appropriate. |
5.2 | Know your customer | 'Customer' and 'private customer' mean 'trustee' or 'trust', as appropriate. |
5.3 | Suitability | 'Customer' and 'private customer' mean 'trustee' or 'trust', as appropriate. COB 5.3.14 R - COB 5.3.19 R do not apply to a trustee firm. However, a trustee firm must keep appropriate records to show compliance with COB 5.3. |
5.4 | Customers' understanding of risk | 'Customer' and 'private customer' mean 'trustee'. |
5.5 | Information about the firm | 'Customer' and 'private customer' means 'trustee' or 'beneficiary', as appropriate. |
7.1 | Conflict of interest and material interest | 'Customer' and 'private customer' mean 'trustee', or 'trust', as appropriate. |
7.2 | Churning and switching | 'Customer' means 'trustee' or 'trust', as appropriate. |
7.3 | Dealing ahead | 'Customer' means 'trustee' or 'trust', as appropriate. |
7.4 | Customer order priority | 'Customer' means 'trust'. |
7.5 | Best execution | 'Customer' means 'trustee' or 'trust', as appropriate. |
7.6 | Timely execution | 'Customer' means 'trust'. |
7.7 | Aggregation and allocation | 'Customer' means 'customer' or 'trust', as appropriate. |
7.9 | Lending to private customers | 'Private customer' means 'beneficiary'. |
7.10 | Margin requirements | 'Customer' and 'private customer' mean 'trustee' or 'trust', as appropriate. |
7.12 | Customer order and execution records | 'Customer' means 'trustee' or 'trust', as appropriate. |
7.13 | Personal account dealing | 'Client' means 'trust'. |
7.14 | Programme trading | 'Customer' means 'trustee' or 'trust', as appropriate. |
7.15 | Non market price transactions | 'Customer' means 'trustee' or 'trust', as appropriate. |
7.18 | Use of dealing commission | 'Customer' means 'trustee' or 'trust' as appropriate. |
8.1 | Confirmation of transactions | 'Customer' means 'trustee' or 'trust', as appropriate. |
8.2 | Periodic statements | 'Customer' means 'trustee' or 'trust', as appropriate. |
[deleted] | [deleted] | [deleted] |
11 | Trustee and depositary activities |
- 01/07/2006
- Past version of COB 11.5.3 before 01/07/2006
COB 11.6
Delegation to a permitted third party.
- 01/12/2004
COB 11.6.1
See Notes
A trustee firm may not appoint a permitted third party ("PTP") under this rule unless:
- (1) the trustee firm could not reasonably be expected to discharge the responsibility itself.
- (2) the delegation is made in writing which:
- (a) describes in adequate detail the regulated activities to be carried on by the PTP; and
- (b) states that the arrangement is to be regarded as a PTP arrangement for the purposes of this rule;
- (3) the PTP undertakes in writing to the trustee firm to comply with all rules relevant to the regulated activity in question; and
- (4) the PTP is an appropriate person to perform the regulated activity.
- 01/12/2001
COB 11.6.2
See Notes
- 01/12/2001
COB 11.6.3
See Notes
- 01/12/2001
COB 11.6.4
See Notes
- 01/12/2001
COB 11.6.5
See Notes
- 01/12/2001
COB 11.6.6
See Notes
- 01/12/2001
COB 11.6.7
See Notes
- 01/12/2001
COB 11.6.8
See Notes
- 01/12/2001
COB 11.6.9
See Notes
- 01/12/2001
COB 11.7
Record Keeping
- 01/12/2004
COB 11.7.1
See Notes
- (1) A firm must make a record of any written delegation to a PTP under COB 11.6.1 R (1) and of the PTP's undertaking under COB 11.6.1 R (2) and of any variation of those documents.
- (2) A record in (1) must be retained for a period ending three years after the date on which the PTP's appointment ceases.
- 01/12/2001
COB 11.7.2
See Notes
- 01/12/2001
COB 11.8
Proper advice
- 01/12/2004
COB 11.8.1
See Notes
- 01/12/2001
COB 11.8.2
See Notes
- 01/12/2001
COB 11.8.3
See Notes
- 01/12/2001
COB 11.8.4
See Notes
- 01/12/2001
COB 11.8.5
See Notes
- 01/12/2001
COB 11.8.6
See Notes
- 01/12/2001
COB 11.8.7
See Notes
- 01/12/2001
COB 12
Lloyd's
COB 12.1
Application
- 01/12/2004
COB 12.1.1
See Notes
This chapter applies to a firm when it carries on any of the following activities:
- (1) advising on syndicate participation at Lloyd's or agreeing to carry on that regulated activity;
- (2) managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's or agreeing to carry on that regulated activity;
- (3) carrying on designated investment business in relation to funds at Lloyd's;
- (4) communicating or approving a financial promotion in relation to:
- (a) the underwriting capacity of a Lloyd's syndicate; or
- (b) membership of a Lloyd's syndicate; or
- (c) effecting or carrying out life policies written at Lloyd's; or
- (d) any of the activities specified in (1) or (3).
- 14/01/2005
- Past version of COB 12.1.1 before 14/01/2005
COB 12.1.2
See Notes
- 01/12/2001
COB 12.1.3
See Notes
- 01/12/2001
COB 12.1.4
See Notes
- 06/04/2007
- Past version of COB 12.1.4 before 06/04/2007
Purpose
COB 12.1.5
See Notes
- 01/12/2001
COB 12.1.6
See Notes
- 01/12/2001
Rules of general application
COB 12.1.7
See Notes
- (1) When a firm is carrying on any of the activities specified in COB 12.1.1 R (1), COB applies in full, except to the extent disapplied under COB 12.1.14 R.
- (2) COB does not apply to a firm when carrying on the activity specified in COB 12.1.1 R (2), except as specified in COB 12.1.15 R.
- (3) COB 3 applies to a firm when carrying on the activity specified in COB 12.1.1 R (4).
- 01/12/2001
COB 12.1.8
See Notes
- 01/12/2001
COB 12.1.9
See Notes
- 01/12/2001
COB 12.1.10
See Notes
- 01/12/2001
COB 12.1.11
See Notes
- 01/12/2001
Definitions and modifications
COB 12.1.12
See Notes
When a firm is carrying on activities to which this chapter applies, any reference in COB to the term:
- (1) "designated investment" is to be taken to include the following specified investments:
- (a) the underwriting capacity of a Lloyd's syndicate;
- (b) membership of a Lloyd's syndicate; and
- (c) rights to or interests in the specified investments in (a) or (b);
- (2) "designated investment business" is to be taken to include the following regulated activities:
- (a) advising on syndicate participation at Lloyd's;
- (b) managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's; and
- (c) agreeing to carry on the regulated activities in (a) or (b).
- 01/12/2001
COB 12.1.13
See Notes
- 01/12/2001
COB 12.1.14
See Notes
This table disapplies parts of COB to a firm when carrying on the activities to which COB 12.1.7 R (1) relates.
Chapter | Description | Disapplication |
4.2 | Terms of business and client agreements with customers | COB 4.2.11 E and COB 4.2.12 R are disapplied. |
6 | Product disclosure and the customer's right to cancel or withdraw | COB 6 is disapplied. |
8.2 | Periodic statements | COB 8.2 is disapplied to a firm advising on syndicate participation at Lloyd's. COB 8.2.7 is disapplied to the Society. |
[deleted] | [deleted] | [deleted]. |
11 | Trustee and depositary activities | COB 11 is disapplied. |
- 01/01/2004
COB 12.1.15
See Notes
This table applies COB to firms when carrying on the activity to which COB 12.1.7 R (2) relates except where ICOB applies in relation to non-investment insurance contracts.
Chapter | Description | Application |
1 | Application and general provisions | Applied |
2 | Rules which apply to all firms conducting designated investment business | Applied |
4.1 | Client classification | Applied |
6.7 | Cancellation and withdrawal | Applied |
6.8 | Insurance contracts - life policies |
Applied |
8A | Claims handling | Applied |
COB 12.1.16
See Notes
COB 12.1.17
See Notes
Location of rules of general application to firms when carrying on activities to which this chapter applies.
This table forms part of COB 12.1.16 G.
Chapter | Description |
COB 1 | Application and general provisions |
COB 2 | Rules which apply to all firms conducting designated investment business |
COB 4.1 | Client classification |
- 01/12/2001
COB 12.1.18
See Notes
Location of rules of particular relevance to a firm when advising on syndicate participation at Lloyd's.
This table forms part of COB 12.1.16 G.
Chapter | Description |
COB 4.2.1 R to COB 4.2.10 R (inclusive), COB 4.2.13 R to COB 4.2.14 R | Terms of business and customer agreements |
COB 5 | Advising and selling |
COB 7.1 | Conflict of interest and material interest |
- 01/12/2001
COB 12.1.19
See Notes
Location of rules of particular relevance to a firm when carrying on designated investment business in relation to funds at Lloyd's.
This table forms part of COB 12.1.16 G.
Chapter | Description |
COB 4.2.1 R to COB 4.2.10 R (inclusive), COB 4.2.13 R and COB 4.2.14 R | Terms of business and customer agreements |
COB 7 | Dealing and managing |
COB 8.1 | Confirmation of transactions |
COB 8.2.1 to COB 8.2.6 (inclusive) and COB 8.2.9 | Periodic statements |
- 01/12/2001
COB 12.1.20
See Notes
Location of rules of particular relevance to a firm managing the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's.
This table forms part of COB 12.1.16 G.
Chapter | Description |
COB 6.7 | Cancellation and withdrawal |
COB 6.8 | Insurance contracts - life policies |
ICOB | Insurance: Conduct of Business Sourcebook |
COB 12.1.21
See Notes
Location of rules of particular relevance to a firm when communicating or approving financial promotions in relation to the investments and activities specified at COB 12.1.1 R (4).
This table forms part of COB 12.1.16 G.
Chapter | Description |
COB 3 | Financial promotion |
- 01/12/2001
COB App 1
Appendix 1
COB App 1.1
Required information for certain terms of business, key features, simplified prospectuses and direct offer financial promotions
COB App 1.1.1
See Notes
Required information
This table belongs to COB 3.9.6 R, COB 4.2.10 R, COB 6.2.16 R, COB 6.2.18R, COB 6.2.41R, COB 6.2.47R, COB 6.4.13R, COB 6.4.25R, COB 6.4.27R, COB 6.5.2R(6), COB 6.5.42R to COB 6.5.44R.
Required information | |||
The supplier | |||
(1) | The name and the main business of the firm, the geographical address at which it is established and any other geographical address relevant to the customer's relations with the firm. | ||
(2) | Where the firm has a representative established in the customer's EEA State or other country of residence, the identity of that representative and the geographical address relevant to the customer's relations with him. | ||
(3) | Where the customer's dealings are with any professional other than the firm, the identity of that professional, the capacity in which he is acting with respect to the customer, and the geographical address relevant to the customer's relations with that professional. | ||
(4) | (a) | For authorised persons: | |
(i) | the required disclosure statement in GEN 4 Annex 1 (Statutory status disclosure); and | ||
(ii) | the fact that the person is entered on the FSA Register and his FSA registration number. | ||
(b) | For unauthorised persons: | ||
(i) | where the person's activity is subject to an authorisation scheme, the particulars of the relevant supervisory authority; and | ||
(ii) | where the person is registered in a trade or similar public register, the trade register in which the person is registered and his registration number or an equivalent means of identification in that register. | ||
The financial service | |||
(5) | A description of the main characteristics of the service the firm will provide. | ||
(6) | The total price to be paid by the customer to the firm for its services, including all related fees, charges and expenses, and all taxes paid through the firm or, where an exact price cannot be indicated, the basis for the calculation of the price enabling the customer to verify it. | ||
(7) | Notice of the possibility that other taxes or costs may exist that are not paid through the firm or imposed by it. | ||
(8) | Details of any specific additional cost to the customer for using a means of distance communication. | ||
(9) | Where relevant, notice indicating that the service involves special risks related to its specific features or the operations to be executed or whose price depends on fluctuations in the financial markets outside the firm's control and that past performance is no indicator of future performance. | ||
(10) | Any limitations of the period for which the information provided is valid. | ||
(11) | The arrangements for payment and performance. | ||
The contract | |||
(12) | In relation to services performed permanently or recurrently, the minimum duration of the contract. | ||
(13) | The EEA State or States whose laws are taken by the firm as a basis for the establishment of relations with the retail customer prior to the conclusion of the contract. | ||
(14) | Any contractual clause on law applicable to the contract or on competent court, or both. | ||
(15) | The language in which the contract is supplied and in which the firm will communicate during the course of the contract. | ||
(16) | Information on any rights the parties may have to terminate the contract early or unilaterally under its terms, including any penalties imposed by the contract in such cases. | ||
(17) | The existence or absence of a right to cancel under COB 6.7 and, where there is such a right: | ||
(a) | its duration and the conditions for exercising it, including information on the amount which the customer may be required to pay (or which may not be returned to the customer) in accordance with COB 6.7.52R(1)(b), as well as the consequences of not exercising it; and | ||
(b) | practical instructions for exercising the right to cancel, including as a minimum the method in COB 6.7.42R(1) and details of the address to which any cancellation notice should be sent. | ||
Redress | |||
(18) | How to complain to the firm, whether or not complaints may subsequently be referred to the Financial Ombudsman Service and information about any other applicable named complaints scheme. | ||
(19) | Whether or not compensation may be available from the compensation scheme should the firm be unable to meet its liabilities, and information about any other applicable named compensation scheme; and, for each applicable scheme, the extent and level of cover and how further information can be obtained. (See the example in COB 5.5.11 G (Investment firms: compensation information)). |
Transitional Provisions and Schedules
COB TP 1
Transitional Rules for pre-N2 and ex-Section 43 firms at N2
1.0 | Application | |||
1.1 | These transitional provisions apply to: | |||
(a) | pre-N2 firms; and | |||
(b) | ex-section 43 firms. | |||
2.0 | Purpose | |||
2.1 | G | The FSA is aware that the introduction of COB will impose an additional compliance burden on firms, even when there is an underlying continuity of policy. The FSA wishes to lighten that burden in a manner consistent with its regulatory objectives and the principles of good regulation under the Act. The following rules provide transitional relief which takes three distinct forms: | ||
(a) | extra time provisions (ETPs) which, in practice, give firms additional time after commencement to complete their preparations for the impact of certain provisions in COB; | |||
(b) | technical timing provisions (TTPs) which give relief from certain provisions in COB that require firms to fulfil obligations to customers at periodic intervals. TTPs postpone the impact of these provisions in COB in relation to periods that span N2; and | |||
(c) | timeless (saving) provisions (TSPs) which give firms relief for an indefinite period after N2 from certain provisions in COB relating mainly to terms of business and client agreements COB 4.2 and from provisions in the Handbook generally (including COB) relating to client classification. TSPs allow firms to continue to use, or rely upon, documentation or compliance work that was undertaken in accordance with previous regulator rules in relation to existing clients at N2. | |||
2.2 | G | If a firm's permitted regulated activities are subject to one or more of the transitional provisions in COB , and were carried on before commencement, those regulated activities should be interpreted, where appropriate, as if they were authorised investment business before commencement. | ||
2.3 | G | GEN contains some technical transitional provisions that apply throughout the Handbook and which are designed to ensure a smooth transition at commencement. These include transitional provisions relevant to record keeping and notification rules. | ||
2.4 | G | For the avoidance of doubt, COB TP 1.2, COB TP 1.2 and COB TP 1.2 at COB TP 1.2 override paragraph 9 (Time starting before commencement) of the technical timing provisions in GEN. | ||
2.5 | G | SUP contains transitional provisions, which carry forward written concessions relating to pre-commencement provisions. | ||
3.0 | Continuity of contracts | |||
3.1 | G | The FSA is sometimes asked whether a firm should re-negotiate contracts to replace references to its authorisation status or regulatory provisions made under predecessor legislation with references to its status or regulatory provisions made under the Act . Clearly, whether a firm should renegotiate its contracts is a matter for the firm , which needs to be considered in the light of the effect of the contractual provision as a whole. As a general rule, unless the FSA has made particular requirements relating to such matters, the FSA would not expect to see this done for regulatory reasons. Firms may wish to consider whether they need appropriate professional advice. | ||
3.2 | G | Clearly, the interpretation of contractual provisions is a matter for the courts. However, where a firm continues, as a result of the grandfathering process, to enjoy permission which provides it with authority under the Act to carry on regulated activities substantially similar to the investment business it could carry on under its authorisation under predecessor legislation, the FSA would be surprised if a court were to conclude that updating a contractual provision was necessary to enable it to give effect to the intentions of the parties to the contract. | ||
4.0 | Definitions | |||
4.1 | R | In these transitional provisions the following words are to have the meaning given to them below: | ||
"corresponding rule" means a rule of the previous regulator of a firm that is substantially similar in purpose and effect to the relevant provision in COB. | ||||
"section 43 business" means activities in respect of which the firm would have been an exempted person under section 43 of the Financial Services Act 1986. | ||||
"pre-N2firm" means: | ||||
(a) | a firm which immediately before commencement was authorised under the Financial Services Act 1986 to carry on investment business in the United Kingdom by virtue of its membership of: | |||
(i) | IMRO; | |||
(ii) | PIA; or | |||
(iii) | SFA; | |||
(b) | a firm which immediately before commencement held an authorisation granted directly by the FSA under the Financial Services Act 1986 to carry on investment business in the United Kingdom immediately before commencement; or | |||
(c) | an employee of such a firm in (a) or (b), including any of its appointed representatives (as defined under section 44 of the Financial Services Act 1986); | |||
but does not include: | ||||
(d) | an ex-RPB firm; or | |||
(e) | a firm in relation to its section 43 business. | |||
"transitional period" means the period starting on commencement and finishing on midnight on 30 June 2002, except where otherwise specified. |
COB TR 1
(1) | (2) | (3) | (4) | (5) | (6) | |||
Material to which the transitional provision applies: The COB provisions in Table COB TP 1.3 with the labels indicated | Transitional provision | Transitional provision: dates in force | Handbook provision: coming into force | |||||
1.0 | Extra time provisions | |||||||
1.1 | ETP1 | R | Transitional relief | (1) commencement to 30 June 2002, except as specified in (2) and (3) below; (2) for COB 9.3.105R, from commencement to 31 December 2002; (3) for COB 3.9.10 R, COB 6.1 to COB 6.8, until a date yet to be specified. |
commencement | |||
(1) | A pre-N2 firm will not contravene any of the provisions labelled ETP1 in COB TP 1.3 to the extent that, on or after commencement, it is able to demonstrate that it has complied with the corresponding rule of its previous regulator or, where applicable, the relevant former statutory requirement, subject to any modification, wherever appropriate, to take account of the passing of the Act. | |||||||
(2) | Paragraph (1) does not apply to the following: | |||||||
(a) | (from 1 September 2002) COB 6.1.1 (5) to COB 6.1.1 (6) (Application); | |||||||
(b) | (from 1 September 2002) COB 6.5.50 to COB 6.5.52 (Life policies: requests for quotations for surrender values); | |||||||
(c) | (from 1 September 2002) COB 6.5.53 to COB 6.5.56 (Open market option). | |||||||
(d) | (from 1 August 2002) COB 6.5.40 (3)(k) (Further information for life policies, schemes, insurance or equity ISAs, PEPs and stakeholder pensions); | |||||||
(e) | (from 1 August 2002) COB 6.5.8 to COB 6.5.9 (Stakeholder pension schemes: decision trees); | |||||||
(f) | (from 6 April 2003) COB 6.6.51 (b) (Rate of return assumptions), COB 6.6.83 (Assumptions for pension annuities), COB 6.6.84 (Assumptions for pension annuities), COB 6.6.90 (3) and COB 6.6.91 (Required assumptions); | |||||||
(g) | (from 1 November 2002) COB 6.5.40 (3)(m) (Further information for life policies, schemes, insurance or equity ISAs, PEPs and stakeholder pensions); | |||||||
(h) | (from 1 April 2004) COB 6.1.1A (Application of COB 6.2.26); | |||||||
(i) | (from 1 April 2004) COB 6.2.26 (Requirement to offer a simplified prospectus for section 264 schemes); and | |||||||
(j) | (from 1 April 2004 for a mini cash ISA for the tax year 2004/2005 and later tax years) COB 6.5.42 (14) (Information requirements for cash deposit ISAs, friendly society tax-exempt policies, traded life policies and broker funds); | |||||||
(k) | (from 9 October 2004) any rule in COB inserted or amended by the Distance Marketing Directive Instrument 2004 and, in the case of an amendment, to the extent of such amendment; | |||||||
(l) | (from 31 October 2004) any rule in COB inserted or amended by the Long-Term Care Insurance Contracts Instrument 2004 and, in the case of an amendment, to the extent of such amendment. | |||||||
1.1A | ETP1 (for COB 6.1 - COB 6.8) | G | (1) | The FSA is extending transitional relief for COB 6.1 - COB 6.8 and various other rules in COB, pending the outcome of the review of product disclosure and polarisation. As each of those reviews are completed, the transitional provisions will be revoked or modified to provide an appropriate transition into the new regime. Firms will be given notice of any revocation or modification as part of consultation on the new regime. | commencement until a date yet to be specified. | |||
(2) | Interim changes to these rules may not benefit from this transitional relief. | |||||||
1.2 | ETPs 1 to 9 TTPs 1 to 3 TSPs 1 to 7 |
G | It is for a pre-N2 firm to satisfy itself that it has complied with the corresponding rule of its previous regulator or, where applicable, the relevant former statutory requirement. In order to benefit from the relief, a firm must ensure that the rule of its previous regulator which it proposes to comply with is substantially similar to the provision in COB to which it relates. | for ETP 1 as for COB TP 1.1 for ETP 2 to 9 and TTP 1 to 3 commencement to 30 June 2002 |
commencement | |||
For the assistance of firms , the FSA has compiled tables of derivations indicating the rules of a firm's previous regulator that correspond to the provision in COB being transitioned. Firms may wish to refer to these tables but in doing so should understand that they are not intended to be exhaustive and are produced merely as a guide. | ||||||||
Firms are advised that should they wish to take advantage of the transitional provisions set out in this section, the onus is on the firm to be able to demonstrate that in any given case it has in fact complied with the corresponding rules of its previous regulator or, as the case may be, the former statutory requirement. | ||||||||
1.3 | ETPs 1 to 9 TTPs 1 to 3 TSPs 1 to 7 |
G | Firms will have noted from the wording of COB TP 1.1 that they should treat the corresponding rules of their previous regulator as modified to the extent necessary to ensure that the provision can operate effectively notwithstanding the enactment of the Act. Firms will need to adopt a common sense approach in interpreting the corresponding rules of their previous regulator and modify them accordingly. For example, references in such rules to a firms previous regulator should be read as if they referred to the FSA. Other modifications may not be as straightforward, such as where the concept of an indirect customer is not carried forward under the new legislation. In cases of difficulty, firms are encouraged to approach the FSA for its views. | for ETP 1 as for COB TP 1.1 for ETP 2 to 9 and TTP 1 to 3 commencement to 30 June 2002 indefinitely for TSPs |
commencement | |||
1.4 | ETP2 | [deleted] | ||||||
1.5 | ETP1 | G | Expired | |||||
1.6 | ETP3 | R | Expired | |||||
1.7 | ETP3 | G | Expired | |||||
1.8 | ETP4 | R | Expired | |||||
1.9 | ETP4 | G | Expired | |||||
1.10 | ETP5 | R | Expired | |||||
1.11 | ETP6 | R | Expired | |||||
1.12 | ETP7 | R | Client Money An ex-section 43 firm need not comply with the provisions labelled ETP7 in Table COB TP 1.3 in relation to its section 43 business until the expiry of a period of 12 months following commencement, provided it continues to comply with the requirements of the Grey Paper (version June 1999), as published by the FSA, relating to the segregation of money and other assets belonging to counterparties. |
until a date yet to be specified | commencement | |||
1.13 | ETP8 | R | Expired | |||||
1.14 | ETP8 | G | Expired | |||||
1.15 | ETP9 | R | Group business disapplication for ex-IMRO firms and ex-SFA firms | Commencement until a date yet to be specified | commencement | |||
(1) | This paragraph applies to a pre-N2 firm which immediately before commencement was a member of IMRO or SFA. | |||||||
(2) | COB 1.3.1 R applies to an ex-IMRO firm in (1) as if it provided as follows: "COB applies to firms with respect to the carrying on of: |
|||||||
(1) | all regulated activities except: | |||||||
(a) | to the extent that a provision of COB provides for a narrower application; and | |||||||
(b) | activities which fall within article 69 of the Regulated Activities Order (Groups and joint enterprises), notwithstanding, in respect of article 69, article 4(4) of that Order (Specified activities: general: investment firms); and | |||||||
(2) | unregulated activities to the extent specified in any provision of COB.". | |||||||
(3) | COB 1.3.1 R applies to an ex-SFA firm in (1) as if it provided as follows: "COB applies to firm with respect to the carrying on of: |
|||||||
(1) | all regulated activities except: | |||||||
(a) | to the extent that a provision of COB provides for a narrower application: and | |||||||
(b) | in relation to all of COB other than COB 7.13 (Personal account dealing) and the rules in COB requiring records to be made and retained, activities which fall within article 69 of the Regulated Activities Order (Groups and joint enterprises), notwithstanding, in respect of article 69, article 4(4) of that Order (Specified activities: general: investment firms); and | |||||||
(2) | unregulated activity to the extent specified in any provision of COB.". | |||||||
1.16 | ETP9 | G | The purpose of ETP 9 is to carry forward for ex-IMRO firms and ex-SFA firms the former regulatory treatment of intra-group investment business, which is carried on in conjunction with investment business for third parties. The effect of that treatment was that under the IMRO rulebook the rules do not apply to the business done for group companies which fell within the group business exemption in paragraph 18 of Schedule 1 to the Financial Services Act 1986. The effect of that treatment under the SFA rulebook was that with the exception of the rules relating to compliance (of which the personal account dealing and record keeping rules are carried forward in COB) the conduct of business rules did not apply to the business done for group companies that fell within the group business exemption. Effectively it was only the non-group third party element of such firms' investment business that was subject to the relevant rules. COB would not have carried forward this group business disapplication for such firms, were it not for the introduction of ETP 9. Note that during the transitional period the FSA will be consulting on its proposals how this issue should be treated in COB after 30 June 2002. |
commencement until a date yet to be specified | commencement | |||
2.0 | Technical timing provisions | |||||||
2.1 | TTP1 | R | Expired | |||||
2.2 | TTP2 | R | Expired | |||||
2.3 | TTP3 | R | Expired | |||||
2.4 | TTP1, 2 and 3 | G | Expired | |||||
3.0 | Timeless (saving) provisions | |||||||
3.1 | TSP1 | R | Confirmation of compliance and approval | |||||
A pre-N2 firm will not contravene any of the provisions labelled TSP1 in Table COB TP 1.3 to the extent that it is able to demonstrate that, on or after commencement, it has carried out the confirmation exercise referred to in COB 3.6.1 R (Confirmation of compliance), for an investment advertisement issued or approved before commencement, in accordance with the corresponding rule of its previous regulator. | indefinitely | commencement | ||||||
3.2 | TSP2 | R | Terms of business and client agreements | |||||
(1) | Subject to (2) and (3), a pre-N2 firm will not contravene any of the provisions in Table COB TP 1.3 labelled TSP2 to the extent that, on or after commencement, it is able to demonstrate that it has continued to use, or rely upon, terms of business (including a client agreement), given to, or made with, a client before the end of the transitional period in accordance with the corresponding rule of its previous regulator. | indefinitely | commencement | |||||
(2) | If the basis on which a pre-N2 firm conducts, or proposes to conduct, its designated investment business for a client changes after commencement in a way not contemplated by the original terms of business and where the original terms of business allow the firm to amend its terms without the customer's consent, the firm must provide the client with amended terms of business in accordance with COB 4.2.13 R (Amendment of terms of business). | |||||||
(3) | A pre-N2 firm must take reasonable steps to ensure that a private customer to whom it has provided terms of business (including a client agreement ) before commencement is notified in writing of the matters set out in COB 4.2.15E (2), (21) and (22) as soon as practicable after commencement. | |||||||
3.3 | TSP2 | G | (1) | Firms should note that COB 4.2 also benefits from an ETP1 as set out in COB TP 1.1. The purpose of this is to allow firms additional time, after commencement , to amend their terms of business for new clients taken on after N2. | indefinitely | commencement | ||
(2) | Where a pre-N2 firm has started, but has not concluded, negotiating terms of business with a client before commencement, it may rely on COB TP 1.1 even if the terms of business are not agreed until after commencement. | |||||||
(3) | COB TP 1.3 does not require the firm to provide a client with amended terms of business where the change in the terms was contemplated in the original terms of business. | |||||||
(4) | Further to Principle 7 (Communications with clients) of the FSA's Principles for Business, a firm should not refuse a customer's reasonable request for new terms of business to reflect the new regime applicable under the Act. | |||||||
(5) | A pre-N2 firm will comply with COB TP 1.1 if the firm gives written notification to the private customer as part of the firm's next routine communication to the customer. In most circumstances, the FSA expects that a period of between three and six months from commencement should give sufficient time for a pre-N2 firm to notify a private customer under this rule. For example, a pre-N2-firm might notify under COB TP 1.1 much sooner than six months after commencement when it provides private customers with risk warnings in respect of warrants and derivatives or non-readily realisable investments (COB 5.4 Customers' understanding of risk). | |||||||
(6) | A pre-N2 firm's only routine communication with a private customer might occur more that six months after commencement. For example, a long-term insurer providing customers with the annual statement might only communicate with some customers (particularly 'dormant' customers) annually or less frequently. In such limited circumstances, a period of up to six months might be too restrictive an interpretation of the requirement to take reasonable steps to notify private customers as soon as practicable after commencement. This is exceptional and a period of up to six months from commencement will be sufficient in most cases. | |||||||
(7) | The FSA wishes to minimise any unnecessary repetition or duplication of notifications flowing from COB TP 1.1. A pre-N2 firm acting under COB TP 1.1 may reasonably fulfil its notification obligation to a private customer through the pre-N2 firm's agent or intermediary who services the private customer and is authorised by the FSA, or through the pre-N2 firm's appointed representative who services the private customer and for whom the pre-N2 firm is responsible as principal under section 39 of the Act (Exemption). But a pre-N2 firm will retain responsibility for fulfilling the notification requirement in COB TP 1.1. | |||||||
(8) | COB TP 1.1 requires notification in writing. This may be done by using electronic media, subject to COB 1.8 (Application to electronic media). The requirement will not be discharged, however, simply by publishing a notice in a national or local newspaper. | |||||||
3.4 | TSP3 | R | Know your customer and suitability | indefinitely (as regards (1) and (2)) | commencement | |||
(1) | Subject to (2), a pre-N2 firm will not contravene any of the provisions labelled TSP3 in Table COB TP 1.3 to the extent that it is able to demonstrate that, on or after commencement, it has continued to use, or rely upon, a record of a private customer's personal and financial circumstances made in accordance with the corresponding rules of its previous regulator, and in doing so has had regard to the guidance set out in COB 5.2.6 G. | |||||||
(2) | The relief in (1) will apply only so long as there is no relevant change in the customer's personal and financial circumstances. | |||||||
(3) | Paragraph (2) applies only for relevant changes of which a firm ought reasonably to be aware assuming compliance with COB 5.2.5 R (Requirement to know your customer) | indefinitely from 1 January 2003 (as regards (3)) | ||||||
3.5 | TSP4 | R | Suitability and customers' understanding of risk | |||||
A pre-N2 firm will not contravene any of the provisions labelled TSP4 in Table COB TP 1.3 to the extent that it is able to demonstrate that, on or after commencement, it uses, or relies upon, a suitability letter or, as the case may be, a risk warning or disclosure, given to a customer in accordance with the corresponding rule of its previous regulator, in relation to a transaction or series of transactions executed or arranged before the expiry of the transitional period. | indefinitely | commencement | ||||||
3.6 | TSP4 | G | Firms should note that the requirements in COB 5.2 and COB 5.3 relating to the production of suitability letters and risk warnings also benefit from an ETP1 provision. | indefinitely | commencement | |||
3.7 | TSP5 | R | Scheme documents for an unregulated collective investment scheme | |||||
A pre-N2 firm that is an operator will not contravene any of the provisions labelled TSP5 in Table COB TP 1.3 to the extent that it is able to demonstrate that, on or after commencement, it has continued to use, or rely upon, a scheme document provided to a participant before the expiry of the transitional period, in accordance with the corresponding rule of its previous regulator. | indefinitely | commencement | ||||||
3.8 | TSP6 | R | Notice and consents | |||||
(1) | A pre-N2 firm will not contravene any of the provisions labelled TSP6 in Table COB TP 1.3 to the extent that it is able to demonstrate that, on or after commencement, it has continued to use or rely upon a valid notice or consent which, before the expiry of the transitional period, was given to, given by or obtained from a client or counterparty in accordance with the corresponding rule of its previous regulator, or, where applicable, the relevant former statutory instrument. | indefinitely | commencement | |||||
(2) | A pre-N2 firm will not contravene any of the provisions labelled TSP in the Table COB TP 1.3 to the extent that it is able to demonstrate that, on or after commencement, its auditors have provided its previous regulator with written confirmation of the type required by COB 9.3.42R (2)(a) in accordance with the corresponding rule of its previous regulator. | |||||||
3.9 | TSP7 | R | Cancellation | |||||
The Financial Services (Cancellation) Rules 1994 and the Financial Services (Non-Life Cancellation) Rules 1997 continue to apply in respect of investment agreements, as defined in section 44(9) of the Financial Services Act 1986, entered into before commencement. | indefinitely | commencement | ||||||
3.10 | TSP7 | G | COB 6.7 (Cancellation and withdrawal) applies in the case of an investment agreement entered into before commencement but which, on or after that date, is subsequently varied. | indefinitely | commencement |
COB TR 2: Rules benefiting from transitional relief (pre-N2 and ex-section 43 firms) G
This Table belongs to COB TP 1.2
COB Rule | Rule Heading | Label | |
ETP | TSP | ||
Chapter 1 Applications and general provisions | |||
1.3 General application: what? | |||
1.3.1R | ETP9 | ||
Chapter 2 Rules which apply to all firms conducting designated investment business | |||
Chapter 3 Financial promotion (whole chapter) | ETP1 | TSP7 | |
3.6 Confirmation of compliance | |||
3.6.1R | Confirmation of compliance | ETP1 | TSP1 |
3.6.3R | Withdrawing confirmation | ETP1 | TSP1 |
3.6.5R | Communicating a financial promotion where another firm has confirmed compliance | ETP1 | TSP1 |
Chapter 4 Accepting customers | |||
4.2 Terms of business and client agreements with customers (whole section) | ETP1 | TSP2 | |
Chapter 5 Advising and selling | |||
5.2 Know your customer | |||
5.2.5R | Requirement to know your customer | ETP1 | TSP3 |
5.2.9R | Record keeping: personal and financial circumstances | ETP1 | TSP3 |
5.2.10R | Record keeping: execution-only pension opt-outs and pension transfers | ETP1 | TSP3 |
5.3 Suitability | TSP4 | ||
5.3.5R | Requirement for suitability generally | ETP1 | |
5.3.14R | Requirement for a suitability letter: other specific requirements | ETP1 | |
5.3.19R | Exceptions from requirement to provide a suitability letter | ETP1 | |
5.3.20R | Suitability of broker funds | ETP1 | |
5.3.21R | Suitability of pension transfers and opt-outs | ETP1 | |
5.3.22R | ETP1 | ||
5.3.23R | ETP1 | ||
5.3.24R | ETP1 | ||
5.3.25R | ETP1 | ||
5.3.26R | ETP1 | ||
5.3.27R | ETP1 | ||
5.3.28R | Suitability of personal pension schemes: promotions to employees | ETP1 | |
5.4 Customers' understanding of risk | TSP4 | ||
5.4.3R | Requirement for risk warnings | ETP1 | TSP4 |
5.7 Disclosure of charges, remuneration and commission | |||
5.7.3R | Disclosure of charges | ETP1 | |
5.7.5R | Disclosure of commission (or equivalent) for packaged products | ETP1 | |
5.7.9R | Exceptions to the disclosure for packaged products | ETP1 | |
5.7.10R | ETP1 | ||
5.7.15R | ETP1 | ||
Chapter 6 Product disclosure and the customers' right to cancel or withdraw (whole chapter) | ETP1 | TSP7 | |
6.7 Cancellation and withdrawal (whole section) | ETP1 | TSP6 | |
6.9 With-profits guides (whole section) | |||
Chapter 8 Reporting to customers | |||
8.1 Confirmation of transactions | |||
8.1.3R | Requirement to confirm a transaction | ETP1 | |
8.1.6R | Exceptions to the requirement to despatch a confirmation | ETP1 | |
8.1.7R | ETP1 | ||
8.1.8R | ETP1 | ||
8.1.11R | When a confirmation may omit certain information | ETP1 | |
8.1.12R | When a transaction is treated as executed | ETP1 | |
8.1.14R | Record keeping requirements | ETP1 | |
8.2 Periodic statements | |||
8.2.4R | Requirement for a periodic statement | ETP1 | |
8.2.6R | Exceptions from the requirement to provide a periodic statement | ETP1 | |
8.2.9R | Record keeping requirements | ETP1 | |
Chapter 10 Operators of collective investment schemes | |||
10.3 Modification of the allocation rule | |||
10.3.1R | ETP1 | ||
10.4 Suitability of the portfolio of an unregulated collective investment scheme | |||
10.4.3R | ETP1 | ||
10.6 Scheme documents for an unregulated collective investment scheme | |||
10.6.2R | Provision of scheme documents to private customers | ETP1 | TSP5 |
10.6.5R | TSP5 | ||
10.7 Periodic statements for an unregulated collective investment scheme (whole section) | ETP1 |
- 01/07/2006
- Past version of COB TP 1 before 01/07/2006
COB TP2
Client classification transitional provisions at N2
COB TR 3: Client Classification Provisions
(1) | (2) | (3) | (4) | (5) | (6) |
Material to which the transitional provision applies: All rules in the Handbook | TRANSITIONAL PROVISION | Transitional provision: dates in force | Handbook provision: coming into force | ||
1.0 | Timeless (saving) provisions for the Handbook (including COB) | ||||
1.1 | Rules in the Handbook unless the contrary intention appears | R | Client Classification (1) This paragraph applies only to a pre-N2 firm and in relation to any person who became a client of the firm before commencement (in this rule referred to as an "existing client"). (2) If a firm before commencement classified an existing client , other than another firm or overseas financial services institution, as a market counterparty in accordance with the rules of its previous regulator, it will not contravene a rule in the Handbook by treating the client as a market counterparty, unless (3) applies. (3) If the client in (2) has been classified as a market counterparty only in relation to a particular transaction or type of transaction, the firm must from commencement classify that client in accordance with COB 4.1. (4) If a firm before commencement classified an existing client, other than another firm or overseas financial services institution, or a client within COB TR 1 1.6, as a non-private customer in accordance with the rules of its previous regulator, it will not contravene a rule in the Handbook by treating that client as an intermediate customer. (5) The firm may, notwithstanding (4), classify the client in (4) as a market counterparty provided the firm complies with COB 4.1.12 R (2) (Large intermediate customer classified as a market counterparty). (6) If a firm before commencement classified an existing client, other than another firm or overseas financial services institution, as a private customer in accordance with the rules of its previous regulator, it will not contravene a rule in the Handbook by treating that client as a private customer. (7) The firm may, notwithstanding (6), classify the client in (6) as an intermediate customer provided the firm complies with COB 4.1.9 R (Expert private customer classified as an intermediate customer). (8) If a firm before commencement classified an existing client, other than another firm or overseas financial services institution, as an ordinary business investor in accordance with the rules of its previous regulator , it will not contravene a rule in the Handbook by treating that client as an intermediate customer. |
indefinitely | varies depending on the rule concerned |
1.2 | Rules in the Handbook unless the contrary intention appears | G | Firms should note that COB TP 2.1 does not require them to take positive steps to re-classify clients falling within the scope of the rule at N2 for the purposes of compliance with COB 4.1.4 R (Requirement to classify). COB TP 2.1 has the effect of automatically re-classifying these clients except as otherwise stated. | indefinitely | varies depending on the rule concerned |
1.3 | Rules in the Handbook unless the contrary indication appears | G | There are no transitional rule regarding classification by a firm ("F") of a client who is a firm or overseas financial services institution ("C1"). In such cases the effect of COB 4.1.7 R is that C1 will be a market counterparty of F, unless COB 4.1.7 R (2) apply. If C1 wishes to be classified as an intermediate customer for inter-professional business from commencement, the requirement for agreement under COB 4.1.7 R (2)(c) could, for example, be satisfied if:(a) C1 notifies F in writing that it wishes to be classified as an intermediate customer for that purpose and that F's agreement will be implied if F continues to do business with C1 after commencement; and(b) F has not notified C1 in writing that it does not agree to that classification. | indefinitely | varies depending on the rule concerned |
1.4 | Rules in the Handbook unless the contrary intention appears. | G | For the assistance of firms , the FSA has prepared a client classification mapping table, which explains the link between pre-N2 client categories and the client classification in COB . This is to be found in Annex E of the Policy Statement on Transitional Arrangements for the Conduct of Business Sourcebook issued in July 2001. | ||
1.5 | Rules in the Handbook unless the contrary intention appears. | F | If a firm treats a client as a private customer , or as an intermediate customer , or as a market counterparty in accordance with COB TP 1.1 or COB TP 1.1, it will not contravene a rule in the Handbook by doing so. |
- 01/04/2005
COB TP3
Transitional Rules for ex-RPB firms
1.0 | Application | ||
1.1 | R | This section applies to firms who are ex-RPB firms. | |
2.0 | Purpose | ||
2.1 | G | The FSA is aware that the introduction of COB will impose an additional compliance burden on firms, even where there is an underlying continuity of policy. The FSA wishes to lighten that burden in a manner consistent with its statutory objectives and the principles of good regulation under the Act. Transitional measures are being produced for parts of COB which take three distinct forms. First, firms are in practical terms being given additional time after the commencement day, until 30 November 2002, to complete their preparations for the impact of certain COB rules. Secondly, relief is being given in relation to certain rules that require firms to fulfil obligations to customers at periodic intervals, so as to postpone the impact of the COB provisions in relation to periods that span N2. Thirdly, firms are being given relief for an indefinite period after N2 for certain COB provisions so as to allow firms to continue to use, or rely upon, documentation or compliance work undertaken in accordance with rules of their previous regulator in relation to existing customers at N2. | |
2.2 | G | If a firm's permitted regulated activities are subject to one or more of the transitional provisions in COB, and were carried on before commencement, those regulated activities should be interpreted , where appropriate , as if they were authorised investment business before commencement. | |
2.3 | G | GEN contains some technical transitional provisions that apply throughout the Handbook and which are designed to ensure a smooth transition at commencement. These include transitional provisions relevant to record keeping and notification rules. | |
2.4 | G | For the avoidance of doubt, TTP1 at COB TP 3.1 overrides paragraph 9 (Time starting before commencement ) of the technical timing provisions in GEN. | |
3.0 | Continuity of contracts | ||
3.1 | G | The FSA is sometimes asked whether a firm should renegotiate contracts to replace references to its authorisation status under predecessor legislation with reference to its status under the Act. Clearly, whether a firm should renegotiate its contracts is a matter for the firm which needs to be considered in the light of the effect of the contractual provision as a whole. As a general rule , however , the FSA would not expect to see this done for regulatory reasons. | |
3.2 | G | Clearly, the interpretation of contractual provisions is a matter for the courts. However, where a firm continues, as a result of the grandfathering process, to enjoy permission which provides it with authority under the Act to carry on regulated activities substantially similar to the investment business it could carry on under its authorisation under predecessor legislation, the FSA does not view it as necessary to update the contractual provisions. | |
4.0 | Definitions | ||
4.1 | R | In these transitional provisions the following words are to have the meaning given to them below: | |
"corresponding rule" means a rule of the previous regulator of a firm that is substantially similar in purpose and effect to the relevant provision in COB. | |||
"ex-RPB firm" means a firm which immediately before commencement was authorised under the Financial Services Act 1986 to carry on investment business in the United Kingdom by virtue of a certificate from a recognised professional body under section 16 of the 1986 Act. |
COB TR 4: COB Transitional Provisions (for ex-RPB firms)
(1) | (2) | (3) | (4) | (5) | (6) |
Material to which the transitional provision applies: The COB provisions in Table COB TR 5 with the label indicated | Transitional provision | Transitional provision: dates in force | Handbook provision: coming into force | ||
1.0 | Extra time provisions | ||||
1.1 | ETP1 | R | Expired | ||
1.2 | ETPs 1 to 3 (inclusive) TTP 1 TSPs 1 to 4 (inclusive) |
G | It is for an ex-RPB firm to satisfy itself that it has complied with the corresponding rule of its previous regulator or, where applicable, relevant former statutory requirement. In order to benefit from the relief, a firm must ensure that the rule of its previous regulator which it proposes to comply with is substantially similar to the COB provision to which it relates. For the assistance of firms the FSA has compiled tables of derivations indicating the rules of a firm's previous regulator that correspond to the COB provisions being transitioned. Firms may wish to refer to these tables but in doing so should understand that they are not intended as exhaustive and are produced merely by way of a guide. Firms are advised that should they wish to take advantage of the transitional measures set out in this section, the onus is on them to be able to demonstrate that in any given case they have in fact complied with the corresponding rules of their previous regulators or, as the case may be, former statutory requirement. | commencement to 30 November 2002 (for ETPs and TTPs)Indefinitely (for TSPs) | commencement |
1.3 | ETPs 1 to 3( inclusive) TTP 1 TSPs 1 to 4 (inclusive) |
G | Firms will have noted from the wording of COB TP 1.1 that they should treat the corresponding rules of their previous regulator as modified to the extent necessary to ensure that the provision can operate effectively notwithstanding the enactment of the Act. Firms will need to adopt a common sense approach in interpreting the corresponding rules of their previous regulator and should modify them accordingly. For example, references in such rules to a firm's previous regulator should be read as if they referred to the FSA. Other modifications may not be as straightforward. In cases of difficulty, firms are encouraged to approach the FSA for its views. | commencement to 30 November 2002 (for ETPs and TTPs)Indefinitely (for TSPs) | commencement |
1.4 | ETP2 | R | Expired | ||
1.5 | ETP2 | G | Expired | ||
1.6 | ETP3 | R | Expired | ||
1.7 | ETP3 | G | Expired | ||
2.0 | Technical timing provisions | ||||
2.1 | TTP1 | R | Expired | ||
2.2 | TTP1 | G | Expired | ||
3.0 | Timeless (saving) provisions | ||||
3.1 | TSP1 | R | Confirmation of compliance and approval An ex-RPB firm will not contravene any of the provisions labelled TSP1 in COB TP 3.1 to the extent that it is able to demonstrate that, on or after commencement, it has carried out the confirmation exercise referred to in COB 3.6.2 G (2), for an investment advertisement issued or approved before commencement, in accordance with the corresponding ruleof its previous regulator. | Indefinitely | commencement |
3.2 | TSP2 | R | Terms of business and customer agreements | Indefinitely | commencement |
(1) Subject to (2) and (3), an ex-RPB firm will not contravene any of the provisions in COB TP 3.1 labelled TSP2 to the extent that, on or after commencement , it is able to demonstrate that it has continued to use, or rely upon, terms of business (including a client agreement) given to, or made with, a client in accordance with the corresponding rule of its previous regulator. | |||||
(2) If the basis on which an ex-RPB firm conducts or proposes to conduct its designated investment business for a client changes after the commencement day, it must provide the client with amended terms of business in accordance with COB 4.2.13 R . | |||||
(3) An ex-RPB firm must take reasonable steps to ensure that a private customer to whom it has provided terms of business (including a client agreement) before commencement is notified in writing of the matters set out in COB 4.2.15E (21) and (22) as soon as practicable after commencement. | |||||
3.3 | TSP2 | G | (1) Firms should note that COB 4.2 also benefits from an ETP1 extra-time provision as set out in COB TR 3.1R. The purpose of this is to allow firms additional time, after commencement , to amend their terms of business for new clients taken on after N2. | Indefinitely | commencement |
(2) Where an ex-RPB firm has started, but not concluded, negotiating terms of business with a client before commencement , it may rely on COB TR 3.2(1) R even if the terms of business are not agreed until after commencement. | |||||
(3) COB TR 3.2(2)R does not require the firm to provide a client with amended terms of business where the change in the terms was contemplated in the original terms of business. | |||||
3.4 | TSP3 | R | Know your customer and suitability | Indefinitely | commencement |
(1) Subject to (2), an ex-RPB firm will not contravene any of the provisions labelled TSP3 in COB TP 1.3to the extent that it is able to demonstrate that, on or after commencement, it has continued to use, or rely upon, a record of a private customer's personal and financial circumstances made in accordance with the corresponding rules of its previous regulator, and in doing so has had regard to the guidance set out in COB 5.2.6 G. | |||||
(2) The relief in (1) will only apply so long as there is no relevant change in the customer 's personal and financial circumstances. | |||||
3.5 | TSP4 | R | Suitability and customers' understanding of risk An ex-RPB firm will not contravene any of the provisions labelled TSP4 in COB TP 1.3 to the extent that, on or after commencement , it uses, or relies upon, a suitability letter or, as the case may be, a risk warning or disclosure, given to a customer in accordance with the corresponding rule of its previous regulator, in relation to a transaction or series of transactions executed or arranged prior to commencement. | Indefinitely | commencement |
3.6 | TSP4 | G | Firms should note that the requirements in COB 5.2 and COB 5.3 relating to the production of suitability letters and risk warning also benefit from an ETP1 provision. | Indefinitely | commencement |
COB TR 5: COB rules benefiting from transitional relief for ex-RPB firms
This Table belongs to COB TR 4
COB Rule | Rule Heading | Assignation | ||
ETP | TTP | TSP | ||
CHAPTER 3 FINANCIAL PROMOTION (whole chapter) | ETP1 ETP2 |
|||
3.6 Confirmation of compliance and approval | ||||
3.6.1R | Confirmation of compliance | ETP1 | TSP1 | |
3.6.2R | Withdrawing confirmation | ETP1 | TSP1 | |
3.6.5R | Communicating a financial promotion where another firm has confirmed compliance | ETP1 | TSP1 | |
CHAPTER 4 ACCEPTING CUSTOMERS | ||||
4.2 Terms of business and customer agreements | ETP1 | TSP2 | ||
CHAPTER 5 ADVISING AND SELLING | ||||
5.2 Know your customer | ETP1 | TSP3 | ||
5.3 Suitability | ETP1 | TSP4 | ||
5.4 Customers' understanding of risk | ||||
5.4.3R | Requirement for risk warnings | ETP1 | TSP4 | |
5.5 Information about the firm | ETP3 | |||
CHAPTER 8 REPORTING TO CUSTOMERS | ||||
8.1 Confirmation of transactions | ||||
8.1.3R | Requirement to confirm a transaction | ETP1 | ||
8.1.6R | Exceptions to the requirements to dispatch a confirmation | ETP1 | ||
8.1.7R | ETP1 | |||
8.1.8R | ETP1 | |||
8.1.11R | When a confirmation may omit certain information | ETP1 | ||
8.1.12R | When a transaction is treated as arranged | ETP1 | ||
8.1.14R | Record keeping requirements | ETP1 | ||
8.2 Periodic statements | ||||
8.2.4R | Requirement for a periodic statement | ETP1 | TTP1 | |
8.2.9R | Record keeping requirements | ETP1 | TTP1 | |
CHAPTER 9 CLIENT ASSETS | ||||
9.1 Custody (whole chapter) | ETP1 | |||
9.1.35 (3)-(5)R | TSP4 | |||
9.1.40R | TSP4 | |||
9.1.49R | Client agreement | TSP2 | ||
9.1.51R | TSP2 | |||
9.1.54R | Risk disclosures | TSP4 | ||
9.1.57R | TSP4 | |||
9.1.58R | TSP4 | |||
9.1.69R | Custodian agreement | TSP2 | ||
9.1.74R | Stock lending | TSP2 |
- 01/04/2005
COB TP 4
Miscellaneous transitional provisions applying to all firms
(1) | (2) | (3) | (4) | (5) | (6) |
Material to which the transitional provision applies | Transitional provision | Transitional provision: dates in force | Handbook provision: coming into force | ||
1 | COB 6.5.40 R (3)(k) and (l) | R | Expired | ||
2 | COB 6.5.18 and COB 6.6 | R | Expired | From 1 November 2002 to 5 April 2003 | 1 November 2002 |
3 | COB 6.8.26and COB 6.8.28 | R | Expired | ||
4 | COB 3.8.4 R (3), 3.9.7R (1), COB 3.13.4 R | R | Expired | ||
5 | COB 4.2.15E (2), 4.3.15E (22), COB 5.5.3 R, COB 5.5.5 E, COB 5.5.9 R - COB 5.5.12 R | R, E, G | A firm is not required to comply with the amendments to the rules in column (2) made by the Statutory Status Disclosure Instrument 2003 until 1 October 2004; to the extent that a firm continues to rely upon terms of business (including a client agreement) given to or made with a client before 1 October 2004, the firm does not need to comply with the amendments to COB 4.2.15 E made by that Instrument until the firm's terms of business is next updated. | From 1 March 2003 | 1 March 2003 |
6 | COB 8.1.15 E (2), COB 10.6.8 E (1) | R | The amendments to COB 8.1.15E(2) and COB 10.6.8E(1) and (8) made by the Statutory Status Disclosure Instrument 2003 do not apply to a firm: (1) in relation to a confirmation of a transaction under COB 8.1 (Confirmation of transactions); and (2) in relation to the scheme documents referred to in COB 10.6 (Scheme documents for an unregulated collective investment scheme); until, as appropriate, the firm's system for producing confirmations or the scheme documents are next updated by the firm. |
From 1 March 2003 | 1 March 2003 |
7 | COB 4.2.5 R | R | ATS terms of business A service company, or a firm that is undertaking oil market activity or other energy market activity, that operates an ATS as at the day on which COB 4.2.17 E comes into force is not required to provide terms of business to a customer who has commenced using the ATS before that day. |
Indefinitely | 1 January 2004 |
8 | COB 4.2.5 R and COB 4.2.10 R | R | A firm need not, by reason of COB 4.2.17 E , amend, or give notice of an amendment to, its terms of business to include provision about the additional matters in COB 4.2.17 E in respect of a customer to whom it has provided terms of business before the day on which COB 4.2.17 E comes into force. | Indefinitely | 1 January 2004 |
9 | Rules in the Handbook | R | Classification of CISs. If a firm at any time before 1 September 2003 classified a collective investment scheme in accordance with COB 4.1 (Client classification) as in force at that time, it will not contravene any of the rules in the Handbook by treating the scheme in accordance with that classification. | From 1 September 2003 | Various |
10 | COB 7.1.14 R | R | UCITS management company COB 7.1.14 R does not take effect in relation to any discretionary management undertaken in accordance with a client agreement entered into before 12 February 2004. | From 13 February 2004 to 12 February 2007 | 13 February 2004 |
11 | COB 5.4.4 E (6) | R | Expired | ||
12 | COB 3.9.31 R (3) | R | Expired | ||
13 | COB 6.2.46 R | R | Simplified prospectus requirements for section 264 schemes A firm may comply with COB 6.2.22 R (Schemes) instead of COB 6.2.46 R (Requirement to offer a simplified prospectus for section 264 schemes), if the EEA State in which the recognised scheme is established has not implemented the obligations of the UCITS Directive in relation to the simplified prospectus, until the earlier of: (1) the date that the relevant obligations of the UCITS Directive have been implemented in that EEA State; and (2) 30 September 2004 or, if later, the date when the relevant provisions of the UCITS Directive have been implemented in the UK. |
From 1 April 2004 until 30 September 2004, or, if later, the date when the relevant provisions of the UCITS Directive have been implemented in the UK | 1 April 2004 |
14 | COB 6.11.9 | R | Annual report to with-profits policyholders A firm must produce its first report to with-profits policyholders under COB 6.11.9 in respect of the part of its financial year that follows the date on which INSPRU 1.3 (With-profits Insurance Capital Component) comes into force. |
From 30 April 2004 | 30 April 2004 |
15 | COB 6.6.51 R, COB 6.6.52 R, COB 6.6.84 R | R | As an alternative to complying with the provisions of COB 6.6.51 R, COB 6.6.52 R or COB 6.6.84 R, a firm will satisfy its obligations if it complies with the version of the rule in force on 20 April 2005. | 21 April 2005 - 1 August 2005 | 21 April 2005 |
16 | COB 6.2.26 R to COB 6.2.45 R | R | Simplified prospectus requirements for simplified prospectus schemes A firm need not comply with the rules specified in column (2) to the extent that it complies with the provisions of COB 6.2 (Provision of key features or simplified prospectus) that relate to key features schemes and ensures that every key features for the scheme which is offered to a client or provided to a private customer is produced in accordance with the applicable requirements of COB 6.5 (Content of key features and important information: life policies, key features schemes, ISA cash deposit components and stakeholder pension schemes). |
From 1 May 2005 | 30 September 2005 |
17 | COB 7.18.1 R to COB 7.18.16 R | R | Use of dealing commission In relation to any soft commission agreement an investment manager may have on 1 January 2006, the manager may comply with the rules in COB 2.2.8 R to COB 2.2.20 R (1) (instead of the rules specified in column (2)) until: (1) the date of the expiry of that agreement; or (2) if earlier, 30 June 2006. |
From 1 January 2006 to 30 June 2006 | 1 January 2006 |
18 | COB 4 Annex 4 R, COB 4 Annex 5 R and COB 4 Annex 6 R | R | Key facts logo A firm may continue to use a keyfacts logo which is not accompanied by a regulatory mark (®). |
From 6 November 2006 to 6 November 2007 | 6 November 2006 |
19 | Every amendment made to COB by the Personal Pensions Schemes Instrument 2006 (FSA 2006/28) | R | If the application of a provision listed in (2) is dependent on the occurrence of a series of events, some of which occur before, and some of which occur on or after, 6 April 2007, the provision applies with respect to the events that occur on or after that date. | From 6 April 2007. | 6 April 2007 |
- 06/04/2007
- Past version of COB TP 4 before 06/04/2007
COB TP5
Distance Marketing Directive transitional rules (applicable to all firms)
(1) | (2) | (3) | (4) | (5) | (6) | ||
Material to which the transitional provision applies | Transitional provision | Transitional provision: dates in force | Handbook provision: coming into force | ||||
Delayed amendment of COB for non-distance contracts | |||||||
1 | COB | R | The amendments to COB made by the Distance Marketing Directive Instrument 2004 on 9 October 2004 do not apply in relation to business which does not involve the conclusion of a distance contract with a retail customer, provided that the firm complies with the requirements of COB in force immediately before 9 October 2004, taking account of any amendments which come into force after that date. | From 9 October 2004 for 12 months | Already in force | ||
Exception for provision of key features to EEA customers | |||||||
2 | COB 6.2.21R(1)(a) and COB 6.2.24 (1) | R | (1) | There is no requirement for key features to be provided for a new life policy, variation to a life policy or in respect of a scheme if, at the time he signs the application, the customer: | From 9 October 2004, indefinitely | Already in force | |
(a) | (in the case of a life policy) is habitually resident in an EEA State other than the United Kingdom; or | ||||||
(b) | (in the case of a scheme) is not present in the United Kingdom; | ||||||
provided that the conditions in (2) are satisfied. | |||||||
(2) | The conditions referred to in (1) are that: | ||||||
(a) | the EEA State in which the private customer is (as applicable) habitually resident or present imposes requirements on the communication of precontract information (beyond the minimum required by Community legislation) when doing the designated investment business concerned from an establishment in the United Kingdom; and | ||||||
(b) | the firm complies with COB 6.4.25, in respect of the packaged product, as if references to "accepting deposits" and "deposits" were references to "designated investment business" and "packaged products" respectively. | ||||||
Non-investment insurance contracts: compliance with DMD Regulations or ICOB | |||||||
3 | R | When an insurer effects or carries out, or a firm manages the underwriting capacity of a Lloyd's syndicate as a managing agent at Lloyd's in relation to, a non-investment insurance contract which is a distance contract, then either: | From 9 October 2004 until 14 January 2005 | ||||
(1) | the Distance Marketing Regulations apply as if the insurer or firm was an unauthorised person; or | ||||||
(2) | (if the insurer has elected) the rules in ICOB which implement the DMD apply. | ||||||
An election under (2) is irrevocable and applies in relation to all such contracts. The insurer must make a record of the election and retain it for 6 years from 14 January 2005. In this transitional provision: "ICOB" means the Insurance: Conduct of Business sourcebook; and "non-investment insurance contract" means a contract of insurance which is a general insurance contract or a pure protection contract but which is not a long-term care insurance contract. |
|||||||
Delayed amendment of the Handbook for distance contracts | |||||||
4 | Handbook | R | (1) | The amendments to the Handbook made by the Distance Marketing Directive Instrument 2004 and the Distance Marketing (Amendment) Instrument 2004 do not apply to a firm unless it has elected to comply with them. | From 9 October 2004 until 31 October 2004 | Already in force | |
(2) | An election under (1) is irrevocable. The firm must make a record of the election and retain it for 6 years from 31 October 2004. |
- 01/04/2005
COB TP6
Transitional rules for depolarisation (applicable to all firms)
(1) | (2) | (3) | (4) | (5) | (6) | |
Material to which the transitional provision applies | Transitional provision | Transitional provision: dates in force | Handbook provision: coming into force | |||
1. | COB | R | From 1 December 2004 to 31 May 2005, a firm may, subject to TR 7.6, comply with COB as if it were not amended by the Depolarisation Instrument 2004, unless the firm is a product provider in which case it must comply with , as it applies to a product provider, from 1 December 2004 | From 1 December 2004 to 31 May 2005 | 1 December 2004 | |
2. | COB rules amended by the Depolarisation Instrument 2004 | R | (1) | Subject to COB TP 6.1 and COB TP 6.1, the Depolarisation Instrument 2004 may apply to a firm as follows. | From 1 December 2004 to 31 May 2005 | 1 December 2004 |
(2) | A firm may elect at any time from 1 December 2004 to 31 May 2005, to comply with COB as amended by the Depolarisation Instrument 2004. | |||||
(3) | A firm must notify the FSA in writing of an election in (2) and of the date prior to 31 May 2005 from which it will commence compliance with COB as amended by the Depolarisation Instrument 2004. | |||||
(4) | A firm may make different elections in (2) for each appointed representative that acts on its behalf but can only make a single election in respect of each single appointed representative. | |||||
3 | COB rules amended by the Depolarisation Instrument 2004 | R | A firm must, in relation to any private customer to whom it has begun to provide services in respect of a packaged product before 14 January 2005 or, if applicable, the date of an election in COB TP 6.1, complete the provision of that service in accordance with COB as it applied before amendment by the Depolarisation Instrument 2004. | From 1 December 2004 | 1 December 2004 | |
4 | COB 4 Annex 2 and COB 5.5.5 E | R | A firm may continue to rely upon compliance with COB 4 Annex 2 and COB 5.5.5 E (including to the extent that a firm issues a financial promotion that complies with COB 4 Annex 2) provided: | From 1 December 2004 until 30 November 2005 | 1 December 2004 | |
(1) | the information given to a private customer is not contradicted by any information given to the customer by way of an initial disclosure document or a fees and commission statement and; | |||||
(2) | any financial promotion complies with COB 3.8.19 R as amended by the Depolarisation Instrument. | |||||
5 | COB 2.2.6 G | G | The FSA will not regard a firm as being in contravention of COB 2.2.3 Rif it gives or receives assistance in conducting the review of past business in pension transfers and opt outs provided the provision or receipt of such a benefit does not conflict with any duty the recipient owes to its customers. | From 1 December 2004 to 31 May 2006 | 1 December 2004 | |
6 | COB as amended by the Depolarisation Instrument 2004 | R | Notwithstanding COB TP 6.1 and COB TP 6.1, a firm which does not elect under COB TP 6.1 to comply with COB as amended by the Depolarisation Instrument 2004 must, from 14 January 2005, comply with: | 14 January 2005 until 31 May 2005 | 14 January 2005 | |
(1) | COB 1.2.1 R, COB 1.4.12 R and COB 4.3.19 R to COB 4.3.26 R, as amended by the Depolarisation Instrument 2004; | |||||
(2) | COB 4.3.19 R to COB 4.3.25 R as amended by the Depolarisation Instrument 2004 but as if they applied to a firm carrying out the activities in COB 4.3.19R (1)(a) with or on behalf of private customers; | |||||
(3) | COB 5.2.12 R to COB 5.2.14 R as amended by the Depolarisation Instrument 2004; and | |||||
(4) | COB 5.3.14 R (1) and COB 5.3.18A R to COB 5.3.18C R, as amended by the Depolarisation Instrument 2004; | |||||
unless the firm is an insurer, in which case it does not need to comply with the provisions specified in (2), (3) and (4). | ||||||
7 | G | The effect of COB TP 6.1 is that from 14 January 2005, if a firm has not elected to comply with the new COB provisions, the firm is in any event required to comply with the requirements of the IMD as set out in the provisions referred to in COB TP 6.1. As regards the information requirements of the IMD, firms have the choice (by virtue of COB 4.3.23 G) of providing the minimum information set out in COB 4.3.19 R or using an initial disclosure document. |
||||
8 | COB 4.3.11R (1) | R | Notwithstanding COB 4.3.11R (1), a firm may use the fees and commission statement that will appear in COB 4 Annex 6R when Annex F of the Personal Pension Schemes Instrument 2006/28 comes into force on 6 April 2007. | From 1 November 2006 to 5 April 2007 | 1 December 2004 |
- 01/11/2006
- Past version of COB TP6 before 01/11/2006
COB TP7
Transitional rules for carrying on with-profits business
(1) | (2) | (3) | (4) | (5) | (6) |
Material to which the transitional provision applies | Transitional provision | Transitional provision: dates in force | Handbook provision: coming into force | ||
1. | COB 6.10.24A G; COB 6.10.29; COB 6.10.37; COB 6.12.1 R to COB 6.12.15; and COB 6.12.45 R to COB 6.12.116 G | R | The provisions listed in column (2) do not apply to a firm if, and to the extent that, they are inconsistent with an arrangement that was formally approved by the FSA, a previous regulator or a court of competent jurisdiction, on or before 20 January 2005. | From 30 June 2005 | 30 June 2005 |
2. | COB 6.12.16 G to COB 6.12.44 G | G | The provisions listed in column (2) of this table do not apply to a firm if, and to the extent that, they are inconsistent with an arrangement that was formally approved by the FSA, a previous regulator or a court of competent jurisdiction, on or before 20 January 2005. | From 31 December 2005 | 31 December 2005 |
3. | Paragraphs 1 and 2 | G | COB 6.12 may be contrary to, or inconsistent with, some arrangements that were formally approved by the FSA, a previous regulator or a court of competent jurisdiction, on or before 20 January 2005. The effect of COB TP 7.1 is that COB 6.12 does not apply to such arrangements if, and to the extent that, it is inconsistent them. A firm should be mindful, however, that, even if some or all of COB 6.12 is disapplied, the firm is still subject to the rules in the rest of the Handbook, including Principle 6. | From 30 June 2005 | From 30 June 2005 |
- 01/04/2005
COB Sch 1
Record keeping requirements
- 01/12/2004
COB Sch 1.1
See Notes
The aim of the guidance in the following table is to give the reader a quick overall view of the relevant record keeping requirements. |
- 31/10/2004
COB Sch 1.2
See Notes
It is not a complete statement of those requirements and should not be relied on as if it were. |
- 31/10/2004
COB Sch 1.3
See Notes
Handbook reference | Subject of record | Contents of record | When record must be made | Retention period |
COB 2.2.20 R (2) | Disclosable commission | Each payment | Date of payment | 6 years |
COB 2.2.20 R (3) | Indirect benefits given to an independent intermediary | Each benefit | Date from which benefit was conferred | 6 years |
COB 3.7.1 R | Non-real time financial promotion - each: Pension transfer Pension opt-out FSAVC | Name of individual who confirmed compliance or approved the financial promotion. See COB 3.7.2 G (1) for other contents | Date of confirmation or approval | Indefinitely |
COB 3.7.1 R | Non-real time financial promotion - each: Life policy Pension contract Stakeholder pension scheme | Name of individual who confirmed compliance or approved the financial promotion. See COB 3.7.2 G (1) for other contents | Date of confirmation or approval | 6 years |
COB 3.7.1 R | Non-real time financial promotion - any other case | Name of individual who confirmed compliance or approved the financial promotion. See COB 3.7.2 G (1) for other contents | Date of confirmation or approval | 3 years |
COB 4.1.16 R | Classification of each client - if relevant to: Pension transfers Pension opt-outs FSAVCs | Sufficient information to support classification | When the client relationship begins or upon re-classification , to include annual review where necessary | Indefinitely |
COB 4.1.16 R | Classification of each client - if relevant to: Life policies Pension contracts | Sufficient information to support classification | When the client relationship begins or upon re-classification , to include annual review where necessary | 6 years (from end of client relationship) |
COB 4.1.16 R | Classification of each client - any other case | Sufficient information to support classification | When the client relationship begins or upon re-classification , to include annual review where necessary | 3 years (from end of client relationship) |
COB 4.2.14 R | Terms of business for: Pension transfer Pension opt-out FSAVC | Each term of business provided and any amendments | As soon as in force | Indefinitely |
COB 4.2.14 R | Terms of business for: Life policy Pension contract Stakeholder pension scheme | Each term of business provided and any amendments | As soon as in force | 6 years (from the date on which the customer ceases to be a customer) |
COB 4.2.14 R | Terms of business: any other case | Each term of business provided and any amendments | As soon as in force | 3 years (from the date on which the customer ceases to be a customer) |
COB 4.3.11 R | Fees and commission statement | Fees and commission statement | At the time a firm sets its fees and commission statements | 6 years from the date on which the record is superseded by a more up-to-date record |
[deleted] | [deleted] | [deleted] | [deleted] | [deleted] |
COB 5.1.6C R | The scope and range (or ranges) of advice each of the firm's appointed representatives is permitted to give | The scope of advice and range (or ranges) of packaged products in respect of which an appointed representative is permitted to advise. | At the time the appointed representative is appointed and on each change to the permitted scope and range (or ranges) of advice | 6 years from the date on which the record is superseded by a more up-to-date record |
COB 5.1.6E R | The scope of the advice on investments a firm provides and its range of packaged products | The scope of the advice on investments a firm provides and its range of packaged products | At the time the record changes | 6 years from the date on which the record is superseded by a more up-to-date record |
COB 5.1.6F R | Range of packaged products | Range of packaged products | When the range changes | 6 years from the date on which the record is superseded by a more up-to-date record |
COB 5.2.9 R | Private customer's details for a pension transfer, pension opt-out, FSAVC | Personal and financial circumstances | On giving advice | Indefinitely |
COB 5.2.9 R | Private customer's details for a life policy, pension contract or stakeholder pension scheme | Personal and financial circumstances | On giving advice | 6 years |
COB 5.2.9 R | Private customers details for any other case | Personal and financial circumstances | On giving advice | 3 years |
COB 5.2.10 R | Private customer: Opt out or transfer from an OPS on an execution only basis | Execution only transaction, no investment advice given | Upon execution | Indefinitely |
COB 5.3.19A R | Private customer: Suitability relating to a pension opt-out or transfer, or FSAVC | Suitability letter | After letter sent | Indefinitely |
COB 5.3.19A R | Private customer: Suitability relating to a life policy, pension contract, or stakeholder pension scheme |
Suitability letter | After letter sent | 6 years |
COB 5.3.19A R | Private customer:Suitability relating to any other case |
Suitability letter | After letter sent | 3 years |
COB 5.3.25 R | Private customer instructs a pension opt-out or transfer contrary to advice of firm | Firm's advice to customer and customer instructions to firm to proceed | Upon execution | Indefinitely |
[deleted] | [deleted] | [deleted] | [deleted] | [deleted] |
COB 5.3.27 R | Statistics of pension opt-out, pension transfer or FSAVC transactions involving private customers | Separate records per customer | On arranging the transaction | Indefinitely |
COB 5.3.28 R | Direct offer personal pension scheme | Record of justification for promotion | On making the promotion | 6 years |
COB 5A.3.4 R | The scope of basic advice which a firm's appointed representative is permitted to give (including the range of stakeholder products on which each appointed representative advises.) | The scope of basic advice each appointed representative is permitted to advise | At the time an appointed representative is permitted to provide basic advice. | 6 years from the date on which the record is superseded by a more up-to-date record |
COB 5A.3.6R (1) | A firm's scope and range of stakeholder products | A firm's scope and range of stakeholder products | When a firm commences providing basic advice | 6 years from the date on which the record is superseded by a more up-to-date record |
COB 5A.3.6R (4) | The range of stakeholder products on which a firm's basic advice to a private customer is based | The range of stakeholder products on which a firm's basic advice to a private customer is based | When a firm commences providing basic advice | 6 years from the date on which the advice is given |
COB 6.5.52 | Non-tradable life policy | Sufficient information to support classification that own policies are not tradable | Upon assessment of the firm's position and every 6 months thereafter | Indefinitely |
COB 6.6.19 | Projections relating to a life policy, pension contract or stakeholder pension scheme | A projection provided to a customer | As soon as proposal proceeds | 6 years |
COB 6.6.19 | Projections relating to a pension transfer or pension opt-out | A projection provided to a customer | As soon as proposal proceeds | Indefinitely |
COB 6.6.19 | Projections relating to any other case | A projection provided to a customer | As soon as proposal proceeds | 3 years |
COB 6.7.47 | Cancellation or withdrawal: Pension transfer, opt-out or FSAVC |
To include a copy of any receipt of notice issued to the customer and the customer's original notice instructions | Upon notice of cancellation or withdrawal being served to firm, its appointed representative or agent | Indefinitely |
COB 6.7.47 | Cancellation or withdrawal: Life policy, pension contract or stakeholder pension scheme |
To include a copy of any receipt of notice issued to the customer and the customer's original notice instructions | Upon notice of cancellation or withdrawal being served to firm, its appointed representative or agent | 6 years (from the date when the firm became aware that notice of cancellation had been served) |
COB 6.7.47 | Cancellation or withdrawal: Any other case |
To include a copy of any receipt of notice issued to the customer and the customer's original notice instructions | Upon notice of cancellation or withdrawal being served to firm, its appointed representative or agent | 3 years (from the date when the firm became aware that notice of cancellation had been served) |
COB 6.8.18 (1) | Firm effecting or carrying out pure protection contracts which are life policies |
Adequate details of information provided | After information provided | 6 years |
COB 7.7.6 E (4) | Allocation of aggregated transactions in a series of transactions all executed within one business day | The time each transaction is made | On executing an aggregated transaction | |
COB 7.7.14 R (1) | An aggregated transaction that includes a customer order | Identity of each customer; whether transaction is in whole or in part for discretionary managed investment portfolio and any relevant proportions | On executing an aggregated transaction | 3 years |
COB 7.7.14 R (2) | Firm aggregating a number of client orders that include a customer order | Intended basis of allocation | As soon as is practicable | 3 years |
COB 7.7.14 R (3) | Aggregation of one or more customer orders and an own account order | Intended basis of allocation | Before the transaction is executed | 3 years |
COB 7.7.16 R | Allocation of an aggregated transaction that includes the execution of a customer order | Date and time of allocation; relevant designated investment; identity of each customer and market counterparty and the amount allocated to each customer and market counterparty; agreement to extend allocation period for intermediate customers under COB 7.7.6 E (2)(b) | Date on which the order is allocated | 3 years |
COB 7.7.17 R | Re-allocation | Basis and reason for any re-allocation | At the time of the re-allocation | 3 years |
COB 7.9.7 R | Lending to private customers | Assessment of a private customer's financial standing and the date when the information was last updated/checked | Upon assessment | 3 years (from the date on which the credit arrangement ceased) |
COB 7.12.3 R and COB 7.12.6 E | Customer orders | Customer's name (or other designation)/account number; date and time of receipt or decision by the firm to deal; who received the order or made the decision to deal; the designated investment; the number of/total value of the designated investment including any price limit; whether sale or purchase; any other instructions received. | When the order arises | 3 years (after the date of completion of the transaction) |
COB 7.12.3 R and COB 7.12.6 E | Execution of a transaction by a firm | Name/other designation of client (if any); name of counterparty (if known); date and time of execution; who executed the transaction; the designated investment; number of/total value of the designated investment; price and other significant terms; whether sale or purchase | When the firm executes a transaction | 3 years (after the date of completion of the transaction) |
COB 7.12.3 R and COB 7.12.6 E | The firm instructs another person to deal | Name of the person instructed; terms of instruction and date and time of instruction | When the firm instructs another person to deal | 3 years (after the date of completion of the transaction) |
COB 7.13.11 R (1)(a) | Personal account dealing | The restrictions upon pa dealing and the basis upon which any permission to deal is made | Whenever the restrictions are placed and from the date of consent | 3 years (from the date that the restrictions or basis were communicated to the employee) |
COB 7.13.11 R (1)(b) | Personal account dealing | Each permission to deal given by the firm | From the date of consent | 3 years (from the date that the permission was given) |
COB 7.13.11 R (1)(c) | Personal account dealing | Each notification of the transaction made by the employee to the firm | From the date of notification | 3 years (from the date that the notification was made) |
COB 7.13.11 R (1)(d) | Personal account dealing | The basis upon which the firm has determined that an employee will not be involved in, or have access to information about, the firm's designated investment business | On determining the basis | 3 years (from the date on which the individual ceases to be an employee) |
COB 7.16.5 R (2)(b) | Policy for managing conflicts of interest arising as a result of publication or distribution of investment research | Details of the policy | When adopted | Until three years after the policy ceases to have effect |
COB 7.17.7 R (3) | Substantiation of a research recommendation | The basis of substantiation of a research recommendation | When producing the research recommendation | |
COB 7.18.16 R | Periodic disclosure of arrangements entered into | Details of the receipt of appropriate execution or research goods and services | Date of provision of disclosure | 5 years (from when the disclosure is provided) |
COB 8.1.14 R | Confirmation of transaction | Information provided | On dispatch of confirmation | 3 years |
COB 8.2.9 R | Periodic statements | Copy of any periodic statement | On date on which it is provided | 3 years |
COB 8A.5.1 R | Claim under a long-term care insurance contract | Details of the claim; a record of each communication with the policyholder, including the date it was made; the date the claim was settled or rejected. | As soon as practicable | The duration of the claim and 6 years after the insurer's obligations to the policyholder under the long-term care insurance contract have ceased |
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[deleted] | [deleted] | [deleted] | [deleted] | [deleted] |
COB 10.3.3 E (3) | Allocation of aggregated transactions in a series of transactions all executed within one business day | The time each transaction is made | On executing an aggregated transaction | |
COB 10.3.5 R (1) | Aggregated transaction on behalf of a number of schemes | Identity of schemes concerned, whether transaction was effected proportionally or if a stated proportion was effected for some schemes under its management | On executing an aggregated transaction | |
COB 10.3.5 R (2) | Aggregated customer orders on behalf of a number of schemes | The intended basis of allocation | As soon as is practicable | |
COB 10.3.5 R (3) | Aggregated orders of schemes under its management and own account orders | The intended basis of allocation | Before the transaction is executed | |
COB 10.7.6 R | Periodic statements in relation to unregulated collective investment scheme | Operator to retain copy of any periodic statement it has provided to participants in the scheme | On providing the periodic statement | 3 years |
COB 11.7.1 R | PTP appointment | Details of the written delegation to a PTP, PTP's undertaking under COB 11.6.1 R (3) and of any variation in the documentation | On the PTP's appointment | 3 years (from date of end of the PTP's appointment) |
COB 11.8.7 R | Trustee firm following (or rejecting) proper advice in relation to exercise of power of investment | Evidence of compliance with COB 11.8.5 R | Date on which proper advice is received | 3 years |
COB Sch 2
Notification requirements
- 01/12/2004
COB Sch 2.1
See Notes
Handbook reference | Matter to be notified | Contents of notification | Trigger event | Time allowed |
COB 5.3.26 R | pension opt-out and pension transfer transactions | in writing - number of pension opt-outs and pension transfer transactions the firm has arranged in previous 6 monthly period | 6-month intervals | as soon as reasonably practicable |
COB 5.3.26 R | execution only pension opt-out and pension transfer transactions | in writing - number of transactions arranged if they exceed 1% of all the firm's pension opt-outs or pension transfers arranged during that quarter | 3-month intervals | as soon as reasonably practicable |
COB 5.3.26 R | pension opt-out and pension transfer transactions | in writing - number of transactions arranged against the firm's advice if they exceed 1% of all the firm's pension opt-outs or pension transfers arranged during that quarter | 3-month intervals | as soon as reasonably practicable |
COB 5.3.26 R | pension opt-outs and pension transfer transactions | in writing - the number of any transactions arranged on a correspondence - only basis by the firm during that quarter | 3-month intervals | as soon as reasonably practicable |
COB 5.7.16 E, paragraph 9 | failure to follow actuarial advice | reasons for not following actuarial advice and alternative assumptions the firm plans to use | where a firm does not follow its actuary's advice | as soon as reasonably practicable |
COB 6.2.22 R (2) | notice of election | in writing - election that scheme will comply with those provisions of COB 6.2 that relate to the simplified prospectus - date from which election is to take effect | election | as soon as reasonably practicable |
COB 6.2.46(4) | simplified prospectus and subsequent amendments | in writing - required contents of simplified prospectus | commencement of sale of units | as soon as reasonably practicable |
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[deleted] | [deleted] | [deleted] | [deleted] | [deleted] |
[deleted] | [deleted] | [deleted] | [deleted] | [deleted] |
COB 6.12.94 R (1) | Fact that the firm has ceased to effect new contracts of insurance in a with-profits fund | Fact that the firm has ceased to effect new contracts of insurance in a with-profits fund | Firm first ceasing to effect new contracts of insurance in a with-profits fund | 28 days |
COB 6.12.94 R (2) | Details of how the firm will ensure a full and fair distribution of the closed with-profits fund and its inherited estate (if any) | The information described in SUP App 2.15 | Firm first ceasing to effect new contracts of insurance in a with-profits fund | A maximum of 3 months |
COB 11.6.6 R | delegation of regulated activity by a trustee firm to a PTP | the trustee firm must notify the FSA within 14 days of it first delegating any regulated activity to a PTP and the notification must include the identity of the PTP | upon first delegation of regulated activity | 14 days |
COB Sch 3
Fees and other required payments
- 01/12/2004
COB Sch 3.1
See Notes
There are no requirements for fees or other payments in COB. |
- 01/12/2004
COB Sch 4
Powers Exercised
- 01/12/2004
COB Sch 4.1
See Notes
The following powers and related provisions in or under the Act have been exercised by the FSA to make the rules in COB: | |
Section 118(8) (Market abuse) | |
Section 138 (General rule-making power) | |
Section 139 (4) (Miscellaneous ancillary matters) | |
Section 145 (Financial promotion rules) | |
Section 147 (Control of information rules) | |
Section 149 (Evidential provisions) | |
Section 156 (General supplementary powers) | |
Section 238(5) (Restrictions on promotion) | |
Section 247 (Trust scheme rules) | |
Regulation 6(1) of The Open-Ended Investment Companies Regulations 2001 | |
The following powers in the Act have been exercised by the FSA to give the guidance in COB: | |
Section 157(1) (Guidance) |
COB Sch 5
Rights of actions for damages
- 01/12/2004
COB Sch 5.1
See Notes
The table below sets out the rules in COB contravention of which by an authorised person may be actionable under section 150 of the Act (Actions for damages) by a person who suffers loss as a result of the contravention. |
- 19/01/2003
COB Sch 5.2
See Notes
If a "Yes" appears in the column headed "For private person?", the rule may be actionable by a "private person" under section 150 (or, in certain circumstances, his fiduciary or representative; see article 6(2) and (3)(c) of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 (SI 2001/2256)). A "Yes" in the column headed "Removed" indicates that the FSA has removed the right of action under section 150(2) of the Act. If so, a reference to the rule in which it is removed is also given. |
- 19/01/2003
COB Sch 5.3
See Notes
The column headed "For other person?" indicates whether the rule may be actionable by a person other than a private person (or his fiduciary or representative) under article 6(2) and (3) of those Regulations. If so, an indication of the type of person by whom the rule may be actionable is given. |
- 19/01/2003
COB Sch 5.4
See Notes
Right of action under section 150 | ||||||
Chapter/Appendix | Section/Annex | Paragraph | For private person? | Removed? | For other person? | |
All rules in COB with the status letter "E" | No | No | No | |||
Any rule in COB which prohibits an authorised person from seeking to make provision excluding or restricting any duty or liability | Yes | No | Yes | Any other person | ||
Any rule in COB which is directed at ensuring that transactions in designated investments are not effected with the benefit of unpublished information that, if made public, would be likely to affect the price of that designated investment | Yes | No | Yes | Any other person | ||
All other rules in COB | Yes | No | No |
COB Sch 6
Rules that can be waived
- 01/12/2004
COB Sch 6.1
See Notes
The rules in COB can be waived by the FSA under sections 148 or 250 of the Act (Modification or waiver of rules) or regulation 7 of the OEIC Regulations (Modification or waiver of FSA rules), except for the following rules: | |
(a) | the rules in COB 1 (Application and general provisions) to the extent that those rules apply or modify other rules in COB which may not be waived; |
(b) | the rules in COB 2.3 (Reliance on others) to the extent that those rules apply or modify other rules in which may not be waived; |
(c) | COB 2.4.4 R (1), COB 2.4.4 R (3) (to the extent that it relates to COB 2.4.4 R (1)) and COB 2.4.4 R (4); |
(d) | COB 3.11.2 R (Unregulated Collective Investment Schemes); |
(e) | [deleted]; |
(f) | [deleted]; |
(g) | the rules in COB 10 (Operators of collective investment schemes) to the extent that those rules apply or modify other rules in COB which may not be waived; |
(h) | the rules in COB 11 (Trustee and depositary activities) to the extent that those rules apply or modify other rules in COB which may not be waived; |
(i) | the rules in COB 12 (Lloyd's) to the extent that those rules apply or modify other rules in COB which may not be waived. |
- 01/09/2002